<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
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[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
American Technology Corporation
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box)
[X] No fee required.
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1. Title of each class of securities to which transaction applies:
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3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
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<PAGE> 2
AMERICAN TECHNOLOGY CORPORATION
13114 Evening Creek Drive South
San Diego, California 92128
(619) 679-2114
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 24, 1998
TO THE STOCKHOLDERS OF AMERICAN TECHNOLOGY CORPORATION:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
AMERICAN TECHNOLOGY CORPORATION, a Delaware corporation (the "Company"), will be
held on April 24, 1998 at 2:00 p.m. local time at the Welk Resort Center
Theater, 8860 Lawrence Welk Drive, Escondido, CA 92026 (760) 749-3000 for the
following purposes:
1. To elect directors to serve for the ensuing year and until their successors
are elected.
2. To approve the Company's 1997 Stock Option Plan.
3. To ratify the selection of BDO Seidman, LLP as independent auditors of the
Company for its fiscal year ending September 30, 1998.
4. To transact such other business as may properly come before the meeting or
any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on March 23, 1998,
as the record date for the determination of stockholders entitled to notice of
and to vote at this Annual Meeting and at any adjournment or postponement
thereof.
By Order of the Board of Directors
Robert Putnam
----------------------------------
Robert Putnam
Assistant Secretary
San Diego, California
March 24, 1998
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. EVEN IF YOU HAVE GIVEN YOUR PROXY, YOU MAY STILL
VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE NOTE, HOWEVER, THAT IF YOUR
SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER NOMINEE AND YOU WISH TO
VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD HOLDER A PROXY ISSUED IN
YOUR NAME.
<PAGE> 3
AMERICAN TECHNOLOGY CORPORATION
13114 Evening Creek Drive South
San Diego, California 92128
(619) 679-2114
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
To be held April 24, 1998
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors
of American Technology Corporation, a Delaware corporation (the "Company"), for
use at the Annual Meeting of Stockholders to be held on April 24, 1998, at 2:00
p.m. local time (the "Annual Meeting"), or at any adjournment or postponement
thereof, for the purposes set forth herein and in the accompanying Notice of
Annual Meeting. The Annual Meeting will be held at the Welk Resort Center
Theater, 8860 Lawrence Welk Drive, Escondido, CA 92026 (760) 749-3000. The
Company intends to mail this proxy statement and accompanying proxy card on or
about March 24, 1998, to all stockholders entitled to vote at the Annual
Meeting.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies,
including preparation, assembly, printing and mailing of this proxy statement,
the proxy and any additional information furnished to stockholders. Copies of
solicitation materials will be furnished to banks, brokerage houses, fiduciaries
and custodians holding in their names shares of Common Stock beneficially owned
by others to forward to such beneficial owners. The Company may reimburse
persons representing beneficial owners of Common Stock for their costs of
forwarding solicitation materials to such beneficial owners. Original
solicitation of proxies by mail may be supplemented by telephone, telegram or
personal solicitation by directors, officers or other regular employees of the
Company. No additional compensation will be paid to directors, officers or other
regular employees for such services.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Common Stock at the close of business on
March 23, 1998 will be entitled to notice of and to vote at the Annual Meeting.
At the close of business on March 23, 1998 the Company had outstanding and
entitled to vote 11,179,435 shares of Common Stock. There are no shares of
Preferred Stock outstanding.
Each holder of record of Common Stock on such date will be entitled
to one vote for each share held on all matters to be voted upon at the Annual
Meeting.
All votes will be tabulated by the inspector of election appointed
for the meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes are counted towards a
quorum, but are not counted for any purpose in determining whether a matter has
been approved.
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the
power to revoke it at any time before it is voted. It may be revoked by filing
with the Secretary of the Company at the Company's principal executive office,
13114 Evening Creek Drive South, San Diego, California 92128, a written notice
of revocation or a duly executed proxy bearing a later date, or it may be
revoked by attending the meeting and voting in person. Attendance at the meeting
will not, by itself, revoke a proxy.
SHAREHOLDER PROPOSALS
Proposals of stockholders that are intended to be presented at the
Company's 1999 Annual Meeting of Stockholders must be received by the Company
not later than November 24, 1998 to be included in the proxy statement and proxy
relating to that Annual Meeting.
2.
<PAGE> 4
PROPOSAL 1
ELECTION OF DIRECTORS
There are five nominees for the five Board positions presently
authorized in the Company's Bylaws. Each director to be elected will hold office
until the next annual meeting of stockholders and until his successor is elected
and has qualified, or until such director's earlier death, resignation or
removal. Each nominee listed below is currently a director of the Company, three
directors having been elected by the stockholders, and two directors, Dale
Williams and Cornelius J. Brosnan, having been elected by the Board.
Shares represented by executed proxies will be voted, if authority
to do so is not withheld, for the election of the five nominees named below. In
the event that any nominee should be unavailable for election as a result of an
unexpected occurrence, such shares will be voted for the election of such
substitute nominee as management may propose. Each person nominated for election
has agreed to serve if elected and management has no reason to believe that any
nominee will be unable to serve.
Directors are elected by a plurality of the votes present in person
or represented by proxy and entitled to vote.
3.
<PAGE> 5
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE.
NOMINEES
The names of the nominees and certain information about them are set forth
below:
<TABLE>
<CAPTION>
NAME AGE POSITION AND OFFICES
- - --------------------- ----- -------------------------------------------------------------------------
<S> <C> <C>
Dale Williams 58 Chairman of the Board of Directors, President and Chief Executive Officer
Elwood G. Norris 59 Director and Chief Technology Officer
Richard M. Wagner 52 Director and Secretary
Joel A. Barker 52 Director
Cornelius J. Brosnan 50 Director
</TABLE>
Dale Williams was appointed as Chairman of the Board of Directors,
President and Chief Executive Officer of the Company effective September 1,
1997. In June 1997, Mr. Williams was also engaged as a strategic planning and
business development consultant for the Company's HyperSonic Sound ("HSS")
technology. From March 1995 to September 1, 1997, Mr. Williams, through his
wholly-owned Spectrum Technology Inc., advised technology companies on business
acquisition and market development strategies. From January 1990 to March 1995
he was founder and Chief Executive Officer of Beacon Light Products Inc., a
private company manufacturing advanced electronic control products. Mr. Williams
has held executive positions with technology companies including Intel,
Monolithic Memories Inc. (Advanced Micro Devices) and Rockwell International.
Mr. Williams has an B.S. in Electronics Engineering from California State
University and an MBA from the University of Southern California.
Elwood G. Norris has been a Director of the Company since August 1980. He
served as President of the Company from August 1980 to February 1994. Mr. Norris
currently manages the Company's research and development activities as Chief
Technology Officer. At various times since 1988, Mr. Norris has been a Director,
Chairman of the Board of Directors, Chief Technology Officer and President, and
he is currently Chief Executive Officer of Norris Communications, Inc. ("NCI"),
a public company engaged in electronic product development, distribution and
sales. Since August 1989, Mr. Norris has served as Director and as Chairman of
the Board of Directors and, at various times, Chief Executive Officer of Patriot
Scientific Corporation ("Patriot"), a public company engaged in the development
of microprocessor technology, digital modem products and radar and antenna
engineering. Mr. Norris is an electronics engineer and an inventor with over 20
U.S. patents, primarily in the fields of electrical and acoustical engineering.
He is the inventor of the Company's ear radio, HSS, Engine Plasma Displacement
("EPD") technology and other technologies. Mr. Norris devotes only part-time
services to the Company, approximately 15-30 hours per week.
Richard M. Wagner has served as a Director of the Company since 1986 and
was appointed Secretary of the Company in February 1994. Since 1980, Mr. Wagner
has been a self-employed real estate broker and agent. In 1986 he founded and
has since operated The Mortgage Company and Scripps Escrow Co., which provide
full-service real estate services. Mr. Wagner received a Masters of Science
degree from San Diego State University in 1974.
Joel A. Barker was elected as a Director of the Company in March 1997.
Since 1978 Mr. Barker has been President of Infinity Limited, Inc., where he has
been engaged as a futurist in speaking, consulting, publishing and video
production. He also is the author of the two books, Future Edge and Paradigms:
The Business of Discovering the Future. Mr. Barker obtained a B.S. in English
Education from the University of Minnesota in 1966.
Cornelius J. Brosnan was appointed as a Director of the Company in October
1997. Since June 1997 he has been Vice President of Strategic Planning for
Sprint PCS. From May 1995 to June 1997 he was Vice President,
4.
<PAGE> 6
Product Planning Center for Samsung North America. From 1992 to May 1995 he held
various executive positions at AT&T, including serving as General Manager of
Cordless Telephones, New Business Development Director for Consumer Products,
Engineering Director for Interactive TV Services and most recently as Program
Director for Broadband Networks. Mr. Brosnan received a B.A. in Political
Science degree from Middlebury College in 1969.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended September 30, 1997, the Board of Directors
held 3 meetings. The Company does not have any standing committees of the Board
of Directors.
During the fiscal year ended September 30, 1997, each Board member attended
75% or more of the aggregate of the meetings of the Board held during the period
for which he was a director.
