<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] 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.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
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 MARCH 5, 1999
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 March 5, 1999 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 an amendment to the Company's 1997 Employee Stock
Compensation Plan to increase the aggregate number of shares of Common
Stock authorized for issuance under the plan by 50,000 shares and to
extend the termination date of the plan to March 9, 2002.
3. To ratify the selection of BDO Seidman, LLP as independent auditors of
the Company for its fiscal year ending September 30, 1999.
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 February 17,
1999, 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
/s/ Robert Putnam
-----------------------------------
Robert Putnam
Assistant Secretary
San Diego, California
February 19, 1999
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 March 5, 1999
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 March 5, 1999, 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 February 19, 1999 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
February 17, 1999 (the "Record Date") will be entitled to notice of and to vote
at the Annual Meeting. At the close of business on February 17, 1999 the Company
had outstanding and entitled to vote 11,398,568 shares of Common Stock and
250,000 shares of its Series B Preferred Stock.
Except as provided below, on all matters to be voted upon at the Annual
Meeting, each holder of record of Common Stock on the Record Date will be
entitled to one vote for each share held, and each holder of record of Series B
Preferred Stock on the Record Date will be entitled to one vote for each share
of Common Stock issuable upon conversion of such Series B Preferred Stock as of
the Record Date. With respect to the election of directors, stockholders may
exercise cumulative voting rights, i.e., each stockholder entitled to vote for
the election of Directors may cast a total number of votes equal to the number
of Directors to be elected multiplied by the number of such stockholders shares
(on as-converted basis) and may cast such total of votes for one or more
candidates in such proportions as such stockholder chooses. However, no
stockholder will be entitled to cumulate votes unless the candidate's name has
been placed in nomination prior to the voting and at least one stockholder has
given notice at the meeting, prior to the voting, of his or her intention to
cumulate votes. Unless the proxyholders are otherwise instructed, stockholders,
by means of the accompanying proxy, will grant the proxyholders discretionary
authority to cumulate votes.
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.
1.
<PAGE> 4
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.
STOCKHOLDER PROPOSALS
The deadline for submitting a stockholder proposal for inclusion in the
Company's proxy statement and form of proxy for the Company's 2000 annual
meeting of stockholders pursuant to Rule 14a-8 of the Securities and Exchange
Commission is October 22, 1999. Unless a stockholder who wishes to bring a
matter before the stockholders at the Company's 2000 annual meeting of
stockholders notifies the Company of such matter prior to January 5, 2000,
management will have discretionary authority to vote all shares for which it has
proxies in opposition to such matter.
PROPOSAL 1
ELECTION OF DIRECTORS
There are five nominees for the five Board positions presently
authorized in the Company's By-laws. 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,
O'Connell J. Benjamin and David J. Carter, 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, subject
to the discretionary power to cumulate votes. 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.
The five candidates receiving the highest number of affirmative votes
cast at the meeting will be elected directors of the Company.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE.
2.
<PAGE> 5
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>
Cornelius J. Brosnan 51 Chairman of the Board of Directors, President and
Chief Executive Officer
Elwood G. Norris 60 Director and Chief Technology Officer
Richard M. Wagner 53 Director and Secretary
David J. Carter 50 Director
O'Connell J. Benjamin 48 Director
</TABLE>
Cornelius J. Brosnan has been a Director of the Company since October
1997 and was appointed Chairman of the Board of Directors, President and Chief
Executive Officer of the Company in July 1998. From June 1997 to August 1998, he
was Vice President of Strategic Planning for Sprint PCS. From May 1995 to June
1997 he was Vice President, Product Planning Center for Samsung North America.
From 1987 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.
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 Chief Executive Officer of e.Digital Corporation ("EDIG"), 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 25-35 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.
David J. Carter was appointed as a Director of the Company in September
1998. Mr. Carter is currently Vice President, Licensing of Copyright Clearance
Center, Inc., a company engaged in providing licensing systems for the
reproduction and distribution of copyrighted materials. From 1983 to April 1998,
he was employed by AT&T, most recently as General Manager and Product
Development Vice President. He previously served in other positions at AT&T
including Business Development Vice President and Consumer Products Marketing
Vice President. Prior to his employment with AT&T, he served as a Marketing
Research Consultant and Managing Consultant - Marketing and Business Strategy
for General Electric Company. His career has included technical positions at
Temple Barker & Sloane, Inc., Decision Research Corp. and Johnson & Johnson. He
obtained a B.S. in Mathematics in 1970 and a M.S. in Mathematical Statistics in
1973 from the University of Massachusetts.
