<PAGE>
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 (S) 240.14a-11(c) or (S) 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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2. Aggregate number 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 filing fee is calculated and state how it was determined):
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4. Proposed maximum aggregate value of transaction:
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5. Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
6. Amount Previously Paid:
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9. Date Filed:
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<PAGE>
AMERICAN TECHNOLOGY CORPORATION
13114 Evening Creek Drive South
San Diego, California 92128
(858) 679-2114
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 11, 2000
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 11, 2000 at 2:00 p.m. local time at the California Center for the Arts,
340 N. Escondido Blvd., Escondido, CA 92025 (760) 839-4100:
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 Stock Option Plan to increase
the aggregate number of shares of Common Stock authorized for issuance
under the plan by 500,000 shares.
3. To ratify the selection of BDO Seidman, LLP as independent auditors of the
Company for its fiscal year ending September 30, 2000.
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 11,
2000, 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/ Renee Warden
-------------------------------------------
Renee Warden
Secretary
San Diego, California
March 1, 2000
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>
AMERICAN TECHNOLOGY CORPORATION
13114 Evening Creek Drive South
San Diego, California 92128
(858) 679-2114
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
To be held April 11, 2000
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 11, 2000, 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 California Center for
the Arts, 340 N. Escondido Blvd., Escondido, CA 92025 (760) 839-4100. The
Company intends to mail this proxy statement and accompanying proxy card on or
about March 1, 2000 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
11, 2000 (the "Record Date") will be entitled to notice of and to vote at the
Annual Meeting. At the close of business on February 11, 2000 the Company had
outstanding and entitled to vote 11,745,570 shares of Common Stock and 192,260
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 an 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.
<PAGE>
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 2001 annual
meeting of stockholders pursuant to Rule 14a-8 of the Securities and Exchange
Commission is September 30, 2000. Unless a stockholder who wishes to bring a
matter before the stockholders at the Company's 2001 annual meeting of
stockholders notifies the Company of such matter prior to January 15, 2001,
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 accordance with 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,
each having been elected by the stockholders at the Company's 1999 annual
meeting.
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>
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 52 Chairman of the Board of Directors,
President and Chief Executive Officer
Elwood G. Norris 61 Director and Chief Technology Officer
Richard M. Wagner 54 Director
David J. Carter 51 Director
O'Connell J. Benjamin 49 Director
</TABLE>
Cornelius J. Brosnan was appointed a Director of the Company in October
1997. In July 1998 he was appointed Chairman of the Board of Directors,
President and Chief Executive Officer of the Company and commenced full time
duties in August 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. He
currently manages the Company's research and development activities as Chief
Technology Officer. From 1988 to November 1999 he was a director and Chairman
of e.Digital Corporation ("e.Digital"), a public company engaged in electronic
product development, distribution and sales. From October 1995 to November
1999, he served as Chief Technology Officer to e.Digital. From 1988 to October
1995 he served as e.Digital's President and Chief Executive Officer. In January
1997, he was re-appointed as Chief Executive Officer of e.Digital and served in
that capacity until July 1998. From August 1989 to October 1999 he served as
director of Patriot Scientific Corporation, a public company engaged in the
development of microprocessor technology and digital modem products. He also
served as Chairman and Chief Executive Officer of Patriot until June 1994. From
June 1995 until June 1996 when he was re-appointed Chairman, Mr. Norris served
as temporary President and Chief Executive Officer of Patriot. He is an
inventor with over 20 U.S. patents, primarily in the fields of electrical and
acoustical engineering. He is the inventor of our HyperSonic Sound, EPD
technology and other technologies. Mr. Norris devotes only part-time services
to the Company, approximating 30-35 hours per week.
Richard M. Wagner has served as a Director of the Company since 1986 and
served as Secretary of the Company from February 1994 to March 1999. 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. Since January 1999, he has been Vice President of Copyright Clearance
Center, a copyright licensing service. From 1983 until April 1998, he was
employed by AT&T, with his last position 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.