During the fiscal year ended September 30, 1997, the Board of Directors
took action on 15 occasions by means of actions by written consent in lieu of a
meeting after informal discussions, and the written consents to such actions
were unanimous.
PROPOSAL 2
APPROVAL OF 1997 STOCK OPTION PLAN
In March 1992, the Board of Directors adopted, and the stockholders
subsequently approved, the Company's 1992 Incentive Stock Option Plan and 1992
Non-Statutory Stock Option Plan (together, the "1992 Plans") and reserved an
aggregate of 2,000,000 shares of the Company's Common Stock for grant
thereunder. The Board adopted the 1992 Plans so that the Company could grant
stock options to employees, directors and consultants at levels determined
appropriate by the Board, and to allow the Company more flexibility in attaining
and retaining qualified employees (including officers), directors and
consultants of the Company and promoting the success of the Company's business.
As of March 23, 1998, options (net of exercised, canceled or expired options)
covering an aggregate of 715,000 shares of the Company's Common Stock had been
granted under the 1992 Plans and 70,333 shares remained available for future
grants under the 1992 Plans.
On January 23, 1998, the Board approved the adoption of the 1997 Stock
Option Plan (the "1997 Plan"), subject to stockholder approval, and reserved an
aggregate of 500,000 shares of the Company's Common Stock for issuance under the
1997 Plan to the Company's employees, directors and consultants. The Board
adopted the 1997 Plan to ensure that the Company can continue to grant stock
options to employees, directors and consultants at levels determined appropriate
by the Board and to allow the Company more flexibility in making such stock
option grants.
Stockholders are requested in this Proposal 2 to approve the 1997 Plan. The
affirmative vote of the holders of a majority of the shares present in person or
represented by proxy and entitled to vote at the meeting will be required to
approve the 1997 Plan. Abstentions will be counted toward the tabulation of
votes cast on proposals presented to the stockholders and will have the same
effect as negative votes. Broker non-votes are counted towards a quorum, but are
not counted for any purpose in determining whether this matter has been
approved.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 2.
5.
<PAGE> 7
The essential features of the 1997 Plan are outlined below:
GENERAL
The 1997 Plan provides for the grant of both incentive and nonstatutory
stock options. Incentive stock options granted under the 1997 Plan are intended
to qualify as "incentive stock options" within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"). Nonstatutory stock
options granted under the 1997 Plan are intended not to qualify as incentive
stock options under the Code. See "Federal Income Tax Information" for a
discussion of the tax treatment of incentive and nonstatutory stock options.
PURPOSE
The 1997 Plan was adopted to provide a means by which employees and
directors of and consultants to the Company and its affiliates could be given an
opportunity to purchase stock in the Company, to assist in retaining the
services of employees or directors of or consultants to the Company, to secure
and retain the services of new employees, directors and consultants and to
provide incentives for such persons to exert maximum efforts for the success of
the Company and its affiliates.
ADMINISTRATION
The 1997 Plan is administered by the Board of Directors of the Company. The
Board has the power to construe and interpret the 1997 Plan and, subject to the
provisions of the 1997 Plan, to determine the persons to whom and the dates on
which options will be granted, the number of shares to be subject to each
option, the time or times during the term of each option within which all or a
portion of such option may be exercised, the exercise price, the type of
consideration and other terms of the option. The Board of Directors is
authorized to delegate administration of the 1997 Plan to a committee or
committees of the Board.
ELIGIBILITY
Incentive stock options may be granted under the 1997 Plan only to
employees (including officers) of the Company and its affiliates. Employees
(including officers), directors and consultants are eligible to receive
nonstatutory stock options under the 1997 Plan. No person shall be eligible to
be granted options covering more than 250,000 shares of the Company's Common
Stock during any twelve month period. See "Adjustment Provisions" below.
No stock option may be granted under the 1997 Plan to any person who, at
the time of the grant, owns (or is deemed to own) stock possessing more than 10%
of the total combined voting power of the Company or any affiliate of the
Company, unless the option exercise price is at least 110% of the fair market
value of the stock subject to the option on the date of grant, and the term of
the option does not exceed five years from the date of grant. For incentive
stock options granted under the 1997 Plan, the aggregate fair market value,
determined at the time of grant, of the shares of Common Stock with respect to
which such options are exercisable for the first time by an optionee during any
calendar year (under all such plans of the Company and its affiliates) may not
exceed $100,000.
STOCK SUBJECT TO THE 1997 PLAN
Subject to stockholder approval of this Proposal 2, stock options granted
under the 1997 Plan may not exceed in the aggregate 500,000 shares of the
Company's Common Stock. If options granted under the 1997 Plan expire or
otherwise terminate without being exercised, the Common Stock not purchased
pursuant to such options again becomes available for issuance under the 1997
Plan.
TERMS OF OPTIONS
The following is a description of the permissible terms of options under
the 1997 Plan. Individual option grants may be more restrictive as to any or all
of the permissible terms described below.
6.
<PAGE> 8
Exercise Price; Payment. The exercise price of incentive stock options
under the 1997 Plan may not be less than the fair market value of the Common
Stock subject to the option on the date of the option grant, and in some cases
(see "Eligibility" above), may not be less than 110% of such fair market value.
The exercise price of nonstatutory options under the 1997 Plan may not be less
than 85% of the fair market value of the Common Stock subject to the option on
the date of the option grant. At March 20, 1998, the closing price of the
Company's Common Stock as reported on the National Association of Securities
Dealers OTC Bulletin Board System was $4.06 per share.
In the event of a decline in the value of the Company's Common Stock, the
Board has the authority to offer employees the opportunity to replace
outstanding higher priced options, whether incentive or nonstatutory, with new
lower priced options. To the extent required by Section 162(m) of the Internal
Revenue Code of 1986, as amended (the "Code"), an option repriced under the 1997
Plan is deemed to be canceled and a new option granted. Both the option deemed
to be canceled and the new option deemed to be granted will be counted against
the 250,000 share limitation referred to above.
The exercise price of options granted under the 1997 Plan may be paid
either: (a) in cash at the time the option is exercised; or (b) at the
discretion of the Board, (i) by delivery of other Common Stock of the Company or
(ii) in any other form of legal consideration acceptable to the Board.
Option Exercise. Options granted under the 1997 Plan may become exercisable
in periodic installments ("vest") as determined by the Board. Shares covered by
currently outstanding options under the 1997 Plan typically vest at the rate of
33% per year during the optionee's employment or services as a director or
consultant. Shares covered by options granted in the future under the 1997 Plan
may be subject to different vesting terms. The Board has the power to accelerate
the time during which an option may be exercised. In addition, options granted
under the 1997 Plan may permit exercise prior to vesting, but in such event the
optionee may be required to enter into an early exercise stock purchase
agreement that allows the Company to repurchase shares not yet vested at their
exercise price should the optionee leave the employ of the Company before
vesting. To the extent provided by the terms of an option, an optionee may
satisfy any federal, state or local tax withholding obligation relating to the
exercise of such option by a cash payment upon exercise, by authorizing the
Company to withhold a portion of the stock otherwise issuable to the optionee,
by delivering already-owned stock of the Company or by a combination of these
means.
Term. The maximum term of options under the 1997 Plan is 10 years, except
that in certain cases (see "Eligibility" above) the maximum term is five years.
Options under the 1997 Plan generally terminate three months after termination
of the optionee's employment or relationship as a consultant or director of the
Company or any affiliate of the Company, unless (a) such termination is due to
such person's disability, in which case the option may, but need not, provide
that it may be exercised at any time within one year of such termination; (b)
the optionee dies while employed by or serving as a consultant or director of
the Company or any affiliate of the Company, or within three months after
termination of such relationship, in which case the option may, but need not,
provide that it may be exercised (to the extent the option was exercisable at
the time of the optionee's death) within eighteen months of the optionee's death
by the person or persons to whom the rights to such option pass by will or by
the laws of descent and distribution; or (c) the option by its terms
specifically provides otherwise. Individual options by their terms may provide
for exercise within a longer period of time following termination of employment
or the consulting or director relationship. The option term may also be extended
in the event that exercise of the option within these periods is prohibited for
specified reasons.
ADJUSTMENT PROVISIONS
If there is any change in the stock subject to the 1997 Plan or subject to
any option granted under the 1997 Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or otherwise), the 1997 Plan and options
outstanding thereunder will be appropriately adjusted as to the class and the
maximum number of shares subject to such plan, the maximum number of shares
which may be granted to an employee during any twelve (12) month period, and the
class, number of shares and price per share of stock subject to such outstanding
options.
7.
<PAGE> 9
EFFECT OF CERTAIN CORPORATE EVENTS
The 1997 Plan provides that, in the event of a dissolution or liquidation
of the Company, specified type of merger or other corporate reorganization, to
the extent permitted by law, any surviving corporation shall be required to
either assume options outstanding under the 1997 Plan or substitute similar
options for those outstanding under the 1997 Plan, or such outstanding options
shall continue in full force and effect. In the event that any surviving
corporation declines to assume or continue options outstanding under the 1997
Plan, or to substitute similar options, then, with respect to those optionees
who are currently rendering services to the Company, the time during which such
options may be exercised will be accelerated and the options terminated if not
exercised during such time. The acceleration of an option in the event of an
acquisition or similar corporate event may be viewed as an anti-takeover
provision, which may have the effect of discouraging a proposal to acquire or
otherwise obtain control of the Company.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the 1997 Plan without stockholder
approval or ratification at any time or from time to time. Unless sooner
terminated, the 1997 Plan will terminate on January 22, 2008.