O'Connell J. Benjamin was appointed as a Director of the Company in
September 1998. For the past 25 years he has been employed with Bell
Laboratories and is currently Vice President in the Wireless Networks Group.
3.
<PAGE> 6
He has served in a variety of positions at Bell Laboratories, including Vice
President of Telephone Products Research and Development, Vice President of
Wireless Technology, Vice President of Customer Technical Support and Director
of Cellular Telephones. He received a B.S. and an M.S. in Electrical Engineering
from the Brooklyn Polytechnic Institute in 1973 and 1975, respectively.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended September 30, 1998, the Board of Directors
held 9 meetings. The Company does not have any standing committees of the Board
of Directors.
During the fiscal year ended September 30, 1998, 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, 1998, the Board of Directors
took action on 6 occasions by means of actions by written consent in lieu of a
meeting after informal discussions, and the written consents to all such actions
were unanimous.
PROPOSAL 2
APPROVAL OF THE 1997 EMPLOYEE STOCK COMPENSATION PLAN, AS AMENDED
In March 1997, the Board of Directors adopted, and the stockholders
subsequently ratified, the Company's 1997 Employee Stock Compensation Plan (the
"Plan") authorizing the issuance of 100,000 shares of the Company's Common Stock
of the Plan. The Plan was intended to provide equity incentives to recruit and
retain employees. As of February 17, 1999, 68,131 shares had been granted under
the Plan and only 31,869 shares remained available for future grant under the
Plan. On January 29, 1999, the Board of Directors amended the Plan to increase
the number of shares authorized for issuance thereunder to an aggregate of
150,000 shares and to extend the termination date under the Plan to March 9,
2002, subject to stockholder approval.
Stockholders are requested in this Proposal 2 to approve the Plan, as
amended. 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 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 toward 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.
The essential features of the Plan are outlined below:
GENERAL
The Plan provides for stock compensation through grants of the Company's
Common Stock. Awards of shares may be made as compensation for services
rendered, directly or in lieu of other compensation payable, as a bonus in
recognition of past service or performance or may be sold to an employee in
exchange for cash, property, services rendered or other lawful forms of
consideration. Shares awarded other than for services rendered will not be sold
at less than fair market value.
PURPOSE
The Plan is intended to further the growth and advance the interests of
the Company by supporting and increasing the Company's ability to attract,
retain and compensate persons with experience and ability and whose services are
considered valuable. Furthermore, the Plan is intended to encourage the sense of
proprietorship in such persons, and to stimulate the active interest of such
persons in the development and success of the Company.
4.
<PAGE> 7
ADMINISTRATION
The Employee Stock Compensation Committee of the Board of Directors
administers the Plan (the "Committee"). The Committee has the power to construe
and interpret the Plan, to determine the employees to whom and the dates on
which awards will be made and to determine the number of shares to be subject to
each award.
ELIGIBILITY
Awards may be made to only employees. Employees include, without
limitation, persons employed by the Company, consultants, advisors, agents, law
firms and accounting firms. Directors and executive officers may not receive
awards under the Plan.
ADJUSTMENT PROVISIONS
The Plan will be appropriately adjusted if there is any change in the
stock subject to the Plan (through stock dividend, stock split, combination of
shares (reverse stock split), recapitalization or other increase or decrease in
the number of shares of the Common Stock outstanding without receiving
compensation therefor in money, services or property).
DURATION, AMENDMENT AND TERMINATION
The Committee may suspend or terminate the Plan without seeking
stockholder approval or ratification at any time. Assuming stockholder approval
of this Proposal 2, unless sooner terminated, the Plan will terminate on March
9, 2002.
The Committee also may amend the Plan from time to time, provided such
amendment will not adversely affect the rights of a person granted an award
under the Plan prior to the effective date of the amendment. The Committee may
not amend the plan to extend the term of the Plan, increase the number of shares
available for issuance (although the Board may amend the plan to increase the
number of shares available for issuance) or to expand the class of eligible
employees to include executive officers or directors of the Company.
FEDERAL INCOME TAX INFORMATION
Awards granted under the Plan generally have the following federal
income tax consequences:
Upon acquisition of stock under an award, the recipient normally will
recognize taxable ordinary income equal to the excess of the stock's fair market
value over the purchase price, if any. Generally, with respect to employees (but
not consultants, advisors or agents), the Company is required to withhold from
regular wages or supplemental wage payments an amount based on the ordinary
income recognized. Upon disposition of the stock, the recipient will recognize
capital gain or loss equal to the difference between the selling price and the
sum of the amount paid for such stock, if any, plus any amount recognized as
ordinary income upon acquisition of the stock. Such gain or loss will be long or
short-term depending on whether the stock was held for more than one year from
the date ordinary income is measured.