3
<PAGE>
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 its
parent, Lucent Technologies. He is currently Senior Vice President at Lucent
Digital Radio, a Lucent Technologies venture developing a digital enhancement to
analog radio broadcasting technology. 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. (1973) and an M.S. (1975) in Electrical Engineering from the Brooklyn
Polytechnic Institute.
Board Committees and Meetings
During the fiscal year ended September 30, 1999, the Board of Directors
held ten meetings. During the fiscal year ended September 30, 1999, each Board
member attended all of the meetings of the Board held during the period for
which he was a director.
The Board has two standing committees: the Audit Committee and the
Compensation Committee. The Board does not have a nominating committee.
Audit Committee. The Audit Committee of the Board of Directors, currently
consisting of Messrs. Wagner and Carter, is authorized to recommend to the Board
of Directors the engagement of the Company's independent auditors; to approve
the services performed by such auditors, to consult with such auditors and
review with them the results of their examination, to review and approve any
material accounting policy changes affecting the Company's operating results and
to review the Company's control procedures and personnel. The Audit Committee
is also authorized to evaluate the Company's accounting principles and its
system of internal accounting controls. In addition, the Audit Committee is
authorized to review related party transactions for potential conflicts of
interest. The Audit Committee was designated June 11, 1999 and held no meetings
during the fiscal year ended September 30, 1999. Its first meeting was held
October 30, 1999.
Compensation Committee. The Compensation Committee, currently consisting
of Messrs. Wagner and Carter, is authorized to review and approve the
compensation and benefits for the Company's officers and other employees,
including, but not limited to, salary matters, incentive/bonus plans, investment
programs and insurance plans. The Compensation Committee does not currently
exercise authority over the Company's stock based compensation plans. The
Compensation Committee was designated on October 29, 1999 and held no meetings
during the fiscal year ended September 30, 1999. Its first meeting was held
October 30, 1999.
During the fiscal year ended September 30, 1999, the Board of Directors
took action on two 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 Stock Option Plan, As Amended
In January 1998, the Board of Directors adopted, and the stockholders
subsequently approved, the Company's 1997 Stock Option Plan (the "1997 Plan")
authorizing the issuance of 500,000 shares of the Company's Common Stock under
the 1997 Plan. The 1997 Plan was intended to supplement the Company's 1992
Incentive Stock Option Plan and 1992 Non-Statutory Stock Option Plan, to allow
the Company to 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 obtaining and retaining qualified employees
(including officers), directors and consultants of the Company and promoting the
success of the Company's business.
As of February 11, 2000, options (net of canceled or expired options)
covering an aggregate of 498,833 shares of the Company's common stock had been
granted under the 1997 Plan. On February 22, 2000, the Board of Directors
amended the Plan to increase the number of shares authorized for issuance
thereunder by 500,000 shares, to an aggregate of 1,000,000 shares, subject to
stockholder approval.
4
<PAGE>
Stockholders are requested in this Proposal 2 to approve the 1997 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 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 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 1997 Plan are outlined below:
General
The 1997 Plan provides for the grant of both incentive and non-statutory
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"). Non-statutory 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 non-statutory 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 non-
statutory 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.
5
<PAGE>
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 1,000,000 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.
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 non-statutory 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 February 11, 2000, the closing price of the
Company's Common Stock as reported on the NASDAQ SmallCap system was $8.375 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 non-statutory, 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 ten 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.
6
<PAGE>
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 month period, and the
class, number of shares and price per share of stock subject to such outstanding
options.
Effect of certain corporate events
The 1997 Plan provides that, in the event of a dissolution or liquidation
of the Company or a specified type of merger or other corporate reorganization,
to the extent permitted by law, any surviving corporation will be required
either to assume options outstanding under the 1997 Plan or to substitute
similar options for those outstanding under the 1997 Plan, or such outstanding
options will 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 non-statutory stock option may be transferred upon such terms and conditions
as are set forth in the option agreement for such non-statutory 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 accorded
"incentive stock options" under the Code.
7
<PAGE>
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 after the date on which the option is granted and
for at least one year after 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. The two year and one year periods described
above run concurrently, and an optionee must satisfy both periods in order to
obtain capital gain or loss treatment as described above. 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 disqualifying
disposition will be a capital gain or loss, which will be long-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 Securities Exchange Act of
1934 (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.