The Board may also amend the 1997 Plan at any time or from time to time.
However, no amendment will be effective unless approved by the stockholders of
the Company within twelve months before or after its adoption by the Board if
the amendment would: (a) modify the requirements as to eligibility for
participation (to the extent such modification requires stockholder approval in
order for the Plan to satisfy Section 422 of the Code, if applicable, or Rule
16b-3 ("Rule 16b-3") of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")); (b) increase the number of shares reserved for issuance upon
exercise of options; or (c) change any other provision of the Plan in any other
way if such modification requires stockholder approval in order to comply with
Rule 16b-3 or satisfy the requirements of Section 422 of the Code. The Board may
submit any other amendment to the 1997 Plan for stockholder approval, including,
but not limited to, amendments intended to satisfy the requirements of Section
162(m) of the Code regarding the exclusion of performance-based compensation
from the limitation on the deductibility of compensation paid to certain
employees.
RESTRICTIONS ON TRANSFER
Under the 1997 Plan, an incentive stock option may not be transferred by
the optionee otherwise than by will or by the laws of descent and distribution
and during the lifetime of the optionee, may be exercised only by the optionee.
A nonstatutory stock option may be transferred upon such terms and conditions as
are set forth in the option agreement for such nonstatutory stock option. In
addition, shares subject to repurchase by the Company under an early exercise
stock purchase agreement may be subject to restrictions on transfer which the
Board deems appropriate.
FEDERAL INCOME TAX INFORMATION
Incentive Stock Options. Incentive stock options under the 1997 Plan
are intended to be eligible for the favorable federal income tax treatment
Iaccorded "incentive stock options" under the Code.
There generally are no federal income tax consequences to the optionee or
the Company by reason of the grant or exercise of an incentive stock option.
However, the exercise of an incentive stock option may result in the imposition
of or an increase in alternative minimum tax liability to the optionee.
If an optionee holds stock acquired through exercise of an incentive stock
option for at least two years from the date on which the option is granted and
at least one year from the date on which the shares are transferred to the
optionee upon exercise of the option, any gain or loss on a disposition of such
stock will be capital gain or loss. Generally, if the optionee disposes of the
stock before the expiration of either of these holding periods (a "disqualifying
disposition"), at the time of disposition, the optionee will realize taxable
ordinary income equal to the lesser of (a) the excess of the stock's fair market
value on the date of exercise over the exercise price, or (b) the optionee's
actual gain, if any, on the purchase and sale. The optionee's additional gain,
or any loss, upon the
8.
<PAGE> 10
disqualifying disposition will be a capital gain or loss, which will be
long-term, mid-term or short-term depending on how long the stock was held.
Capital gains currently are generally subject to lower tax rates than ordinary
income. Slightly different rules may apply to optionees who acquire stock
subject to certain repurchase options or who are subject to Section 16(b) of the
Exchange Act.
To the extent the optionee recognizes ordinary income by reason of a
disqualifying disposition, the Company will generally be entitled (subject to
the requirement of reasonableness, the provisions of Section 162(m) of the Code
and the satisfaction of a tax reporting obligation) to a corresponding business
expense deduction in the tax year in which the disqualifying disposition occurs.
Nonstatutory Stock Options. Nonstatutory stock options granted under the
1997 Plan generally have the following federal income tax consequences:
There are no tax consequences to the optionee or the Company by reason of
the grant of a nonstatutory stock option. Upon exercise of a nonstatutory stock
option, the optionee normally will recognize taxable ordinary income equal to
the excess of the stock's fair market value on the date of exercise over the
option exercise price. Generally, with respect to employees, the Company is
required to withhold from regular wages or supplemental wage payments an amount
based on the ordinary income recognized. Subject to the requirement of
reasonableness, the provisions of Section 162(m) of the Code and the
satisfaction of a reporting obligation, the Company will generally be entitled
to a business expense deduction equal to the taxable ordinary income realized by
the optionee. Upon disposition of the stock, the optionee will recognize a
capital gain or loss equal to the difference between the selling price and the
sum of the amount paid for such stock plus any amount recognized as ordinary
income upon exercise of the option. Such gain or loss will be long-term,
mid-term or short-term depending on how long the stock was held. Slightly
different rules may apply to optionees who acquire stock subject to certain
repurchase options or who are subject to Section 16(b) of the Exchange Act.
Potential Limitation on Company Deductions. Code Section 162(m) denies a
deduction to any publicly held corporation for compensation paid to certain
employees in a taxable year to the extent that compensation exceeds $1 million
for a covered employee. It is possible that compensation attributable to awards
under the 1997 Plan, when combined with all other types of compensation received
by a covered employee from the Company, may cause this limitation to be exceeded
in any particular year.
Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation. In
accordance with Treasury regulations issued under Section 162(m) of the Code,
compensation attributable to stock options will qualify as performance-based
compensation, provided that: (i) the stock award plan contains a per-employee
limitation on the number of shares for which stock options may be granted during
a specified period; (ii) the per-employee limitation is approved by the
stockholders; (iii) the award is granted by a compensation committee comprised
solely of "outside directors;" and (iv) the exercise price of the award is no
less than the fair market value of the stock on the date of grant.
9.
<PAGE> 11
The following table presents certain information with respect to options
granted under the 1997 Plan subject to the approval of the 1997 Plan by the
stockholders, to (i) the each of the executive officers named in the Summary
Compensation Table, (ii) all executive officers as a group, (iii) all
non-executive officer directors as a group, and (iv) all non-executive officer
employees as a group.
NEW PLAN BENEFITS
<TABLE>
<CAPTION>
1997 STOCK OPTION PLAN
NUMBER OF SHARES SUBJECT
NAME AND POSITION DOLLAR VALUE(1) TO OPTIONS GRANTED
- - ----------------- --------------- ------------------
<S> <C> <C>
Dale Williams 0 0
Chairman of the Board, President and Chief Executive Officer
Robert Putnam 0 0
Vice President, Treasurer and Assistant Secretary
All Executive Officers 0 0
as a Group
All Non-Executive Officer 0 0
Directors a Group
All Non-Executive Officer Employees as a Group $476,562 130,000
</TABLE>
- - ----------
(1) Exercise price multiplied by the number of shares underlying the option(s).
These shares are subject to vesting.
PROPOSAL 3
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected BDO Seidman, LLP as the Company's
independent auditors for the fiscal year ending September 30, 1998 and has
further directed that management submit the selection of independent auditors
for ratification by the stockholders at the Annual Meeting. BDO Seidman, LLP has
audited the Company's financial statements since 1995. A representative of BDO
Seidman, LLP is not expected to be present at the Annual Meeting.
Stockholder ratification of the selection of BDO Seidman, LLP is not
required by the Company's Bylaws or otherwise. However, the Board is submitting
the selection of BDO Seidman, LLP to the stockholders for ratification as a
matter of good corporate practice. If the stockholders fail to ratify the
selection, the Board will consider whether or not to retain that firm. Even if
the selection is ratified, the Board in its discretion may direct the
appointment of different independent auditors at any time during the year if it
determines that such a change would be in the best interest of the Company and
its stockholders.
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and entitled to vote at the Annual Meeting will
be required to ratify the selection of BDO Seidman, LLP.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 3.
10.
<PAGE> 12
ADDITIONAL INFORMATION
MANAGEMENT
Set forth below is information regarding executive officers and key employees of
the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- - -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Executive Officers
Dale Williams 58 Chairman of the Board of Directors, President and
Chief Executive Officer
Elwood G. Norris 59 Director and Chief Technology Officer
Key Employees
Robert Putnam 39 Vice President, Treasurer and Assistant Secretary
James Croft 44 Vice President, Engineering
</TABLE>
* Biographical information about Dale Williams and Elwood Norris are set forth
under Proposal I above.
Robert Putnam served as a director of the Company from 1984 until September
1997. He also served as Secretary/Treasurer until February 1994, then as
President and CEO through August 1997, and currently serves as Vice President,
Treasurer and Assistant Secretary. Since 1988 he has served as Secretary of NCI
and from 1995 as a Director of NCI. Since 1989 he has also served as Secretary
/Treasurer and Director of Patriot. He received a B.A. degree in Mass
Communications/Advertising from Brigham Young University in 1983. Mr. Putnam
devotes approximately 20 to 25 hours per week to the Company.
James Croft. joined the Company in October 1997 as Vice President of Engineering
for HSS technology. From October 1992 to October 1997 he was an executive with
Carver Corp., a publicly traded high-end audio supplier. He was appointed Vice
President of Marketing and Product Development for Carver Corp. in March 1993
and Vice President Research and Development in February 1995. From 1990 through
October 1992, Mr. Croft was employed by Dahlquist, Inc., a loudspeaker
manufacturer, the latest position being its Vice President of Research and
Development. Mr. Croft is a Vice President of Definitive Audio, Inc., a Seattle
audio specialty retailer which he co-founded in 1975 and managed until 1985.