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, 1999 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 By-laws or otherwise. However, the Board is submitting
the selection of BDO Seidman, LLP to the stockholders for
5.
<PAGE> 8
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. 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 3.
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
Cornelius J. Brosnan 51 Chairman of the Board of
Directors, President and
Chief Executive Officer
Elwood G. Norris 60 Director and Chief Technology
Officer
Key Employees
Robert Putnam 40 Vice President, Treasurer and
Assistant Secretary
James Croft 45 Vice President, Engineering
</TABLE>
* Biographical information about Cornelius J. Brosnan and Elwood G. Norris are
set forth under Proposal 1 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 EDIG
and from 1995 as a Director of EDIG. 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. 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.
6.
<PAGE> 9
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
ownership of the Company's stock as of January 19, 1999 by: (i) each director
and 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 any class of the Company's stock.
<TABLE>
<CAPTION>
AMOUNT & NATURE
NAME AND ADDRESS OF BENEFICIAL
TITLE OF CLASS OF BENEFICIAL OWNER OWNERSHIP(1) PERCENT OF CLASS
-------------- ------------------- -------------- ----------------
<S> <C> <C> <C>
Common Elwood G. Norris 3,214,634(2) 27.6%
13114 Evening Creek Drive South
San Diego, California 92128
Common Robert Putnam 620,000(3) 5.4%
13114 Evening Creek Drive South
San Diego, California 92128
Common Dale Williams 120,000(4) 1.0%
5800 Sterling Dr.
Boise, ID 83703
Common Cornelius J. Brosnan 80,000(5) *
13114 Evening Creek Drive South
San Diego, California 92128
Common Richard M. Wagner 64,600(6) *
13114 Evening Creek Drive South
San Diego, California 92128
Common James Croft 47,667(7) *
13114 Evening Creek Drive South
San Diego, California 92128
Common O'Connell J. Benjamin 20,000(5) *
13114 Evening Creek Drive South
San Diego, California 92128
Common David J. Carter 20,000(5) *
13114 Evening Creek Drive South
San Diego, California 92128
Series B Entities Affiliated with Granite Capital LP 148,860(8) 59.54%
126 E. 56th Street, 25th Floor
New York, NY 10022
Series B Strategic Restructuring Partnership 20,000 8.0%
1114 Avenue of the Americas
New York, NY 10036
Common All Directors and Executive
Officers as a Group (5 Persons) 3,399,234(9) 28.8 %
</TABLE>
* Less than 1%.
- - --------------------------------
(1) Beneficial ownership is determined in accordance with the rules of the SEC
and generally includes voting or investment power with respect to
securities. Percentage of beneficial ownership is based on 11,395,299
shares of Common Stock and 250,000 shares of Series B Preferred Stock
outstanding on January 19, 1999.
(2) Includes 280,000 Common Shares issuable upon the exercise of outstanding
stock options within 60 days of January 19, 1999.
7.
<PAGE> 10
(3) Includes 200,000 Common Shares issuable upon the exercise of outstanding
stock options within 60 days of January 19, 1999.
(4) Consists of Common Shares issuable upon the exercise of outstanding stock
options within 60 days of January 19, 1999. The Company has no information
on any other holdings of Mr. Williams.
(5) Consists of Common Shares issuable upon the exercise of outstanding stock
options within 60 days of January 19, 1999.
(6) Includes 20,000 Common Shares issuable upon the exercise of outstanding
stock options within 60 days of January 19, 1999.
(7) Includes 47,167 Common Shares issuable upon the exercise of outstanding
stock options within 60 days of January 19, 1999.
(8) Represents 100,000, 3,600, 16,000, 350 and 28,850 shares of Series B
Preferred stock held by Granite Capital L.P., Granite Capital LP II,
Granite Capital Overseas, Ermitage Granite Fund Ltd. and Grannum Value
Fund, respectively (collectively, the "Granite Entities"). Walter F.
Harrison, III and Louis M. Eisenberg are general partners of Granite
Capital, LLC, Granite Capital International, LLC, and Grannum Capital
Management, LLC, which entities share voting and investment power over all
shares owned by the Granite Entities and therefore may be deemed to be
beneficial owners of such shares. Each of Granite Capital L.P., Granite
Capital LP II, Granite Capital Overseas, Ermitage Granite Fund Ltd. and
Grannum Value Fund may be issued up to 100,000, 3,660, 16,000, 350, and
28,850, respectively, of shares of Common Stock upon the exercise of
outstanding warrants that are exercisable within 60 days of January 19,
1999.
