-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ToFYsL6VIYY7F4uuuv4EwG/3bDew8b1/+kp+zauAiqD6Q54nJil32GRG8eiYSMHA anuf6ZEYMoHi6qCZ6dDT8Q== 0000936392-98-001051.txt : 19980729 0000936392-98-001051.hdr.sgml : 19980729 ACCESSION NUMBER: 0000936392-98-001051 CONFORMED SUBMISSION TYPE: S-8 PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 19980727 EFFECTIVENESS DATE: 19980727 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN TECHNOLOGY CORP /DE/ CENTRAL INDEX KEY: 0000924383 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 870361799 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: S-8 SEC ACT: SEC FILE NUMBER: 333-59929 FILM NUMBER: 98671432 BUSINESS ADDRESS: STREET 1: 13114 EVENING CREEK DRIVE SOUTH CITY: SAN DIEGO STATE: CA ZIP: 92128 BUSINESS PHONE: 6196792114 S-8 1 FORM S-8 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 27, 1998 REGISTRATION NO. 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------- FORM S-8 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------- AMERICAN TECHNOLOGY CORPORATION (Exact name of Registrant as specified in its charter) Delaware 87-0361799 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification Number) 13114 Evening Creek Drive South San Diego, CA 92128 (619) 679-2114 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) ---------- 1997 STOCK OPTION PLAN STOCK OPTIONS (Full title of the plans) ---------- Cornelius J. Brosnan President and Chief Executive Officer AMERICAN TECHNOLOGY CORPORATION 13114 Evening Creek Drive South San Diego, CA 92128 (619) 679-2114 (Name, address, including zip code, and telephone number, including area code, of agent for service) ---------- Copies to: Jeremy D. Glaser, Esq. Michael A. Newman, Esq. COOLEY GODWARD LLP 4365 Executive Drive San Diego, CA 92121 (619) 550-6000 ---------- 2
CALCULATION OF REGISTRATION FEE ============================================================================================================= PROPOSED PROPOSED MAXIMUM MAXIMUM AGGREGATE AMOUNT OF TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE OFFERING REGISTRATION SECURITIES TO BE REGISTERED BE REGISTERED PER SHARE(1) PRICE(1) FEE - ------------------------------------------------------------------------------------------------------------- Common Stock, $.00001 par value 670,000 $3.59375 - $5,003,137.50 $1,475.93 $16.00 =============================================================================================================
(1) Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457. The price per share and aggregate offering price are based upon (a) the actual exercise price for shares subject to options previously granted under the Registrant's 1997 Stock Option Plan (the "Plan"); (b) the average of the high and low sales price of Registrant's Common Stock on July 23, 1998 as reported in the over-the-counter market on the National Association of Securities Dealers OTC Electronic Bulletin Board System for shares issuable under options available for grant under the Plan, and (c) the actual exercise price for shares subject to options granted outside the Plan. The following chart shows the calculation of the registration fee.
NUMBER OF OFFERING PRICE PER AGGREGATE OFFERING TYPES OF SHARES SHARES SHARE PRICE --------------- -------- ------------------ ------------------ Shares issuable under 370,000 8.1875 3,029,375.00 options available for grant Shares subject to 30,000 3.59375 107,812.50 outstanding stock options under the Plan 100,000 3.6875 368,750.00 Shares subject to 50,000 16.00 800,000.00 outstanding stock options outside the Plan 120,000 5.81 697,200.00
3 PART II INFORMATION REQUIRED IN THE REGISTRATION STATEMENT ITEM 3. INCORPORATION OF DOCUMENTS BY REFERENCE The following documents filed by American Technology Corporation (the "Registrant") with the Securities and Exchange Commission are incorporated by reference into this Registration Statement: a) The Registrant's latest annual report on Form 10-KSB filed pursuant to Sections 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or either (1) the Registrant's latest prospectus filed pursuant to Rule 424(b) under the Securities Act of 1933, as amended (the "Securities Act"), that contains audited consolidated financial statements for the Registrant's latest fiscal year for which such statements have been filed, or (2) the Registrant's effective registration statement on Form 10 or 20-F filed under the Exchange Act containing audited consolidated financial statements for the Registrant's latest fiscal year. b) All other reports filed pursuant to Sections 13(a) or 15(d) of the Exchange Act since the end of the fiscal year covered by the annual reports, the prospectus or the registration statement referred to in (a) above. c) The description of the Registrant's Common Stock which is contained in a registration statement filed under the Exchange Act, including any amendment or report filed for the purpose of updating such description. All documents filed by the Registrant with the Commission pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Registration Statement and prior to the filing of a post-effective amendment which indicates that all securities offered have been sold or which deregisters all securities then remaining unsold shall be deemed to be incorporated by reference into this Registration Statement and to be a part hereof from the date of filing of such documents. Any statement contained in a document incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Registration Statement to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Registration Statement. ITEM 4. DESCRIPTION OF SECURITIES. Not applicable. ITEM 5. INTERESTS OF NAMED EXPERTS AND COUNSEL. Not applicable. ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS. As permitted by Delaware law, the Company's Certificate of Incorporation provides that the Company will indemnify its officers, directors, employees and agents against attorneys' fees and other expenses and liabilities they incur to defend, settle or satisfy any civil or criminal action brought against them arising out of their association with or activities on behalf of the Company unless, in any such action, the are adjudged to have acted with gross negligence or to have engaged in willful misconduct. The Company may also bear the expenses of such litigation for any such persons upon their promise to repay such sums if it is ultimately determined that they are not entitled to indemnification. Such expenditures could be substantial and may not be recouped, even if the Company is so entitled. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling the Company pursuant to the foregoing provisions, the Company has been informed that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. 1 4 Pursuant to the General Corporation Law of Delaware, the Company's Certificate of Incorporation excludes personal liability on the part of its directors to the Company for monetary damages based upon any violation of their fiduciary duties as directors, except as to liability for any breach of the duty of loyalty, acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, acts in violation of Section 174 of the General Corporation Law of Delaware, or any transaction from which a director receives an improper personal benefit. This exclusion of liability does not limit any right which a director may have to be indemnified and does not affect any director's liability under federal or applicable state securities laws. ITEM 7. EXEMPTION FROM REGISTRATION CLAIMED. Not applicable. ITEM 8. EXHIBITS.
Exhibit No. Description - ----------- ----------- 4.1 Registrant's Certificate of Incorporation (1) 4.2 Certificate of Amendment to the Certificate of Incorporation (2) 4.3 Registrant's Bylaws (1) 4.4 Specimen Stock Certificate 5.1 Opinion of Cooley Godward LLP 10.1 1997 Stock Option Plan 10.2 Special Stock Option Agreement dated October 2, 1997 between the Company and Cornelius J. Brosnan 10.3 Stock Option Agreement dated September 1, 1997 between the Company and Dale Williams (3) 10.4 Amendment to Stock Option Agreement between Dale Williams and the Company dated as of June 12, 1998 (4) 23.1 Consent of BDO Seidman, LLP 23.2 Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1. 24.1 Power of Attorney. Reference is made to page 5.
(1) Previously filed as an exhibit to the Registrant's Form 10-SB effective August 1, 1994, and incorporated herein by reference. (2) Previously filed as an exhibit to the Registrant's Form 10-QSB dated March 31, 1997, and incorporated herein by reference. (3) Previously filed as an exhibit to the Registrant's Form 10-KSB dated September 30, 1997, and incorporated herein by reference. (4) Previously filed as an exhibit to the Registrant's Form 8-K dated June 29, 1998, and incorporated herein by reference. 2 5 ITEM 9. UNDERTAKINGS. (a) Rule 415 Offering. The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act; (ii) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) (Section 230.424(b) of this chapter) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in this Registration Statement or any material change to such information in the Registration Statement; Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if this Registration Statement is on Form S-3, Form S-8 or Form F-3 and the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed with or furnished to the Commission by the Registrant pursuant to Section 13 or Section 15(d) of the Exchange Act that are incorporated by reference in this Registration Statement. (2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered herein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) Filings Incorporating Subsequent Exchange Act Documents By Reference. The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in the Registration Statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (h) Request for Acceleration of Effective Date or Filing of Registration Statement on Form S-8. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions or otherwise, the Registrant has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer 3 6 or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. 4 7 SIGNATURES The Registrant. Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-8 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Diego, State of California, on July 23, 1998. AMERICAN TECHNOLOGY CORPORATION By /s/ CORNELIUS J. BROSNAN _________________________________ Cornelius J. Brosnan Chairman, President and Chief Executive Officer POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Cornelius J. Brosnan and Robert Putnam and each of them, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or any of them, or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /S/ CORNELIUS J. BROSNAN - ------------------------------- Chairman, President and Chief Executive July 23, 1998 Cornelius J. Brosnan Officer (Principal Executive Officer) /S/ ROBERT PUTNAM - ------------------------------- Vice President, Treasurer and Assistant July 23, 1998 Robert Putnam Secretary (Acting Principal Financial and Accounting Officer) /S/ RICHARD M. WAGNER - ------------------------------- Director and Secretary July 23, 1998 Richard M. Wagner /S/ ELWOOD G. NORRIS - ------------------------------- Director and Chief Technology Officer July 23, 1998 Elwood G. Norris - ------------------------------- Director July __, 1998 Joel A. Barker
5 8 EXHIBIT INDEX EXHIBIT NO. DESCRIPTION
Exhibit No. Description - ----------- ----------- 4.1 Registrant's Certificate of Incorporation (1) 4.2 Certificate of Amendment to the Certificate of Incorporation (2) 4.3 Registrant's Bylaws (1) 4.4 Specimen Stock Certificate 5.1 Opinion of Cooley Godward LLP 10.1 1997 Stock Option Plan 10.2 Special Stock Option Agreement dated October 2, 1997 between the Company and Cornelius J. Brosnan 10.3 Stock Option Agreement dated September 1, 1997 between the Company and Dale Williams (3) 10.4 Amendment to Stock Option Agreement between Dale Williams and the Company dated as of June 12, 1998 (4) 23.1 Consent of BDO Seidman, LLP 23.2 Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1. 24.1 Power of Attorney. Reference is made to page 5.
(1) Previously filed as an exhibit to the Registrant's Form 10-SB effective August 1, 1994, and incorporated herein by reference. (2) Previously filed as an exhibit to the Registrant's Form 10-QSB dated March 31, 1997, and incorporated herein by reference. (3) Previously filed as an exhibit to the Registrant's Form 10-KSB dated September 30, 1997, and incorporated herein by reference. (4) Previously filed as an exhibit to the Registrant's Form 8-K dated June 29, 1998, and incorporated herein by reference. EX-4.4 2 EXHIBIT 4.4 1 EXHIBIT 4.4 NOT VALID UNLESS COUNTERSIGNED BY TRANSFER AGENT INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE CUSIP NO. 030145 20 5 [NUMBER] [SHARES] [AMERICAN TECHNOLOGY CORPORATION LOGO] AUTHORIZED COMMON STOCK: 20,000,000 SHARES PAR VALUE: $.00001 [SPECIMEN] THIS CERTIFIES THAT IS THE RECORD HOLDER OF -- Shares of AMERICAN TECHNOLOGY CORPORATION Common Stock -- transferable on the books of the Corporation in person or by duly authorized attorney upon surrender of this Certificate properly endorsed. This Certificate is not valid until countersigned by the Transfer Agent and registered by the Registrar. Witness the facsimile seal of the Corporation and the facsimile signatures of its duly authorized offers. Dated: [SIG] [SIG] - ----------------------------- --------------------------------- SECRETARY PRESIDENT [AMERICAN TECHNOLOGY CORPORATION CORPORATE SEAL] 2 NOTICE: Signature must be guaranteed by a firm which is a member of a registered national stock exchange, or by a bank (other than a saving bank), or a trust company. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT...Custodian.. TEN ENT - as tenants by the entireties (Cust) (Minor) JT TEN - as joint tenants with right of under Uniform Gifts to survivorship and not as tenants Minors Act ___________ in common State Additional abbreviations may also be used though not in the above list. FOR VALUE RECEIVED,_________ hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE - --------------------------------------- - --------------------------------------- _______________________________________________________________________________ (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE) _______________________________________________________________________________ _______________________________________________________________________________ _________________________________________________________________________Shares of the capital stock represented by the within certificate, and do hereby irrevocably constitute and appoint ________________________________________________________________________Attorney to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises. Dated_____________________ SPECIMEN _______________________________________________________________________ NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER EX-5.1 3 EXHIBIT 5.1 1 Exhibit 5.1 [COOLEY GODWARD LETTERHEAD] July 24, 1998 American Technology Corporation 13114 Evening Creek Drive South San Diego, CA 92128 Ladies and Gentlemen: You have requested our opinion with respect to certain matters in connection with the filing by American Technology Corporation (the "Company") of a Registration Statement on Form S-8 (the "Registration Statement") with the Securities and Exchange Commission covering the offering of an aggregate of 670,000 shares of the Company's Common