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of the Company's Common Stock, as of February 28, 1998 by: (i) each nominee for
director; (ii) each of the executive officers named in the Summary Compensation
Table; (iii) all executive officers and directors of the Company as a group; and
(iv) all those known by the Company to be beneficial owners of more than five
percent of its Common Stock.
11.
<PAGE> 13
<TABLE>
<CAPTION>
PERCENTAGE OF
CLASS
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER OF SHARES(1) OWNED
- - ------------------------------------------------------------------------------------
<S> <C> <C>
Elwood G. Norris (2) 3,224,438 28.2%
13114 Evening Creek Drive South
San Diego, California 92128
Robert Putnam (3) 620,000 5.5%
13114 Evening Creek Drive South
San Diego, California 92128
Dale Williams (4) 393,500 3.4%
13114 Evening Creek Drive South
San Diego, California 92128
Richard M. Wagner 44,600 *
13114 Evening Creek Drive South
San Diego, California 92128
Joel A. Barker (5) 19,000 *
13114 Evening Creek Drive South
San Diego, California 92128
Cornelius J. Bronson -- *
13114 Evening Creek Drive South
San Diego, California 92128
All directors and Executive Officers as a
Group (6 persons) (6) 4,301,538 35.8%
</TABLE>
- - ----------
* Less than 1%.
(1) This table is based upon information supplied by officers, directors and
principal stockholders and Schedules 13D and 13G filed with the Securities
and Exchange Commission (the "SEC"). Unless otherwise indicated in the
footnotes to this table and subject to community property laws where
applicable, the Company believes that each of the stockholders named in
this table has sole voting and investment power with respect to the shares
indicated as beneficially owned. Applicable percentages are based upon
11,049,435 shares outstanding on February 28, 1998, adjusted as required by
the rules promulgated by the SEC.
(2) Includes 280,000 shares of Common Stock issuable upon the exercise of
outstanding stock options and 100,000 shares of Common Stock issuable upon
the exercise of outstanding stock purchase warrants within 60 days of
February 28, 1998.
(3) Includes 200,000 shares of Common Stock issuable upon the exercise of
outstanding stock options within 60 days of February 28, 1998.
(4) Includes 386,000 shares of Common Stock issuable upon the exercise of
outstanding stock options within 60 days of February 28, 1998.
(5) Includes 10,000 shares of Common Stock issuable upon the exercise of
outstanding stock options within 60 days of February 28, 1998.
(6) Includes 876,000 shares of Common Stock issuable upon the exercise of
outstanding stock options and 100,000 shares of Common Stock issuable upon
the exercise of outstanding stock purchase warrants within 60 days of
February 28, 1998.
12.
<PAGE> 14
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's officers,
directors and persons who own more than 10% of a class of the Company's
securities registered under Section 12(g) of the Exchange Act to file reports of
ownership and changes in ownership with the SEC. Officers, directors and greater
than 10% stockholders are required by SEC regulation to furnish the Company with
copies of all Section 16(a) forms they file.
Based solely on a review of copies of such reports furnished to the
Company and written representations that no other reports were required during
the fiscal year ended September 30, 1997, the Company believes that all persons
subject to the reporting requirements pursuant to Section 16(a) filed the
required reports on a timely basis with the SEC.
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
No direct or indirect remuneration has been paid or is payable by
the Company to the directors in their capacity as directors. It is anticipated
that during the next twelve months that the Company will not pay any direct or
indirect remuneration to any directors of the Company in their capacity as
directors other than in the form of reimbursement of expenses of attending
directors' or committee meetings. However, directors have received in the past,
and may receive in the future, stock options. When Joel A. Barker joined the
Board on March 24, 1997, he received 10,000 non statutory stock options, which
were granted under the 1992 Non-Statutory Stock Option Plan, at an exercise
price equal to the fair market value on the date of the grant, such value being
determined by the Board to be $4.16 per share. The options are fully vested,
have a term of two years and expire on March 24, 1999
13.
<PAGE> 15
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY OF COMPENSATION
The following table shows for the fiscal years ended September 30, 1995,
1996 and 1997, compensation awarded or paid to, or earned by, the two
individuals who acted as the Company's chief executive officer (each a "Named
Executive Officer") for the fiscal year September 30, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------------ ------------
OTHER ANNUAL SECURITIES
NAME AND PRINCIPAL FISCAL COMPENSATION UNDERLYING
POSITION YEAR SALARY ($) BONUS ($) ($) OPTIONS (#)
- - ------------------ ------ ---------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Dale Williams, Chairman, 1997 $13,846 $43,750(3) $55,600(4) 862,000(6)
President and CEO (1)
Robert Putnam, 1997 $77,192 -- $ 8,522(5) --
Vice President, Treasurer 1996 $73,109 -- -- 200,000
and Asst. Secretary (2) 1995 $45,462 -- -- --
</TABLE>
- - ----------
(1) Appointed Chairman, President and CEO on September 1, 1997. Served as a
consultant from June 1997 through August 1997.
(2) Served as President and CEO October 1, 1996 through September 1, 1997.
(3) Represents consulting bonus paid by the issuance of 7,500 shares of Common
Stock.
(4) Represents consulting fees paid from June 1997 through August 1997.
(5) Represents automobile lease paid by the Company.
(6) Options on a total of 612,000 common shares subject to vesting.
14.
<PAGE> 16
STOCK OPTION GRANTS AND EXERCISES
The Company grants options to its executive officers under its 1992
Plans and 1997 Plan (collectively, the "Plans"). As of March 23, 1998, subject
to approval of the 1997 Plan by the stockholders, options to purchase a total of
845,500 shares were outstanding under the Plans and options to purchase 440,333
shares remained available for grant thereunder. In addition, the Company has
granted a total of 912,000 special options to one executive officer and one
director.
The following table sets forth each grant of stock options made during the
fiscal year ended September 30, 1997, to the Named Executive Officers:
OPTION GRANTS FOR FISCAL YEAR ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
PERCENT OF TOTAL
OPTIONS GRANTED
NUMBER OF OPTIONS TO EMPLOYEES IN EXPIRATION
NAME GRANTED FISCAL YEAR (2) EXERCISE PRICE DATE
- - ------------------ ----------------- ------------------ -------------- ----------
<S> <C> <C> <C> <C>
Dale Williams 862,000 (1) 82% $5.81 8/31/02
</TABLE>
(1) Options on a total of 250,000 shares of Common Stock were vested and
exercisable at issuance, the balance vesting monthly over 36 months at the
rate of 17,000 shares per month, subject to partial acceleration for
certain events including the Company entering into a major license
agreement.
(2) Based on options to purchase 1,054,000 shares granted in fiscal 1997,
including to the Named Executive Officers.
15.
<PAGE> 17
The following table sets forth certain information regarding options
exercised by, and held at year end by, the Named Executive Officers:
AGGREGATED OPTION/EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED OPTIONS VALUE OF UNEXERCISED IN-THE-
SHARES VALUE HELD AT MONEY OPTIONS AT
ACQUIRED ON REALIZED SEPTEMBER 30, 1997 SEPTEMBER 30, 1997 (2)
NAME EXERCISE (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- - ---- ------------ ------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Dale Williams -- -- 250,000 612,000 -- --
Robert Putnam 150,000 (3) $676,875 200,000 -- $988,000 --
</TABLE>
- - ----------
(1) Represents the fair market value underlying shares on the date of exercise
less the exercise price. For purposes of this table, "fair market value" is
determined based on the average of the highest and lowest selling prices on
the applicable date as reported on the National Association of Securities
Dealers OTC Bulletin Board System.
(2) Represents the fair market value per share of the underlying shares on the
last day of the fiscal year of ($5.44), less the exercise or base price.
(3) In connection with the exercise of these options, the Company made an
interest-bearing demand loan of $82,500 to Mr. Putnam. Mr. Putnam exercised
the option by cash payment to the Company of $82,500.
EMPLOYMENT AGREEMENTS
Mr. Putnam had no employment contract while he was President and CEO of the
Company. Effective September 1, 1997, the Company entered into a three year
employment contract with Mr. Williams, Chairman, President and CEO of the
Company. The agreement provides for a base salary of $20,000 per month, subject
to future review. The agreement provides for a minimum performance bonus of 50%
of base compensation in the first year, payable early if a significant license
agreement is attained. Future bonuses are at the discretion of the Board of
Directors. The Company may terminate Mr. Williams' employment with or without
cause (as defined in the agreement), but termination without cause (other than
disability or death) results in a severance payment equal to twelve months of
the then monthly base salary and any bonus on an as if perfected basis payable
in one lump sum. Likewise upon a change in control, as defined in the agreement,
Mr. Williams may elect to terminate his employment and obtain a payment equal to
the remaining months of the agreement multiplied by the base salary and any
bonus on an as if perfected basis payable in one lump sum. Mr. Williams has
agreed not to disclose trade secrets during employment and for three years
thereafter and has agreed to assign inventions to the Company (as defined in the
agreement) during employment to the Company. In connection with the employment
agreement, the Company granted Mr. Williams options to purchase up to 862,000
common shares at $5.81 per share, with 250,000 shares vesting on the date of the
grant and the balance vesting over three years with certain amounts subject to
acceleration for certain events.