(9) Includes 420,000 Common Shares issuable upon the exercise of outstanding
stock options within 60 days of January 19, 1999.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "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 Act to
file reports of ownership and changes in ownership with the Securities and
Exchange Commission ("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, 1998, 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 except as follows: (1) to the
Company's knowledge, former executive officer Dale Williams' Form 4 for June
1998 was not timely filed and (2) one transaction in July 1998 for Cornelius J.
Brosnan was reported late on a Form 4 filed in September 1998.
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 during fiscal 1998. 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 option grants.
8.
<PAGE> 11
COMPENSATION OF EXECUTIVE OFFICERS
There is shown below information concerning the compensation of the two
individuals who acted as the Company's chief executive officer for the fiscal
year ended September 30, 1998 and the two other most highly compensated
executive officers of the Company whose salary and bonus exceeded $100,000
during the fiscal year ended September 30, 1998 (each a "Named Executive
Officer").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------------- SECURITIES
NAME AND PRINCIPAL FISCAL OTHER ANNUAL UNDERLYING ALL OTHER
POSITION YEAR SALARY($) BONUS($) COMPENSATION($) OPTIONS(#) COMPENSATION
------------------ ----- -------- ------- -------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Cornelius J. Brosnan, 1998 $32,308 $50,000 -- 300,000 --
Chairman, President
and CEO(1)
Dale Williams, former 1998 $166,154 -- $30,000(4) -- --
Chairman, President 1997 $ 13,846 $43,750(3) $55,600(4) 862,000 (5) --
and CEO (2)
Elwood G. Norris, 1998 $101,538 $86,652(6) $ 973(7) -- --
Director and
Chief Technology 1997 $ 24,453 -- $ 7,866(7) -- --
Officer 1996 $ 16,736 -- $ 7,739(7) 280,000 --
James Croft, Vice 1998 $102,807 -- -- 100,000 $25,650(9)
President of
Engineering (8)
</TABLE>
- - -------------------------
(1) Elected as a director in October 1997. Appointed Chairman, President and CEO
in July 1998.
(2) Chairman, President and CEO from September 1997 to June 1998. Served as a
consultant from June 1997 to August 1997 and from July 1998 to September
1998.
(3) Represents consulting bonus paid by the issuance of 7,500 shares of Common
Stock.
(4) Represents consulting fees for June 1997 to August 1997 and July 1998 to
September 1998.
(5) A total of 742,000 of these options were canceled in June 1998 when
Mr. Williams ceased employment with the Company.
(6) Represents bonus applied to cancel a promissory note owed to the Company.
(7) Represents royalties paid to Mr. Norris. See "Employment Agreements."
(8) Appointed Vice President of Engineering in October 1997.
(9) Represents bonus for relocation costs paid by the issuance of 5,000 shares
of Common Stock.
Except for stock options, discussed below, and stock bonuses discussed
above, no Named Executive Officer received any form of non-cash compensation
from the Company in the fiscal years ended September 30, 1998, 1997 or 1996 or
currently receives any such compensation.
9.
<PAGE> 12
OPTION GRANTS
Shown below is certain information on grants of stock options for the
fiscal year ended 1998 to the Named Executive Officers.
OPTION GRANTS FOR FISCAL YEAR ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
PERCENT OF TOTAL
OPTIONS GRANTED
NUMBER OF TO EMPLOYEES IN
NAME OPTIONS GRANTED FISCAL YEAR EXERCISE PRICE EXPIRATION DATE
---- -------------- --------------- ------------- ----------------
<S> <C> <C> <C> <C>
Cornelius J. Brosnan 50,000 (1) 9% $16.00 10/2/2002
250,000 (2) 44% $ 8.50 7/15/2003
James Croft 100,000 (3) 18% $ 3.6875 1/23/2003
</TABLE>
(1) 50% of the common shares vest on each of the first two anniversaries of the
date of grant, subject to acceleration for certain events.
(2) 10,000 common shares subject to the option were vested and exercisable at
issuance, with the balance vesting monthly over 32 months at the rate of
7,500 shares per month commencing two months after the date of grant,
subject to acceleration for certain events.
(3) 33,334 common shares subject to the option were vested and exercisable at
issuance, with 33,333 of the remaining shares subject to the option vesting
on each of the first two anniversaries of the date of grant.
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table provides information on unexercised options of the
Named Executive Officers at September 30, 1998:
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED OPTIONS HELD VALUE OF UNEXERCISED IN-THE-MONEY
AT SEPTEMBER 30, 1998 OPTIONS AT SEPTEMBER 30, 1998(1)
---------------------------------- ----------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Cornelius J. Brosnan 10,000 290,000 -- (2) -- (2)
Dale Williams 120,000 -- -- (2) -- (2)
Elwood G. Norris 280,000 -- $1,391,000 --
James Croft 33,334 66,666 $60,418 $ 120,832
</TABLE>
- - ----------------------
(1) Based on the last sale price at the close of business on September 30,
1998 of $5.50 per share.