Stock, $.00001 par value (the "Shares"), consisting of up to 500,000 shares of the Company's Common Stock pursuant to its 1997 Stock Option Plan (the "Plan") and 170,000 shares of the Company's Common Stock granted outside the Plan (the "Options"). In connection with this opinion, we have examined the Registration Statement, the Plan, the Options, your Certificate of Incorporation, as amended, and Bylaws, and such other documents, records, certificates, memoranda and other instruments as we deem necessary as a basis for this opinion. We have assumed the genuineness and authenticity of all documents submitted to us as originals, the conformity to originals of all documents submitted to us as copies thereof, and the due execution and delivery of all documents where due execution and delivery are a prerequisite to the effectiveness thereof. On the basis of the foregoing, and in reliance thereon, we are of the opinion that the Shares, when sold and issued in accordance with the Registration Statement and the Plan or the Options, as applicable, will be validly issued, fully paid and nonassessable. We consent to the filing of this opinion as an exhibit to the Registration Statement. Very truly yours, COOLEY GODWARD LLP By:/S/ JEREMY D. GLASER ____________________ Jeremy D. Glaser EX-10.1 4 EXHIBIT 10.1 1 EXHIBIT 10.1 AMERICAN TECHNOLOGY CORPORATION 1997 STOCK OPTION PLAN ADOPTED JANUARY 23, 1998 1. PURPOSES. (a) The purpose of the Plan is to provide a means by which selected Employees and Directors of, and Consultants to, the Company, and its Affiliates, may be given an opportunity to purchase stock of the Company. (b) The Company, by means of the Plan, seeks to retain the services of persons who are now Employees or Directors of or Consultants to the Company or its Affiliates, to secure and retain the services of new Employees, Directors and Consultants, and to provide incentives for such persons to exert maximum efforts for the success of the Company and its Affiliates. (c) The Company intends that the Options issued under the Plan shall, in the discretion of the Board or any Committee to which responsibility for administration of the Plan has been delegated pursuant to subsection 3(c), be either Incentive Stock Options or Nonstatutory Stock Options. All Options shall be separately designated Incentive Stock Options or Nonstatutory Stock Options at the time of grant, and in such form as issued pursuant to Section 6, and a separate certificate or certificates will be issued for shares purchased on exercise of each type of Option. 2. DEFINITIONS. (a) "AFFILIATE" means any parent corporation or subsidiary corporation, whether now or hereafter existing, as those terms are defined in Sections 424(e) and (f) respectively, of the Code. 1 2 (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 3 (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 4 (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 5 (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 6 (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 7 time by the Board. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan. Additionally, prior to the Listing Date, and notwithstanding anything to the contrary contained herein, the Board may delegate administration of the Plan to any person or persons, and the term "Committee" shall apply to any person or persons to whom such authority has been delegated. Notwithstanding anything in this Section 3 to the contrary, the Board or the Committee may delegate to a committee of one or more members of the Board the authority to grant Options to eligible persons who (1) are not then subject to Section 16 of the Exchange Act and/or (2) are either (i) not then Covered Employees and are not expected to be Covered Employees at the time of recognition of income resulting from such Option, or (ii) not persons with respect to whom the Company wishes to comply with Section 162(m) of the Code. 4. SHARES SUBJECT TO THE PLAN. (a) Subject to the provisions of Section 10 relating to adjustments upon changes in stock, the stock that may be sold pursuant to Options shall not exceed in the aggregate five hundred thousand (500,000) shares of the Company's common stock. If any Option shall for any reason expire or otherwise terminate, in whole or in part, without having been exercised in full, the stock not purchased under such Option shall revert to and again become available for issuance under the Plan. (b) The stock subject to the Plan may be unissued shares or reacquired shares, bought on the market or otherwise. 5. ELIGIBILITY. (a) Incentive Stock Options may be granted only to Employees. Nonstatutory Stock Options may be granted only to Employees, Directors or Consultants. 