BOARD OF DIRECTOR INTERLOCKS AND INSIDER PARTICIPATION
Certain conflicts of interest now exist and will continue to exist between
the Company and certain of its officers and directors due to the fact that they
have other employment or business interests to which they devote some attention
and they are expected to continue to do so. The Company has not established
policies or procedures for the resolution of current or potential conflicts of
interest between the Company and its management or management-affiliated
entities. There can be no assurance that members of management will resolve all
conflicts of interest in the Company's favor. The officers and directors are
accountable to the Company as fiduciaries, which
16.
<PAGE> 18
means that they are legally obligated to exercise good faith and integrity in
handling the Company's affairs. Failure by them to conduct the Company's
business in its best interest may result in liability to them.
It is conceivable that the respective areas of interest to the Company,
Patriot and NCI could overlap or conflict. The Company believes that although
each of the three corporations are involved in the electronics industry, the
respective areas of focus, products and technology directions of the three
companies are sufficiently distinct that no conflict in business lines or
executive loyalties will result. Because of this unlikelihood, no steps have
been taken to resolve possible conflicts, and any such conflicts, should they
arise, will be addressed at the appropriate time.
Mr. Norris and Mr. Putnam are officers and directors of multiple public
companies as outlined above and Mr. Putnam is subordinate to Mr. Norris in these
relationships. The Company has not provided a method of resolving any potential
conflicts arising from these relationships and probably will not do so, partly
due to inevitable extra expense and delay any such measures would occasion. Mr.
Norris and Mr. Putnam are obligated to perform their duties in good faith and to
act in the best interest of the Company and its shareholders, any failure on
their part to do so may constitute a breach of their fiduciary duties and expose
them to damages and other liability under applicable law. While the directors
and officers are excluded from liability for certain actions, there is no
assurance that Mr. Norris or Mr. Putnam would be excluded from liability or
indemnified if they breached their loyalty to the Company. See "Certain
Transactions" below.
CERTAIN TRANSACTIONS
The Company is obligated to pay to Elwood G. Norris, a director, a 1%
royalty on all sales of radio equipment based on the gross amount received by
the Company less returns and allowances pursuant to a September 3, 1985 royalty
agreement. Pursuant to an Addendum Agreement dated December 2, 1996, the Company
is also obligated to pay Mr. Norris a 2% royalty on gross revenues received by
the Company from the Global Positioning System ("GPS") and HSS technologies.
Elwood Norris, a director of the Company, is also Chairman, CEO and Chief
Technology Officer of NCI. He is the beneficial owner of 709,838 shares of NCI
(representing approximately 1% of its issued and outstanding shares at October
31, 1997) and Robert Putnam (the Vice President, Treasurer and Assistant
Secretary of the Company) is Secretary of NCI and the beneficial owner of 40,000
shares of NCI (representing less than 1% of its issued and outstanding shares).
Pursuant to an agreement dated March 23, 1988 between the Company and NCI,
the Company sold NCI all of the issued and outstanding shares in its
wholly-owned subsidiary Norcom Communications Corporation (now the JABRA
Corporation ("JABRA")) in consideration of the Company's receipt of 700,000
common shares of NCI, subject to escrow and earn-out provisions which were
subsequently fulfilled. At the time of the sale of JABRA to NCI, JABRA had a
book value of $400. The Company still owns 225,300 of these common shares of NCI
as of the date of this proxy statement.
In 1993 NCI entered into agreements selling a portion of its ownership in
JABRA to an investment group which has resulted in Mr. Norris no longer owning a
majority interest in JABRA nor controlling its affairs. Although the Company was
a signatory to certain sections of these agreements relating to the
ear-microphone ("EarPHONE") technology and royalties, the Company was not a
beneficiary or material party to these transactions by NCI.
The Company and Mr. Norris are each entitled to 1% royalties on certain
gross invoice amounts received by JABRA on devices using the EarPHONE
technology. The Company received its royalty right under agreements dated
January 25, 1988 and March 22, 1988 by which the Company transferred all right,
title and interest in and to the EarPHONE technology to JABRA. By letter
agreement dated January 14, 1993 it was clarified that the Company's 1% royalty
would be due only on gross sales of JABRA products incorporating a wireless
receiver sold until the expiration of the last patent relating to the EarPHONE
technology. JABRA has not introduced a wireless product and therefore there can
be no assurance of future royalties. On November 7, 1997, the Company sold and
canceled its 1% royalty interest to JABRA for $15,000.
17.
<PAGE> 19
On June 4, 1996, the Company paid $50,788 to Elwood G. Norris reducing the
principal balance of a 1991 note due and payable on October 1, 1996 to $100,000.
In connection with the placement of $220,000 of convertible notes to other
unrelated investors, the balance of the note to Mr. Norris was converted into a
new note on terms comparable to the unrelated investors. Accordingly the Company
executed a new unsecured 8% Convertible Subordinated Promissory Note due May 31,
1999 payable to Mr. Norris for $100,000. Pursuant to the conversion terms of the
note, Mr. Norris converted the principal amount of the note into 100,000 shares
of the Company's Common Stock at the conversion price of $1.00 per share on
September 27, 1996. On the same terms as the other investors, Mr. Norris was
also granted warrants to purchase up to 100,000 shares of the Company's Common
Stock until May 31, 1998 at an exercise price of $1.00 per share.
During the fiscal year ended September 30, 1997, the Company paid $15,000
to NCI for rent of its operating facility. The Company also paid NCI for
contract manufacturing services on ear radio production totaling $48,000 during
fiscal 1997. The Company believes these services were performed on terms
comparable to those from independent parties.
On July 11, 1997, the Company entered into a three year lease. To meet the
credit requirements of the landlord, both the Company and NCI entered into a
joint lease agreement for approximately 12,925 square feet with aggregate
monthly payments of $13,830 inclusive of utilities and costs. The Company is
occupying approximately 7,500 square feet of the jointly leased office space
with its share of monthly payments being approximately $8,000. Accordingly the
Company could become obligated for the entire lease should NCI default on its
share of payments thereon.
In January 1997 the Company made unsecured cash demand loans with interest
at 7% per annum to two officers aggregating $173,250 (Mr. Putnam as to $82,500
and Mr. Norris as to $90,750). The proceeds of the loans were used by the
officers to exercise Company Stock options. Each officer made a $10,000
principal payment plus interest during the year. Although the notes are payable
on demand, the Board of Directors has advised the officers that they shall have
until September 30, 1998 to repay the notes.
OTHER MATTERS
The Board of Directors knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters are properly brought
before the meeting, it is the intention of the persons named in the accompanying
proxy to vote on such matters in accordance with their best judgment.
By Order of the Board of Directors
Robert Putnam
----------------------------------
Robert Putnam
Assistant Secretary
March 24, 1998
18.
<PAGE> 20
AMERICAN TECHNOLOGY CORPORATION
1997 STOCK OPTION PLAN
ADOPTED JANUARY 23, 1998
1. PURPOSES.
(a) The purpose of the Plan is to provide a means by which selected
Employees and Directors of, and Consultants to, the Company, and its Affiliates,
may be given an opportunity to purchase stock of the Company.
(b) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees or Directors of or Consultants to the Company or
its Affiliates, to secure and retain the services of new Employees, Directors
and Consultants, and to provide incentives for such persons to exert maximum
efforts for the success of the Company and its Affiliates.
(c) The Company intends that the Options issued under the Plan shall, in
the discretion of the Board or any Committee to which responsibility for
administration of the Plan has been delegated pursuant to subsection 3(c), be
either Incentive Stock Options or Nonstatutory Stock Options. All Options shall
be separately designated Incentive Stock Options or Nonstatutory Stock Options
at the time of grant, and in such form as issued pursuant to Section 6, and a
separate certificate or certificates will be issued for shares purchased on
exercise of each type of Option.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f) respectively, of the Code.
1.
<PAGE> 21
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board in
accordance with subsection 3(c) of the Plan.
(e) "COMPANY" means American Technology Corporation, a Delaware
corporation.
(f) "CONSULTANT" means any person, including an advisor, engaged by
the Company or an Affiliate to render consulting services and who is compensated
for such services, provided that the term "Consultant" shall not include
Directors who are paid only a director's fee by the Company or who are not
compensated by the Company for their services as Directors.
(g) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT "means
that the service of an individual to the Company, whether as an Employee,
Director or Consultant, is not interrupted or terminated. The Board or the chief
executive officer of the Company may determine, in that party's sole discretion,
whether Continuous Status as an Employee, Director or Consultant shall be
considered interrupted in the case of: (i) any leave of absence approved by the
Board or the chief executive officer of the Company, including sick leave,
military leave, or any other personal leave; or (ii) transfers between the
Company, Affiliates or their successors.
(h) "COVERED EMPLOYEE" means the chief executive officer and the
four (4) other highest compensated officers of the Company for whom total
compensation is required to be reported to stockholders under the Exchange Act,
as determined for purposes of Section 162(m) of the Code.