Non-statutory Stock Options. Non-statutory 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 non-statutory stock option. Upon exercise of a non-statutory
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 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.
8
<PAGE>
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, 2000 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. 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.
9
<PAGE>
ADDITIONAL INFORMATION
Management
Set forth below is information regarding executive officers of the Company.
All executive officers serve at the pleasure of the Board of Directors.
<TABLE>
<CAPTION>
Name Age Position
-------------------- --- -------------------------------------
<S> <C> <C>
Cornelius J. Brosnan 52 Chairman of the Board of Directors,
President and Chief Executive Officer
Elwood G. Norris 61 Director and Chief Technology Officer
Renee Warden 35 Chief Accounting Officer, Treasurer
and Secretary
</TABLE>
* Biographical information about Cornelius J. Brosnan and Elwood G. Norris is
set forth under Proposal 1 above.
Renee Warden was appointed Chief Accounting Officer, Treasurer and Secretary of
the Company in March 1999. From May 1993 until her promotion she served as the
Company's Accounting Manager. Since June 1997 she has also served as Controller
of e.Digital and she previously served as Accounting Manager for e.Digital. Ms.
Warden obtained a B.S. degree in business accounting from the University of
Phoenix in 1999. Ms. Warden devotes only part-time services to the Company,
approximating 25 hours per week.
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 February 11, 2000 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 voting stock.
<TABLE>
<CAPTION>
Name and Address Amount & Nature of
Title of Class of Beneficial Owner Beneficial Ownership (1) Percent of Class
- -------------- ---------------------------------- ------------------------- -----------------
<S> <C> <C> <C>
Common Elwood G. Norris 3,228,634 (2) 26.8%
13114 Evening Creek Drive South
San Diego, California 92128
Common Cornelius J. Brosnan 187,500 (3) 1.6%
13114 Evening Creek Drive South
San Diego, California 92128
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Name and Address Amount & Nature of
Title of Class of Beneficial Owner Beneficial Ownership (1) Percent of Class
- -------------- ---------------------------------- ------------------------- -----------------
<S> <C> <C> <C>
Common Richard M. Wagner 74,600 (4) *
13114 Evening Creek Drive South
San Diego, California 92128
Common O'Connell J. Benjamin 20,000 (3) *
13114 Evening Creek Drive South
San Diego, California 92128
Common David J. Carter 20,000 (3) *
13114 Evening Creek Drive South
San Diego, California 92128
Series B Entities Affiliated with Granite Capital LP 148,860 (5) 77.4%
126 E. 56/th/ Street, 25/th/ Floor
New York, NY 10022
Series B Strategic Restructuring Partnership 20,000 10.4%
1114 Avenue of the Americas
New York, NY 10036
Common All Directors and Executive
Officers as a Group (6 Persons) 3,533,034 (6) 28.7%
</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 11,745,570
shares of Common Stock and 192,260 shares of Series B Preferred Stock
outstanding on February 11, 2000.
(2) Includes 294,000 Common shares issuable upon the exercise of outstanding
stock options within 60 days of February 11, 2000.
(3) Consists of Common shares issuable upon the exercise of outstanding stock
options within 60 days of February 11, 2000.
(4) Includes 30,000 Common shares issuable upon the exercise of outstanding
stock options within 60 days of February 11, 2000.
(5) 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 February 11, 2000.
11
<PAGE>
(6) Includes 553,800 Common shares issuable upon the exercise of outstanding
stock options within 60 days of February 11, 2000.
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, 1999, 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 (a) Cornelius J. Brosnan
filed late a Form 5 disclosing two transactions; (b) Elwood J. Norris filed late
a Form 5 disclosing one transaction; and (c) Richard M. Wagner filed late a Form
5 disclosing one transaction.
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 1999. The
Company does not anticipate paying during the fiscal year ending September 30,
2000 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.