7 8 (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 9 (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 10 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 11 representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters, and that he or she is capable of evaluating, alone or together with the purchaser representative, the merits and risks of exercising the Option; and (2) to give written assurances satisfactory to the Company stating that such person is acquiring the stock subject to the Option for such person's own account and not with any present intention of selling or otherwise distributing the stock. The foregoing requirements, and any assurances given pursuant to such requirements, shall be inoperative if (i) the issuance of the shares upon the exercise of the Option has been registered under a then currently effective registration statement under the Securities Act, or (ii) as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws. The Company may require the Optionee to provide such other representations, written assurances or information which the Company shall determine is necessary, desirable or appropriate to comply with applicable securities and other laws as a condition of granting an Option to such Optionee or permitting the Optionee to exercise such Option. The Company may, upon advice of counsel to the Company, place legends on stock certificates issued under the Plan as such counsel deems necessary or appropriate in order to comply with applicable securities laws, including, but not limited to, legends restricting the transfer of the stock. (g) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR CONSULTANT. In the event an Optionee's Continuous Status as an Employee, Director or Consultant terminates (other than upon the Optionee's death or disability), the Optionee may exercise his or her Option (to the extent that the Optionee was entitled to exercise it as of the date of termination) but only within such period of time ending on the earlier of (i) the date three (3) months following the termination of the Optionee's Continuous Status as an Employee, Director or Consultant, or such 11 12 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 13 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 14 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 15 shall be relieved from any liability for failure to issue and sell stock upon exercise of such Options unless and until such authority is obtained. 8. USE OF PROCEEDS FROM STOCK. Proceeds from the sale of stock pursuant to Options shall constitute general funds of the Company. 9. MISCELLANEOUS. (a) Neither an Optionee nor any person to whom an Option is transferred under subsection 6(d) shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares subject to such Option unless and until such person has satisfied all requirements for exercise of the Option pursuant to its terms. (b) Throughout the term of any Option, the Company shall deliver to the holder of such Option, not later than one hundred twenty (120) days after the close of each of the Company's fiscal years during the Option term, a balance sheet and an income statement. This section shall not apply (i) after the Listing Date, or (ii) when issuance is limited to key employees whose duties in connection with the Company assure them access to equivalent information. (c) Nothing in the Plan or any instrument executed or Option granted pursuant thereto shall confer upon any Employee, Director, Consultant or Optionee any right to continue in the employ of the Company or any Affiliate (or to continue acting as a Director or Consultant) or shall affect the right of the Company or any Affiliate to terminate the employment of any Employee, with or without cause, to remove any Director as provided in the Company's Bylaws and the provisions of the General Corporation Law of the State of Delaware, or to terminate the 15 16 relationship of any Consultant subject to the terms of that Consultant's agreement with the Company or Affiliate to which such Consultant is providing services. (d) To the extent that the aggregate Fair Market Value (determined at the time of grant) of stock with respect to which Incentive Stock Options are exercisable for the first time by any Optionee during any calendar year under all plans of the Company and its Affiliates exceeds one hundred thousand dollars ($100,000), the Options or portions thereof which exceed such limit (according to the order in which they were granted) shall be treated as Nonstatutory Stock Options. (e) (1) The Board or the Committee shall have the authority to effect, at any time and from time to time (i) the repricing of any outstanding Options under the Plan and/or (ii) with the consent of the affected holders of Options, the cancellation of any outstanding Options and the grant in substitution therefor of new Options under the Plan covering the same or different numbers of shares of common stock, but having an exercise price per share not less than eighty-five percent (85%) percent of the Fair Market Value (one hundred percent (100%) of the Fair Market Value in the case of an Incentive Stock Option or, in the case of a ten percent (10%) stockholder (as defined in subsection 5(b)), not less than one hundred and ten percent (110%) of the Fair Market Value) per share of common stock on the new grant date. (2) Shares subject to an Option canceled under this subsection 9(e) shall continue to be counted, for the applicable period in which it was granted, against the maximum award of Options permitted to be granted pursuant to subsection 5(c) of the Plan. The repricing of an Option under this