(i) "DIRECTOR" means a member of the Board.
2.
<PAGE> 22
(j) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
(k) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(l) "FAIR MARKET VALUE" means, as of any date, the value of the
common stock of the Company determined as follows and in each case in a manner
consistent with Section 260.140.50 of Title 10 of the California Code of
Regulations.
(1) If the common stock is listed on any established stock
exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap Market,
the Fair Market Value of a share of common stock shall be the closing sales
price for such stock (or the closing bid, if no sales were reported) as quoted
on such exchange or market (or the exchange or market with the greatest volume
of trading in the Company's common stock) on the last market trading day prior
to the day of determination, as reported in The Wall Street Journal or such
other source as the Board deems reliable.
(2) If the common stock is quoted on the Nasdaq Stock Market
(but not on the National Market thereof) or is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a share of common stock shall be the mean between the bid and asked prices for
the common stock on the last market trading day prior to the day of
determination, as reported in the Wall Street Journal or such other source as
the Board deems reliable.
(3) In the absence of such markets for the common stock, the
Fair Market Value shall be determined in good faith by the Board.
3.
<PAGE> 23
(m) "INCENTIVE STOCK OPTION" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(n) "LISTING DATE" means the first date upon which any security of
the Company is listed (or approved for listing) upon notice of issuance on any
securities exchange, or designated (or approved for designation) upon notice of
issuance as a national market security on an interdealer quotation system if
such securities exchange or interdealer quotation system has been certified in
accordance with the provisions of Section 25100(o) of the California Corporate
Securities Law of 1968.
(o) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or subsidiary, does not
receive compensation (directly or indirectly) from the Company or its parent or
subsidiary for services rendered as a consultant or in any capacity other than
as a Director (except for an amount as to which disclosure would not be required
under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act
("Regulation S-K")), does not possess an interest in any other transaction as to
which disclosure would be required under Item 404(a) of Regulation S-K, and is
not engaged in a business relationship as to which disclosure would be required
under Item 404(b) of Regulation S-K; or (ii) is otherwise considered a
"non-employee director" for purposes of Rule 16b-3.
(p) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.
(q) "OFFICER" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
4.
<PAGE> 24
(r) "OPTION" means a stock option granted pursuant to the Plan.
(s) "OPTION AGREEMENT" means a written agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.
(t) "OPTIONEE" means a person to whom an Option is granted pursuant
to the Plan or, if applicable, such other person who holds an outstanding
Option.
(u) "OUTSIDE DIRECTOR" means a Director who either (i) is not a
current employee of the Company or an "affiliated corporation" (within the
meaning of the Treasury regulations promulgated under Section 162(m) of the
Code), is not a former employee of the Company or an "affiliated corporation"
receiving compensation for prior services (other than benefits under a tax
qualified pension plan), was not an officer of the Company or an "affiliated
corporation" at any time, and is not currently receiving direct or indirect
remuneration from the Company or an "affiliated corporation" for services in any
capacity other than as a Director, or (ii) is otherwise considered an "outside
director" for purposes of Section 162(m) of the Code.
(v) "PLAN" means this American Technology Corporation 1997 Stock
Option Plan.
(w) "RULE 16B-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect with respect to the Company at the time
discretion is being exercised regarding the Plan.
(x) "SECURITIES ACT" means the Securities Act of 1933, as amended.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until the
Board delegates administration to a Committee, as provided in subsection 3(c).
5.
<PAGE> 25
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(1) To determine from time to time which of the persons
eligible under the Plan shall be granted Options; when and how each Option shall
be granted; whether an Option will be an Incentive Stock Option or a
Nonstatutory Stock Option; the provisions of each Option granted (which need not
be identical), including the time or times such Option may be exercised in whole
or in part; and the number of shares for which an Option shall be granted to
each such person.
(2) To construe and interpret the Plan and Options
granted under it, and to establish, amend and revoke rules and regulations for
its administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Option Agreement, in a
manner and to the extent it shall deem necessary or expedient to make the Plan
fully effective.
(3) To amend the Plan or an Option as provided in
Section 11.
(c) The Board may delegate administration of the Plan to a committee
of the Board composed of not fewer than two (2) members (the "Committee"), all
of the members of which Committee may be, in the discretion of the Board,
Non-Employee Directors and/or Outside Directors. If administration is delegated
to a Committee, the Committee shall have, in connection with the administration
of the Plan, the powers theretofore possessed by the Board, including the power
to delegate to a subcommittee of two (2) or more Outside Directors any of the
administrative powers the Committee is authorized to exercise (and references in
this Plan to the Board shall thereafter be to the Committee or such a
subcommittee), subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to
6.
<PAGE> 26
time by the Board. The Board may abolish the Committee at any time and revest in
the Board the administration of the Plan. Additionally, prior to the Listing
Date, and notwithstanding anything to the contrary contained herein, the Board
may delegate administration of the Plan to any person or persons, and the term
"Committee" shall apply to any person or persons to whom such authority has been
delegated. Notwithstanding anything in this Section 3 to the contrary, the Board
or the Committee may delegate to a committee of one or more members of the Board
the authority to grant Options to eligible persons who (1) are not then subject
to Section 16 of the Exchange Act and/or (2) are either (i) not then Covered
Employees and are not expected to be Covered Employees at the time of
recognition of income resulting from such Option, or (ii) not persons with
respect to whom the Company wishes to comply with Section 162(m) of the Code.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 10 relating to adjustments
upon changes in stock, the stock that may be sold pursuant to Options shall not
exceed in the aggregate five hundred thousand (500,000) shares of the Company's
common stock. If any Option shall for any reason expire or otherwise terminate,
in whole or in part, without having been exercised in full, the stock not
purchased under such Option shall revert to and again become available for
issuance under the Plan.
(b) The stock subject to the Plan may be unissued shares or
reacquired shares, bought on the market or otherwise.
5. ELIGIBILITY.
(a) Incentive Stock Options may be granted only to Employees.
Nonstatutory Stock Options may be granted only to Employees, Directors or
Consultants.
7.
<PAGE> 27
(b) No person shall be eligible for the grant of an Option if, at
the time of grant, such person owns (or is deemed to own pursuant to Section
424(d) of the Code) stock possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or of any of its
Affiliates unless the exercise price of such Option is at least one hundred ten
percent (110%) of the Fair Market Value of such stock at the date of grant and
the Option is not exercisable after the expiration of five (5) years from the
date of grant.
(c) Subject to the provisions of Section 10 relating to adjustments
upon changes in stock, no person shall be eligible to be granted Options
covering more than two hundred fifty thousand (250,000) shares of the Company's
common stock in any twelve (12) month period. This subsection 5(c) shall not
apply prior to the Listing Date and, following the Listing Date, shall not apply
until (i) the earliest of: (A) the first material modification of the Plan
(including any increase to the number of shares reserved for issuance under the
Plan in accordance with Section 4); (B) the issuance of all of the shares of
common stock reserved for issuance under the Plan; (C) the expiration of the
Plan; or (D) the first meeting of stockholders at which directors are to be
elected that occurs after the close of the third calendar year following the
calendar year in which occurred the first registration of an equity security
under Section 12 of the Exchange Act; or (ii) such other date required by
Section 162(m) of the Code and the rules and regulations promulgated thereunder.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:
8.
<PAGE> 28
(a) TERM. No Option shall be exercisable after the expiration of ten
(10) years from the date it was granted.
(b) PRICE. The exercise price of each Incentive Stock Option shall
be not less than one hundred percent (100%) of the Fair Market Value of the
stock subject to the Option on the date the Option is granted; the exercise
price of each Nonstatutory Stock Option shall be not less than eighty-five
percent (85%) of the Fair Market Value of the stock subject to the Option on the
date the Option is granted. Notwithstanding the foregoing, an Option (whether an
Incentive Stock Option or a Nonstatutory Stock Option) may be granted with an
exercise price lower than that set forth in the preceding sentence if such
Option is granted pursuant to an assumption or substitution for another option
in a manner satisfying the provisions of Section 424(a) of the Code.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to
an Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, or (ii) at
the discretion of the Board or the Committee, at the time of the grant of the
Option, (A) by delivery to the Company of other common stock of the Company, or
(B) in any other form of legal consideration that may be acceptable to the
Board. In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement.
(d) TRANSFERABILITY. An Option shall not be transferable except by
will or by the laws of descent and distribution, and shall be exercisable during
the lifetime of the person to whom the Option is granted only by such person.
The person to whom the Option is granted
9.
<PAGE> 29
may, by delivering written notice to the Company, in a form satisfactory to the
Company, designate a third party who, in the event of the death of the Optionee,
shall thereafter be entitled to exercise the Option.