Compensation of Executive Officers
There is shown below information concerning the compensation of the
Company's chief executive officer for the fiscal year ended September 30, 1999
and the one other executive officer of the Company whose salary and bonus
exceeded $100,000 during the fiscal year ended September 30, 1999 (each a "Named
Executive Officer").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
------------------------------------------------ -------------
Securities All Other
Name and Principal Fiscal Other Annual Underlying Compensation
Position Year Salary($) Bonus($) Compensation($) Options(#) ($)
- ------------------------ ------ --------- ---------- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Cornelius J. Brosnan, 1999 $250,663 -- -- 200,000 $32,161(1)
Chairman, President and 1998 $ 32,308 $ 50,000 -- 300,000 --
CEO 1997 -- -- -- -- --
--
Elwood G. Norris, 1999 $125,893 -- -- 21,000 --
Director and Chief 1998 $101,538 $ 86,652 (2) $ 973 (3) -- --
Technology Officer 1997 $ 24,453 -- $ 7,866 (3) -- --
</TABLE>
(1) Represents bonus paid for relocation costs.
(2) Represents bonus applied to cancel note.
12
<PAGE>
(3) Represents royalties paid.
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, 1999, 1998 or 1997, or
currently receives any such compensation, in excess of 10% of the amount of the
total amount of annual salary and bonus reported for the Named Executive Officer
above.
OPTION GRANTS
Shown below is certain information on grants of stock options for the
fiscal year ended September 30, 1999 to the Named Executive Officers.
OPTION GRANTS FOR FISCAL YEAR ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Potential
Realizable Value
at Assumed
Number of Percent of Total Annual Rates of
Securities Options Granted Stock
Underlying to Employees in Exercise Expiration Appreciation
Name Options Granted Fiscal Year Price Date 5% 10%
- ------------------- ---------------- ------------------ --------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Cornelius J. Brosnan 100,000 (1) 22% $10.00 7/16/2003 $ 0 $ 0
100,000 (2) 22% $10.00 7/16/2003 $ 0 $ 0
Elwood G. Norris 21,000 5% $ 5.00 2/02/2004 $ 29,010 $ 64,104
</TABLE>
(1) Options vest if and when the market price of the Company's Common Stock
equals or exceeds $25.00 per share for twenty consecutive trading days.
(2) Options vest if and when the market price of the Company's Common Stock
equals or exceeds $50.00 per share for twenty consecutive trading days.
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table provides information on unexercised options of the
Named Executive Officers at September 30, 1999:
<TABLE>
<CAPTION>
Number of Unexercised Options Held at Value of Unexercised In-The-Money Options At
September 30, 1999 September 30, 1999 (1)
------------------------------------------ ---------------------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- -------------------- ------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Cornelius J. Brosnan 117,500 382,500 -- (2) -- (2)
Elwood G. Norris 287,000 14,000 $1,923,688 $32,375
</TABLE>
(1) Based on the last sale price at the close of business on September 30, 1999
of $7.3125 per share.
(2) All options were out-of-the-money at September 30, 1999.
The Company does not have any stock appreciation rights plans in effect and
has no long-term incentive plans, as those terms are defined in Securities and
Exchange Commission regulations. During the fiscal year ended September 30,
1999, the Company did not adjust or amend the exercise price of stock options
awarded to the Named Executive Officers. The Company has no defined benefit or
actuarial plans covering any Named Executive Officer.
13
<PAGE>
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 to Mr. Brosnan.
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.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended September 30, 1999, the Board of Directors as
a whole performed the role of a compensation committee. Cornelius J. Brosnan,
Elwood G. Norris and Richard M. Wagner, each officers or employees of the
Company for all or a portion of the fiscal year ended September 30, 1999,
participated in deliberations of the Company's Board of Directors concerning
executive officer compensation.
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's audit committee is
authorized to review all related party transactions for conflicts of interest;
however, 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 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 and
e.Digital could overlap or conflict. The Company believes that although both of
these corporations are involved in the electronics industry, the
14
<PAGE>
respective areas of focus, products and technology directions of the two
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.