(2) All options were out-of-the-money at September 30, 1998.
10.
<PAGE> 13
EMPLOYMENT ARRANGEMENTS
Effective July 17, 1998 the Company entered into a three year employment
contract with Mr. Brosnan in his capacity Chairman of the Board of Directors,
President and Chief Executive Officer. The agreement provides for a base salary
of $20,000 per month, subject to future reviews. The agreement provides that
bonuses are to be determined and payable at the discretion of the Board of
Directors. The Company also pays limited automobile expenses. The Company may
terminate Mr. Brosnan's employment with or without cause (as defined), but
termination without cause (other than disability or death) results in a
severance payment equal to up to six months of Mr. Brosnan's then monthly base
salary. Likewise, upon a change in control (as defined in the agreement), Mr.
Brosnan may elect to terminate his employment and obtain a payment equal to the
greater of (i) the remaining months of the employment agreement multiplied by
the then base monthly salary, or (ii) twelve months of Mr. Brosnan's then
monthly base salary. Mr. Brosnan has agreed not to disclose trade secrets, has
agreed to assign inventions to the Company during employment and has agreed to a
two-year non-compete agreement. In connection with the employment agreement, the
Company granted Mr. Brosnan options to purchase up to 250,000 common shares at
$8.50 per share, with 10,000 shares vesting on the date of the grant and the
balance vesting over 32 months commencing two months after his full-time service
with the Company began, subject to acceleration for certain events. In
connection with Mr. Brosnan's employment and move to the San Diego area, the
Company agreed to pay limited moving expenses and paid a $50,000 bonus in lieu
of amounts forfeited by Mr. Brosnan with his previous employer.
Effective September 1, 1997 the Company entered into a three year
employment contract with Mr. Norris, Director and Chief Technology Officer, for
his part-time services. The agreement provides for a base salary of $10,000 per
month, to be adjusted by the Board of Directors subject to future reviews. The
agreement provides that Mr. Norris shall participate in bonus, benefit and other
incentives at the discretion of the Board of Directors. The Company may
terminate Mr. Norris' employment with or without cause (as defined), but
termination without cause (other than disability or death) results in a
severance payment equal to up to twelve months of Mr. Norris' then monthly base
salary and any bonus on an as if perfected basis. Likewise upon a change in
control (as defined in the agreement), Mr. Norris may elect to terminate his
employment and obtain a payment equal to the greater of (i) the remaining months
of the employment agreement multiplied by Mr. Norris' then base monthly salary
plus any bonus on an as if perfected basis, or (ii) twelve months of Mr. Norris'
then monthly base salary. Mr. Norris has agreed not to disclose trade secrets
and has agreed to assign certain inventions (as defined) to the Company during
employment.
The Company is also obligated to pay to Mr. Norris 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 certain of the Company's technologies.
Effective as of June 1, 1998 the Company entered into an employment
agreement through September 30, 2001 with Mr. Croft to serve as Vice President
of Engineering. The agreement is automatically renewable for one year terms
thereafter. The agreement provides for a base salary of $9,167 per month, as may
be adjusted by the Company's Chief Executive Officer. The agreement provides
that Mr. Croft shall participate in bonus, benefit and other incentives at the
discretion of the Board of Directors. The Company may terminate Mr. Croft's
employment with or without cause (as defined), but termination without cause
(other than disability or death) results in a severance payment equal to six
months of Mr. Croft's then monthly base salary and any bonus on an as if
perfected basis. Mr. Croft has agreed not to disclose trade secrets and has
agreed to assign certain inventions (as defined) to the Company during
employment.
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
11.
<PAGE> 14
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 interests may result in liability to them.
It is conceivable that the respective areas of interest of the Company,
Patriot and EDIG 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 such 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 stockholders, and 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.
CERTAIN TRANSACTIONS
On July 11, 1997, the Company entered into a three year lease. To meet
the credit requirements of the landlord, both the Company and EDIG 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 EDIG default on its
share of payments thereon. Elwood Norris, a director and Chief Technology
Officer of the Company, is also Chief Technology Officer of EDIG. He is the
owner of less than 1% of EDIG's common shares and Robert Putnam (the Vice
President, Treasurer and Asst. Secretary of the Company) is Secretary of EDIG
and the owner of less than 1% of its common shares.