(e) VESTING. The total number of shares of stock subject to an
Option may, but need not, be allotted in periodic installments (which may, but
need not, be equal). The Option Agreement may provide that from time to time
during each of such installment periods, the Option may become exercisable
("vest") with respect to some or all of the shares allotted to that period, and
may be exercised with respect to some or all of the shares allotted to such
period and/or any prior period as to which the Option became vested but was not
fully exercised. The Option may be subject to such other terms and conditions on
the time or times when it may be exercised (which may be based on performance or
other criteria) as the Board may deem appropriate. The vesting provisions of
individual Options may vary but in each case will provide for vesting of at
least twenty percent (20%) per year of the total number of shares subject to the
Option; provided, however, that an Option granted to an officer, director or
consultant (within the meaning of Section 260.140.41 of Title 10 of the
California Code of Regulations) may become fully exercisable, subject to
reasonable conditions such as continued employment, at any time or during any
period established by the Company or of any of its Affiliates. The provisions of
this subsection 6(e) are subject to any Option provisions governing the minimum
number of shares as to which an Option may be exercised.
(f) SECURITIES LAW COMPLIANCE. The Company may require any Optionee,
or any person to whom an Option is transferred under subsection 6(d), as a
condition of exercising any such Option, (1) to give written assurances
satisfactory to the Company as to the Optionee's knowledge and experience in
financial and business matters and/or to employ a purchaser
10.
<PAGE> 30
representative reasonably satisfactory to the Company who is knowledgeable and
experienced in financial and business matters, and that he or she is capable of
evaluating, alone or together with the purchaser representative, the merits and
risks of exercising the Option; and (2) to give written assurances satisfactory
to the Company stating that such person is acquiring the stock subject to the
Option for such person's own account and not with any present intention of
selling or otherwise distributing the stock. The foregoing requirements, and any
assurances given pursuant to such requirements, shall be inoperative if (i) the
issuance of the shares upon the exercise of the Option has been registered under
a then currently effective registration statement under the Securities Act, or
(ii) as to any particular requirement, a determination is made by counsel for
the Company that such requirement need not be met in the circumstances under the
then applicable securities laws. The Company may require the Optionee to provide
such other representations, written assurances or information which the Company
shall determine is necessary, desirable or appropriate to comply with applicable
securities and other laws as a condition of granting an Option to such Optionee
or permitting the Optionee to exercise such Option. The Company may, upon advice
of counsel to the Company, place legends on stock certificates issued under the
Plan as such counsel deems necessary or appropriate in order to comply with
applicable securities laws, including, but not limited to, legends restricting
the transfer of the stock.
(g) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR
CONSULTANT. In the event an Optionee's Continuous Status as an Employee,
Director or Consultant terminates (other than upon the Optionee's death or
disability), the Optionee may exercise his or her Option (to the extent that the
Optionee was entitled to exercise it as of the date of termination) but only
within such period of time ending on the earlier of (i) the date three (3)
months following the termination of the Optionee's Continuous Status as an
Employee, Director or Consultant, or such
11.
<PAGE> 31
longer or shorter period, (which shall not be less than thirty (30) days, unless
such termination is for cause) specified in the Option Agreement, or (ii) the
expiration of the term of the Option as set forth in the Option Agreement. If,
at the date of termination, the Optionee is not entitled to exercise his or her
entire Option, the shares covered by the unexercisable portion of the Option
shall revert to and again become available for issuance under the Plan. If,
after termination, the Optionee does not exercise his or her Option within the
time specified in the Option Agreement, the Option shall terminate, and the
shares covered by such Option shall revert to and again become available for
issuance under the Plan.
(h) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous
Status as an Employee, Director or Consultant terminates as a result of the
Optionee's disability, the Optionee may exercise his or her Option (to the
extent that the Optionee was entitled to exercise it as of the date of
termination), but only within such period of time ending on the earlier of (i)
the date twelve (12) months following such termination (or such longer or
shorter period, which in no event shall be less than six (6) months, specified
in the Option Agreement), or (ii) the expiration of the term of the Option as
set forth in the Option Agreement. If, at the date of termination, the Optionee
is not entitled to exercise his or her entire Option, the shares covered by the
unexercisable portion of the Option shall revert to and again become available
for issuance under the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the shares covered by such Option shall revert to and again
become available for issuance under the Plan.
(i) DEATH OF OPTIONEE. In the event of the death of an Optionee
during, or within a period specified in the Option Agreement after the
termination of, the Optionee's Continuous Status as an Employee, Director or
Consultant, the Option may be exercised (to the extent the
12.
<PAGE> 32
Optionee was entitled to exercise the Option as of the date of death) by the
Optionee's estate, by a person who acquired the right to exercise the Option by
bequest or inheritance or by a person designated to exercise the option upon the
Optionee's death pursuant to subsection 6(d), but only within the period ending
on the earlier of (i) the date eighteen (18) months following the date of death
(or such longer or shorter period, which in no event shall be less than six (6)
months, specified in the Option Agreement), or (ii) the expiration of the term
of such Option as set forth in the Option Agreement. If, at the time of death,
the Optionee was not entitled to exercise his or her entire Option, the shares
covered by the unexercisable portion of the Option shall revert to and again
become available for issuance under the Plan. If, after death, the Option is not
exercised within the time specified herein, the Option shall terminate, and the
shares covered by such Option shall revert to and again become available for
issuance under the Plan.
(j) EARLY EXERCISE. The Option may, but need not, include a
provision whereby the Optionee may elect at any time while an Employee, Director
or Consultant to exercise the Option as to any part or all of the shares subject
to the Option prior to the full vesting of the Option. Any unvested shares so
purchased shall be subject to a repurchase right in favor of the Company, with
the repurchase price to be equal to the original purchase price of the stock, or
to any other restriction the Board determines to be appropriate; provided,
however, that (i) the right to repurchase at the original purchase price shall
lapse at a minimum rate of twenty percent (20%) per year over five (5) years
from the date the Option was granted, and (ii) such right shall be exercisable
only within (A) the ninety (90) day period following the termination of
employment or the relationship as a Director or Consultant, or (B) such longer
period as may be agreed to by the Company and the Optionee (for example, for
purposes of satisfying the requirements of Section 1202(c)(3) of the Code
(regarding "qualified small business stock")), and (iii) such right
13.
<PAGE> 33
shall be exercisable only for cash or cancellation of purchase money
indebtedness for the shares. Notwithstanding the foregoing, shares received on
exercise of an Option by an officer, director or consultant (within the meaning
of Section 260.140.41 of Title 10 of the California Code of Regulations) may be
subject to additional or greater restrictions.
(k) WITHHOLDING. To the extent provided by the terms of an Option
Agreement, the Optionee may satisfy any federal, state or local tax withholding
obligation relating to the exercise of such Option by any of the following means
or by a combination of such means: (1) tendering a cash payment; (2) authorizing
the Company to withhold shares from the shares of the common stock otherwise
issuable to the Optionee as a result of the exercise of the Option; or (3)
delivering to the Company owned and unencumbered shares of the common stock of
the Company.
7. COVENANTS OF THE COMPANY.
(a) During the terms of the Options, the Company shall keep
available at all times the number of shares of stock required to satisfy such
Options.
(b) The Company shall seek to obtain from each regulatory commission
or agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the Options; provided, however,
that this undertaking shall not require the Company to register under the
Securities Act either the Plan, any Option or any stock issued or issuable
pursuant to any such Option. If, after reasonable efforts, the Company is unable
to obtain from any such regulatory commission or agency the authority which
counsel for the Company deems necessary for the lawful issuance and sale of
stock under the Plan, the Company
14.
<PAGE> 34
shall be relieved from any liability for failure to issue and sell stock upon
exercise of such Options unless and until such authority is obtained.
8. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Options shall constitute
general funds of the Company.
9. MISCELLANEOUS.
(a) Neither an Optionee nor any person to whom an Option is
transferred under subsection 6(d) shall be deemed to be the holder of, or to
have any of the rights of a holder with respect to, any shares subject to such
Option unless and until such person has satisfied all requirements for exercise
of the Option pursuant to its terms.
(b) Throughout the term of any Option, the Company shall deliver to
the holder of such Option, not later than one hundred twenty (120) days after
the close of each of the Company's fiscal years during the Option term, a
balance sheet and an income statement. This section shall not apply (i) after
the Listing Date, or (ii) when issuance is limited to key employees whose duties
in connection with the Company assure them access to equivalent information.
(c) Nothing in the Plan or any instrument executed or Option granted
pursuant thereto shall confer upon any Employee, Director, Consultant or
Optionee any right to continue in the employ of the Company or any Affiliate (or
to continue acting as a Director or Consultant) or shall affect the right of the
Company or any Affiliate to terminate the employment of any Employee, with or
without cause, to remove any Director as provided in the Company's Bylaws and
the provisions of the General Corporation Law of the State of Delaware, or to
terminate the
15.
<PAGE> 35
relationship of any Consultant subject to the terms of that Consultant's
agreement with the Company or Affiliate to which such Consultant is providing
services.
(D) To the extent that the aggregate Fair Market Value (determined
at the time of grant) of stock with respect to which Incentive Stock Options are
exercisable for the first time by any Optionee during any calendar year under
all plans of the Company and its Affiliates exceeds one hundred thousand dollars
($100,000), the Options or portions thereof which exceed such limit (according
to the order in which they were granted) shall be treated as Nonstatutory Stock
Options.