During the fiscal year ended September 30, 1999, Mr. Norris served on the
board of directors of e.Digital. Mr. Norris resigned from the board of
e.Digital effective November 3, 1999. The board of directors of e.Digital
performed the function of a compensation committee, and Mr. Norris, also an
executive officer of e.Digital, served on the Company's Board of Directors,
which performed the function of a compensation committee. Renee Warden, the
Company's Chief Accounting Officer, Treasurer and Secretary, serves as the Chief
Accounting Officer of e.Digital. See "Certain Transactions" concerning
relationships between the Company and e.Digital.
BOARD OF DIRECTORS REPORT ON EXECUTIVE COMPENSATION
Introductory Note: The following report is not deemed to be incorporated by
reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act of 1933, as amended, or under
the Securities Exchange Act of 1934, as amended, except to the extent that the
Company specifically incorporates this information by reference, and shall not
otherwise be deemed soliciting material or filed under such Acts.
To: Shareholders of American Technology Corporation
Compensation policies for the fiscal year ended September 30, 1999 were
established by the Board of Directors as a whole. For the fiscal year ending
September 30, 2000, the Board has designated a compensation committee which will
succeed to many of the functions of the Board concerning executive compensation.
The primary philosophy of the Board regarding compensation is to offer
packages which reward each of the members of senior management proportionately
to each person's individual performance and to the Company's overall financial
performance and growth during the previous fiscal year.
The Board measured individual and team performance on the basis of both
quantitative and qualitative factors. The Board believes that the components of
executive compensation should include base salary, annual and long-term
incentive compensation, stock option grants and other benefits summarized below.
Executive compensation
Base salary. Base salaries are intended to be competitive with market
rates and are based on an internal evaluation of the responsibilities of each
position. Salaries for executive officers are reviewed on an annual basis. The
compensation policies of the Board are designed to set the Company's executive
compensation, including salary and short-term and long-term incentive programs,
at a level consistent with amounts paid to executive officers of comparable
companies and consistent with marketplace requirements to attract and retain
management personnel with the experience and background to drive the
commercialization of the Company's technologies.
The compensation policies of the Board are particularly designed to align
executive officer and senior management salaries and bonus compensation to the
individual's performance in the short-term and to emphasize compensation from
equity, primarily employee stock options, for long-term incentives.
Long term incentives. The Company's long-term incentive programs consists
of a stock option program pursuant to which the Chief Executive Officer and
other executive officers (as well as other key employees) are periodically
granted stock options at the then fair market value (or higher prices) of the
Company's Common Stock. These option programs are designed to provide such
persons with significant compensation based on overall Company performance as
reflected in the stock price, to create a valuable retention device through
standard three to five year vesting schedules and to help align employees' and
shareholders' interests. Stock options are typically
15
<PAGE>
granted at the time of hire to key new employees, at the time of promotion to
certain employees and periodically to a broad group of existing key employees
and executive officers.
Chief Executive Officer compensation
The Company hired Cornelius J. Brosnan as its Chairman of the Board,
President and Chief Executive Officer, on August 3, 1998. The Company entered
into a three-year contract with Mr. Brosnan dated August 3, 1998, providing a
base annual salary of $240,000. The Board set Mr. Brosnan's base annual salary
competitively with his earnings at Sprint PCS immediately prior to his
employment with the Company, adjusted to a level to compensate for increased
cost of living in Southern California. The Board has not approved any pay
increases at this time.
In connection with the employment agreements, the Board granted Mr. Brosnan
a stock option, exercisable for 250,000 shares of Company Common Stock at $8.50
per share, on July 15, 1998. The option vested as to 10,000 shares at the time
of grant with the remaining 240,000 shares vesting over a thirty-two month
period commencing October 1, 1998. The Board of Directors granted two additional
options to Mr. Brosnan on July 16, 1999, each exercisable for 100,000 shares of
Company Common Stock at $10.00 per share. The exercisability of these options
are contingent on the Company's Common Stock achieving a market price of $25 and
$50 per share, respectively, for twenty consecutive trading days. The exercise
price for each of these two options was set above the market value of the
Company's Common Stock on the date the option was granted in order to provide a
long-term incentive to improve shareholder value.