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 1997 fiscal year. During fiscal 1998,
bonuses aggregating $86,652 and $50,000 were paid to Mr. Norris and Mr. Putnam,
respectively, and were applied to repay principal and interest under the notes.
The remaining note with Mr. Putnam has a principal balance of $27,895 and is
payable on demand.
In May 1998, the Board of Directors amended the terms of a stock
purchase warrant on 100,000 shares of Common Stock issued in 1992 to Mr. Norris
in connection with a financing transaction. The amendment provided for a
cashless exercise of the warrant, and there was no change in the exercise price
or expiration date. Mr. Norris exercised the warrant effective May 28, 1998 in
exchange for 90,196 shares of Common Stock. The Company recorded a non-cash
interest expense and additional paid-in capital of $920,000 in connection with
the cashless exercise.
12.
<PAGE> 15
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
/s/ Robert Putnam
---------------------------------------
Robert Putnam
Assistant Secretary
February 19, 1999
A copy of the Company's Annual Report to the Securities and Exchange
Commission on Form 10-KSB for the fiscal year ended September 30, 1998 is
available without charge upon written request to the Secretary, American
Technology Corporation, 13114 Evening Creek Drive South, San Diego, California
92128.
13.
<PAGE> 16
ANNEX A
PROXY CARD
<PAGE> 17
AMERICAN TECHNOLOGY CORPORATION
THIS PROXY RELATES TO AN ANNUAL MEETING OF THE STOCKHOLDERS
TO BE HELD MARCH 5, 1999
The undersigned hereby appoints CORNELIUS J. BROSNAN 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 March 5, 1999, 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: Cornelius J. Brosnan, Elwood G. Norris, Richard M. Wagner,
David J. Carter, and O'Connell J. Benjamin.
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 amendment to the Company's 1997 Employee Stock
Compensation Plan to increase the aggregate number of shares of
Common Stock authorized for issuance under the plan by 50,000
shares and extend the termination date of the plan to March 9,
2002.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(Continued and to be signed on the other side)
1.
<PAGE> 18
(Continued from other side)
PROPOSAL 3: To ratify the selection of BDO Seidman, LLP as independent
auditors of the Company for the fiscal year ending September 30,
1999.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
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: ____________________, 1999 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.
<PAGE> 19
ANNEX B
1997 EMPLOYEE STOCK COMPENSATION PLAN
<PAGE> 20
1997 EMPLOYEE STOCK COMPENSATION PLAN, AS AMENDED ON JANUARY 29, 1999
AMERICAN TECHNOLOGY CORPORATION
1. PURPOSE OF THE PLAN.
This 1997 Employee Stock Compensation Plan ("Plan") is intended to further the
growth and advance the best interests of AMERICAN TECHNOLOGY CORPORATION, a
Delaware corporation (the "Company"), and Affiliated Corporations, by supporting
and increasing the Company's ability to attract, retain and compensate persons
of experience and ability and whose services are considered valuable, to
encourage the sense of proprietorship in such persons, and to stimulate the
active interest of such persons in the development and success of the Company
and Affiliate Corporations. This Plan provides for stock compensation through
the award of the Company's Common Stock.
2. DEFINITIONS.
Whenever used in this Plan, except where the context might clearly indicate
otherwise, the following terms shall have the meanings set forth in this
section:
(a) "ACT" means the U.S. Securities Act of 1933, as amended.
(b) "AFFILIATED CORPORATION" means any Parent or Subsidiary of the
Company.
(c) "AWARD" OR "GRANT" means any grant or sale of Common Stock made
under this Plan.
(d) "BOARD OF DIRECTORS" means the Board of Directors of the Company.
The term "Committee" is defined in Section 4 of this Plan.
(e) "CODE" means the Internal Revenue Code of 1986, as amended.
(f) "COMMON STOCK" OR "COMMON SHARES" means the common stock, $.00001
par value per share, of the Company, or in the event that the outstanding Common
Shares are hereafter changed into or exchanged for different shares of
securities of the Company, such other shares or securities.
(g) "DATE OF GRANT" means the day the Committee authorizes the grant of
Common Stock or such later date as may be specified by the Committee as the date
a particular award will become effective.
(h) "EMPLOYEE" means any person or entity that renders bona fide
services to the Company, including, without limitation, (i) a person employed by
the Company or an affiliated Corporation; (ii) a person or company engaged by
the Company or an Affiliated Corporation as a consultant, advisor or agent; and
(iii) a lawyer, law firm, accountant or accounting firm, or other professional
or professional firm engaged by the Company or an Affiliated Corporation; but
specifically excluding persons who are directors or executive officers of the
Company or any Affiliated Corporation.