(E) (1) The Board or the Committee shall have the authority to
effect, at any time and from time to time (i) the repricing of any outstanding
Options under the Plan and/or (ii) with the consent of the affected holders of
Options, the cancellation of any outstanding Options and the grant in
substitution therefor of new Options under the Plan covering the same or
different numbers of shares of common stock, but having an exercise price per
share not less than eighty-five percent (85%) percent of the Fair Market Value
(one hundred percent (100%) of the Fair Market Value in the case of an Incentive
Stock Option or, in the case of a ten percent (10%) stockholder (as defined in
subsection 5(b)), not less than one hundred and ten percent (110%) of the Fair
Market Value) per share of common stock on the new grant date.
(2) Shares subject to an Option canceled under this subsection
9(e) shall continue to be counted, for the applicable period in which it was
granted, against the maximum award of Options permitted to be granted pursuant
to subsection 5(c) of the Plan. The repricing of an Option under this subsection
9(e), resulting in a reduction of the exercise price, shall be deemed to be a
cancellation of the original Option and the grant of a substitute Option; in the
event of such repricing, both the original and the substituted Options shall be
counted for the
16.
<PAGE> 36
applicable period against the maximum awards of Options permitted to be granted
pursuant to subsection 5(c) of the Plan. The provisions of this subsection
9(e)(2) shall be applicable only to the extent required by Section 162(m) of the
Code.
10. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or
subject to any Option (through merger, consolidation, reorganization,
recapitalization, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or other transaction not involving the receipt of
consideration by the Company), the Plan will be appropriately adjusted in the
type(s) and maximum number of securities subject to the Plan pursuant to
subsection 4(a) and the maximum number of securities subject to award to any
person during any twelve (12) month period pursuant to subsection 5(c), and the
outstanding Options will be appropriately adjusted in the type(s) and number of
securities and price per share of stock subject to such outstanding Options.
Such adjustments shall be made by the Board or Committee, the determination of
which shall be final, binding and conclusive. (The conversion of any convertible
securities of the Company shall not be treated as a "transaction not involving
the receipt of consideration by the Company.")
(b) In the event of: (1) a dissolution, liquidation, or sale of all
or substantially all of the assets of the Company; (2) a merger or consolidation
in which the Company is not the surviving corporation; or (3) a reverse merger
in which the Company is the surviving corporation but the shares of the
Company's common stock outstanding immediately preceding the merger are
converted by virtue of the merger into other property, whether in the form of
securities, cash or otherwise; or (4) the acquisition by any person, entity or
group within the meaning of
17.
<PAGE> 37
Section 13(d)(3) or 14(d)(2) of the Exchange Act, or any comparable successor
provisions (excluding any employee benefit plan, or related trust, sponsored or
maintained by the Company or any Affiliate of the Company) of the beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act,
or comparable successor rule) of securities of the Company representing at least
fifty percent (50%) of the combined voting power entitled to vote in the
election of directors, then: (i) any surviving or acquiring corporation shall
assume any Options outstanding under the Plan or shall substitute similar
options (including an option to acquire the same consideration paid to the
stockholders in the transaction described in this Section 10(b)) for those
outstanding under the Plan, or (ii) in the event any surviving or acquiring
corporation refuses to assume such Options or to substitute similar options for
those outstanding under the Plan, (A) with respect to Options held by persons
then performing services as Employees, Directors or Consultants, the vesting of
such Options and the time during which such Options may be exercised shall be
accelerated prior to such event and the Options terminated if not exercised
after such acceleration and at or prior to such event, and (B) with respect to
any other Options outstanding under the Plan, such Options shall be terminated
if not exercised prior to such event.
11. AMENDMENT OF THE PLAN AND OPTIONS.
(a) The Board at any time, and from time to time, may amend the
Plan. However, except as provided in Section 10 relating to adjustments upon
changes in stock, no amendment shall be effective unless approved by the
stockholders of the Company within twelve (12) months before or after the
adoption of the amendment, where the amendment will:
(1) Increase the number of shares reserved for Options under the
Plan;
18.
<PAGE> 38
(2) Modify the requirements as to eligibility for participation
in the Plan (to the extent such modification requires stockholder approval in
order for the Plan to satisfy the requirements of Section 422 of the Code); or
(3) Modify the Plan in any other way if such modification
requires stockholder approval in order for the Plan to satisfy the requirements
of Section 422 of the Code or to comply with the requirements of Rule 16b-3.
(b) The Board may in its sole discretion submit any other amendment
to the Plan for stockholder approval, including, but not limited to, amendments
to the Plan intended to satisfy the requirements of Section 162(m) of the Code
and the regulations promulgated thereunder regarding the exclusion of
performance-based compensation from the limit on corporate deductibility of
compensation paid to certain executive officers.
(c) It is expressly contemplated that the Board may amend the Plan
in any respect the Board deems necessary or advisable to provide Optionees with
the maximum benefits provided or to be provided under the provisions of the Code
and the regulations promulgated thereunder relating to Incentive Stock Options
and/or to bring the Plan and/or Incentive Stock Options granted under it into
compliance therewith.
(d) Rights and obligations under any Option granted before amendment
of the Plan shall not be impaired by any amendment of the Plan unless (i) the
Company requests the consent of the person to whom the Option was granted and
(ii) such person consents in writing.
(e) The Board at any time, and from time to time, may amend the
terms of any one or more Options; provided, however, that the rights and
obligations under any Option shall not be impaired by any such amendment unless
(i) the Company requests the consent of the person to whom the Option was
granted and (ii) such person consents in writing.
19.
<PAGE> 39
12. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on January 22, 2008, which shall be
within ten (10) years from the date the Plan is adopted by the Board or approved
by the stockholders of the Company, whichever is earlier.
No Options may be granted under the Plan while the Plan is suspended or after it
is terminated.
(b) Rights and obligations under any Option granted while the Plan
is in effect shall not be impaired by suspension or termination of the Plan,
except with the written consent of the person to whom the Option was granted.
13. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no
Options granted under the Plan shall be exercised unless and until the Plan has
been approved by the stockholders of the Company, which approval shall be within
twelve (12) months before or after the date the Plan is adopted by the Board,
and, if required, an appropriate permit has been issued by the Commissioner of
Corporations of the State of California.
20.
<PAGE> 40
PROXY
AMERICAN TECHNOLOGY CORPORATION
THIS PROXY RELATES TO AN ANNUAL MEETING OF THE STOCKHOLDERS TO
BE HELD APRIL 24, 1998
The undersigned hereby appoints RICHARD M. WAGNER and ROBERT PUTNAM
or either of them, with full power of substitution, as attorneys and proxies to
vote all shares of Common Stock of American Technology Corporation which the
undersigned is entitled to vote at the Annual Meeting of Stockholders of
AMERICAN TECHNOLOGY CORPORATION (the "Company") to be held at 2:00 p.m. (local
time) at the Welk Resort Center Theater, 8860 Lawrence Welk Drive, Escondido, CA
92026 on April 24, 1998, and any postponements, continuations and adjournments
thereof, with all powers which the undersigned would possess if personally
present, upon and in respect of the following matters and in accordance with the
following instructions, with discretionary authority as to any and all other
matters that may properly come before the meeting.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED
FOR ALL NOMINEES LISTED IN PROPOSAL 1 AND FOR PROPOSALS 2 AND 3, AS MORE
SPECIFICALLY DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE
INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEES FOR DIRECTOR LISTED BELOW
PROPOSAL 1: To elect directors to serve for the ensuing year and until their
successors are elected.
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY
(except as marked to the contrary to vote for all nominees
below). listed below.
NOMINEES: Dale Williams, Elwood G. Norris, Richard M. Wagner, Joel A. Barker,
Cornelius J. Brosnan
TO WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEE(S) WRITE SUCH NOMINEE(S)' NAME(S)
BELOW:
- - --------------------------------------------------------------------------------
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSALS 2 AND 3
PROPOSAL 2: To approve the Company's 1997 Stock Option Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
PROPOSAL 3: To ratify the selection of BDO Seidman, LLP as independent auditors
of the Company for the fiscal year ended September 30, 1998.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
1.
<PAGE> 41
(Continued and to be signed on the other side)
(Continued from other side)
THIS PROXY HAS BEEN SOLICITED BY OR FOR THE BENEFIT OF THE BOARD OF
DIRECTORS OF THE COMPANY. I UNDERSTAND THAT I MAY REVOKE THIS PROXY ONLY BY
WRITTEN INSTRUCTIONS TO THAT EFFECT, SIGNED AND DATED BY ME, WHICH MUST BE
ACTUALLY RECEIVED BY THE COMPANY PRIOR TO COMMENCEMENT OF THE ANNUAL MEETING.
DATED:_________________ , 1998 Signature(s)____________________________
Print Name______________________________
(Please date and sign exactly as name or names appear on your stock
certificate(s). When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such. If a corporation, please sign in full
the corporate name by President or other authorized officer. If a partnership,
please sign in the partnership name by authorized person. IF THE STOCK IS HELD
JOINTLY, BOTH OWNERS MUST SIGN.
Mail or Deliver this Proxy to:
AMERICAN TECHNOLOGY CORPORATION
13114 Evening Creek Drive South
San Diego, California 92128
(619) 679-2114
2.