Since Mr. Brosnan was hired shortly before the beginning of the fiscal year
ended September 30, 1999 pursuant to an employment agreement, the compensation
paid to him during the past fiscal year was not specifically performance
related. The Board expects the newly appointed compensation committee to fully
evaluate Mr. Brosnan's performance (as well as that of other executive officers)
during fiscal 2000. As part of that process, the compensation committee will
determine whether Mr. Brosnan will receive additional compensation for fiscal
2000 and will also consider an annual adjustment to Mr. Brosnan's base salary if
deemed necessary.
Cornelius J. Brosnan
Elwood G. Norris
Richard M. Wagner
David J. Carter
O'Connell J. Benjamin
COMPANY STOCK PRICE PERFORMANCE
Introductory Note: The stock price performance graph below is not deemed to
be incorporated by reference by any general statement incorporating by reference
this Proxy Statement into any filing under the Securities Act of 1933, as
amended, or under the Securities Exchange Act of 1934, as amended, except to the
extent that the Company specifically incorporates this information by reference,
and shall not otherwise be deemed soliciting material or filed under such Acts.
The following graph compares the five-year cumulative total return on the
Company's Common Stock to the total returns of 1) NASDAQ Stock Market and 2)
NASDAQ Stock - Electronic & Electrical Equipment & Components, excluding
Computer Equipment. This comparison assumes in each case that $100 was invested
on September 30, 1994 and all dividends were reinvested. The Company's fiscal
year ends on September 30 each year.
16
<PAGE>
DATA POINTS IN PERFORMANCE GRAPH REPRESENTED IN TABLE BELOW
<TABLE>
<CAPTION>
9/30/94 9/30/95 9/30/96 9/30/97 9/30/98 9/30/99
<S> <C> <C> <C> <C> <C> <C>
American Technology Corporation 100.0 80.0 980.0 768.0 780.0 1070.0
Nasdaq Stock Market 100.0 138.1 164.3 224.5 235.2 370.5
Nasdaq Electronic Component Stock 100.0 199.4 239.9 419.1 344.0 689.9
</TABLE>
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 e.Digital 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 e.Digital default on
its share of payments thereon. Elwood G. Norris, a Director and Chief
Technology Officer of the Company, was a director and Chief Technology Officer
of e.Digital until November 1999. He is the owner of less than 1% of
e.Digital's common shares. Renee Warden, Chief Accounting Officer, Treasurer
and Secretary of the Company, is Controller of e.Digital and the owner of less
than 1% of its common shares.
17
<PAGE>
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/ Renee Warden
---------------------------------------
Renee Warden
Secretary
March 1, 2000
A copy of the Company's Annual Report to the Securities and Exchange
Commission on Form 10-K for the fiscal year ended September 30, 1999 is
available without charge upon written request to the Secretary, American
Technology Corporation, 13114 Evening Creek Drive South, San Diego, California
92128.
18
<PAGE>
Appendix
AMERICAN TECHNOLOGY CORPORATION
1997 STOCK OPTION PLAN
ADOPTED JANUARY 23, 1998
AS AMENDED FEBRUARY 22, 2000
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>
(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>
(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.
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(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>
(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>
(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.
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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 one million (1,000,000) 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.
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(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>
(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.
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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.
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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
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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>
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.
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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.
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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 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.
15.
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(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 applicable period against the maximum awards of Options
permitted to be granted pursuant to
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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 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
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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;
(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
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(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.
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
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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.
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AMERICAN TECHNOLOGY CORPORATION
THIS PROXY RELATES TO AN ANNUAL MEETING OF THE STOCKHOLDERS TO
BE HELD APRIL 11, 2000
The undersigned hereby appoints CORNELIUS J. BROSNAN and RENEE WARDEN
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 California Center for the Arts, 340 N. Escondido Blvd., Escondido,
CA 92025 on April 11, 2000 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 Stock Option Plan to
increase the aggregate number of shares of Common Stock authorized
for issuance under the plan by 500,000 shares.
[_] FOR [_] AGAINST [_] ABSTAIN
(Continued and to be signed on the other side)
<PAGE>
(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, 2000.
[_] 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: ________________, 2000 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
(858) 679-2114