1.
<PAGE> 21
(i) "PARENT" means any corporation owning 50% of whose total combined
capital stock of all classics is held by the Company or by another corporation
qualifying as a Subsidiary within this definition.
(j) "PARTICIPANT" means an Employee to whom an Award of Plan Shares has
been made.
(k) "PLAN SHARES" means shares of Common Stock from time to time subject
to this Plan.
(l) "SUBSIDIARY" means a corporation more than 50% of whose total
combined capital stock of all classes is held by the Company or by another
corporation qualifying as a Subsidiary within this definition.
3. EFFECTIVE DATE OF PLAN. The effective date of this Plan is March 10, 1997. No
Plan shares may be issued after March 9, 2002.
4. ADMINISTRATION OF THE PLAN. The Employee Stock Compensation Committee of the
Board of Directors ("Committee"), and in default of the appointment of continued
existence of such Committee, the Board of Directors will be responsible for the
administration of this Plan, and will have sole power to award Common Shares
under this Plan. Subject to the express provisions of this Plan, the Committee
shall have full authority and sole and absolute discretion to interpret this
Plan, to prescribe, amend and rescind rules and regulations relating to it, and
to make all other determinations which it believes to be necessary or advisable
in administering this Plan. The determination of those eligible to receive an
award of Plan Shares shall rest in the sole discretion of the Committee, subject
to the provisions of this Plan. Awards of Plan Shares may be made as
compensation for services rendered, directly or in lieu of other compensation
payable, as a bonus in recognition of past service or performance or may be sold
to an Employee as herein provided. The Committee may correct any defect, supply
any omission or reconcile any inconsistency in this Plan in such manner and to
such extent it shall deem necessary to carry it into effect. Any decision made,
or action taken, by the Committee arising out of or in connection with the
interpretation and administration of this Plan shall be final and conclusive.
5. STOCK SUBJECT TO THE PLAN.
The maximum number of Plan Shares which may be awarded under this Plan is
150,000 shares.
6. PERSONS ELIGIBLE TO RECEIVE AWARDS.
Awards may be granted only to Employees (as herein defined).
7. GRANTS OR AWARDS OF PLAN SHARES.
Except as otherwise provided herein, the Committee shall have complete
discretion to determine when and to which Employees Plan Shares are to be
granted, and the number of Plan Shares to be awarded to each Employee. A grant
to an Employee may be made for cash, property, services rendered or other form
of payment constituting lawful consideration under applicable law; Plan Shares
awarded other than for services rendered shall be sold at not less than the fair
value
2.
<PAGE> 22
thereof on the date of grant. No grant will be made if, in the judgment of the
Committee, such a grant would constitute a public distribution with the meaning
of the Act or the rules and regulations promulgated thereunder.
8. DELIVERY OF STOCK CERTIFICATES.
As promptly as practicable after authorizing an award of Plan Shares, the
Company shall deliver to the person who is the recipient of the award, a
certificate or certificates registered in that person's name, representing the
number of Plan Shares that were granted. Unless the Plan Shares have been
registered under the Act, each certificate evidencing Plan Shares shall bear a
legend to indicate that such shares represented by the certificate were issued
in a transaction which was not registered under the Act, and may only be sold or
transferred in a transaction that is registered under the Act or is exempt from
the registration requirements of the Act. In the absence of registration under
the Act, any person awarded Plan Shares may be required to execute and deliver
to the Company an investment letter, satisfactory in form and substance to the
Company, prior to issuance and delivery of the shares. An award may be made
under this Plan wherein the Plan Shares may be issued only after registration
under the Act.
9. ASSIGNABILITY.
An award of Plan Shares may not be assigned. Plan Shares themselves may be
assigned only after such shares have been awarded, issued and delivered, and
only in accordance with law and any transfer restrictions imposed at the time of
award.
10. EMPLOYMENT NOT CONFERRED.
Nothing in this Plan or in the award of Plan Shares shall confer upon any
Employee the right to continue in the employ of the Company or Affiliated
Corporation nor shall it interfere with or restrict in any way the lawful rights
of the Company or any Affiliated Corporation to discharge any Employee at any
time for any reason whatsoever, with or without cause.
11. LAWS AND REGULATIONS.
The obligation of the Company to issue and deliver Plan Shares following an
award under this Plan shall be subject to the condition that the Company be
satisfied that the sale and delivery thereof will not violate the Act or any
other applicable laws, rules or regulations.
12. WITHHOLDING OF TAXES.
If subject to withholding tax, the Company or any Affiliated Corporation may
require that the Employee concurrently pay to the Company the entire amount or a
portion of any taxes which the Company or Affiliated Corporation is required to
withhold by reason of granting Plan Shares, in such amount as the Company or
Affiliated Corporation in its discretion may determine. In lieu of part or all
of any such payment, the Employee with the consent of the Committee may elect to
have the Company or Affiliated Corporation withhold from the Plan Shares issued
hereunder a sufficient number of shares to satisfy withholding obligations. If
the Company or Affiliated Corporation becomes required to pay withholding taxes
to any federal, state or other taxing authority as a result of the granting of
Plan Shares, and the Employee fails to provide the
3.
<PAGE> 23
Company or Affiliated Corporation with the funds with which to pay that
withholding tax, the Company or Affiliated Corporation may withhold up to 50% of
each payment of salary or bonus to the Employee (which will be in addition to
any required or permitted withholding), until the Company or Affiliated
Corporation has been reimbursed for the entire withholding tax it was required
to pay in respect of the award of Plan Shares.
13. RESERVATION OF SHARES.
The stock subject to this Plan shall at all times, consist of authorized but
unissued Common Shares, or previously issued shares of Common Stock reacquired
or held by the Company or an Affiliated Corporation equal to the maximum number
of shares the Company may be required to issue as stated in Section 5 of this
Plan, and such number of Common Shares hereby is reserved for such purpose. The
Committee may decrease the number of shares subject to this Plan, but only the
Board of Directors may increase such number, except as a consequence of a stock
split or other reorganization or recapitalization affecting all Common Shares.
14. AMENDMENT AND TERMINATION OF THE PLAN.
The Committee may suspend or terminate this Plan at any time or from time to
time but no such action shall adversely affect the rights of a person granted an
Award under this Plan prior to that date. Otherwise, this Plan shall terminate
on the earlier of the terminal date stated in Section 3 of this Plan or the date
when all Plan Shares have been issued. The Committee shall have absolute
discretion to amend this Plan, subject only to those limitations expressly set
forth herein; however, the Committee shall have no authority to extend the term
of this Plan, to increase the number of Plan Shares subject to award under this
Plan or to amend the definition of "Employee" to include executive officers or
directors of the Company or any Affiliated Corporation.
15. DELIVERY OF PLAN.
A copy or synopsis (for which copy the prospectus will serve) or description of
this Plan shall be delivered to every person to whom an award of Plan Shares is
made. The Secretary of the Company may, but is not required to, also deliver a
copy of the resolution or resolutions of the Committee authorizing the award.
16. LIABILITY.
No member of the Board of Directors, the Committee or any other committee of
directors, or officers, employees or agents of the Company or any Affiliated
Corporation shall be personally liable for any action, omission or determination
made in good faith in connection with this Plan.
17. MISCELLANEOUS PROVISIONS.
The place of administration of this Plan shall be in the State of California (or
subsequently, wherever the Company's principal executive offices are located),
and the validity, construction, interpretation and effect of this Plan and of
its rules, regulations and rights relating to it, shall be determined solely in
accordance with the laws of the State of Delaware. Without amending this Plan,
the Committee may issue Plan Shares to employees of the Company who are foreign
4.
<PAGE> 24
nationals or employed outside the United States, or both, on such terms and
conditions different from those specified in this Plan but consistent with the
purpose of this Plan, as it deems necessary and desirable to create equitable
opportunities given difference in tax laws in other countries. All expenses of
administering this Plan and issuing Plan Shares shall be borne by the Company.
18. REORGANIZATIONS AND RECAPITALIZATIONS OF THE COMPANY.
(a) The shares of Common Stock subject to this Plan are shares of the
Common Stock of the Company as currently constituted. If, and whenever, the
Company shall effect a subdivision or consolidation of shares or other capital
readjustment, the payment of a Common Stock dividend, a stock split, combination
of shares (reverse stock split) or recapitalization or other increase or
reduction of the number of shares of the Common Stock outstanding without
receiving compensation therefor in money, services or property, then the number
of shares of Common Stock subject to this Plan shall (i) in the event of an
increase in the number of outstanding shares, be proportionately increased; and
(ii) in the event of a reduction in the number of outstanding shares, be
proportionately reduced.
(b) Except as expressly provided above, the Company's issuance of shares
of Common Stock of any class, or securities convertible into shares of Common
Stock of any class, for cash or property, or for labor or services either upon
direct sale or upon the exercise of rights or warrants to subscribe therefor, or
upon conversion of shares or obligations of the Company convertible into or
exchangeable for shares of Common Stock or other securities, shall not affect,
and no adjustment by reason thereof shall be made with respect to, the number of
shares of Common Stock subject to this Plan.
5.