subsection 9(e), resulting in a reduction of the exercise price, shall be deemed to be a cancellation of the original Option and the grant of a substitute Option; in the event of such repricing, both the original and the substituted Options shall be counted for the 16 17 applicable period against the maximum awards of Options permitted to be granted pursuant to subsection 5(c) of the Plan. The provisions of this subsection 9(e)(2) shall be applicable only to the extent required by Section 162(m) of the Code. 10. ADJUSTMENTS UPON CHANGES IN STOCK. (a) If any change is made in the stock subject to the Plan, or subject to any Option (through merger, consolidation, reorganization, recapitalization, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other transaction not involving the receipt of consideration by the Company), the Plan will be appropriately adjusted in the type(s) and maximum number of securities subject to the Plan pursuant to subsection 4(a) and the maximum number of securities subject to award to any person during any twelve (12) month period pursuant to subsection 5(c), and the outstanding Options will be appropriately adjusted in the type(s) and number of securities and price per share of stock subject to such outstanding Options. Such adjustments shall be made by the Board or Committee, the determination of which shall be final, binding and conclusive. (The conversion of any convertible securities of the Company shall not be treated as a "transaction not involving the receipt of consideration by the Company.") (b) In the event of: (1) a dissolution, liquidation, or sale of all or substantially all of the assets of the Company; (2) a merger or consolidation in which the Company is not the surviving corporation; or (3) a reverse merger in which the Company is the surviving corporation but the shares of the Company's common stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise; or (4) the acquisition by any person, entity or group within the meaning of 17 18 Section 13(d)(3) or 14(d)(2) of the Exchange Act, or any comparable successor provisions (excluding any employee benefit plan, or related trust, sponsored or maintained by the Company or any Affiliate of the Company) of the beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act, or comparable successor rule) of securities of the Company representing at least fifty percent (50%) of the combined voting power entitled to vote in the election of directors, then: (i) any surviving or acquiring corporation shall assume any Options outstanding under the Plan or shall substitute similar options (including an option to acquire the same consideration paid to the stockholders in the transaction described in this Section 10(b)) for those outstanding under the Plan, or (ii) in the event any surviving or acquiring corporation refuses to assume such Options or to substitute similar options for those outstanding under the Plan, (A) with respect to Options held by persons then performing services as Employees, Directors or Consultants, the vesting of such Options and the time during which such Options may be exercised shall be accelerated prior to such event and the Options terminated if not exercised after such acceleration and at or prior to such event, and (B) with respect to any other Options outstanding under the Plan, such Options shall be terminated if not exercised prior to such event. 11. AMENDMENT OF THE PLAN AND OPTIONS. (a) The Board at any time, and from time to time, may amend the Plan. However, except as provided in Section 10 relating to adjustments upon changes in stock, no amendment shall be effective unless approved by the stockholders of the Company within twelve (12) months before or after the adoption of the amendment, where the amendment will: (1) Increase the number of shares reserved for Options under the Plan; 18 19 (2) Modify the requirements as to eligibility for participation in the Plan (to the extent such modification requires stockholder approval in order for the Plan to satisfy the requirements of Section 422 of the Code); or (3) Modify the Plan in any other way if such modification requires stockholder approval in order for the Plan to satisfy the requirements of Section 422 of the Code or to comply with the requirements of Rule 16b-3. (b) The Board may in its sole discretion submit any other amendment to the Plan for stockholder approval, including, but not limited to, amendments to the Plan intended to satisfy the requirements of Section 162(m) of the Code and the regulations promulgated thereunder regarding the exclusion of performance-based compensation from the limit on corporate deductibility of compensation paid to certain executive officers. (c) It is expressly contemplated that the Board may amend the Plan in any respect the Board deems necessary or advisable to provide Optionees with the maximum benefits provided or to be provided under the provisions of the Code and the regulations promulgated thereunder relating to Incentive Stock Options and/or to bring the Plan and/or Incentive Stock Options granted under it into compliance therewith. (d) Rights and obligations under any Option granted before amendment of the Plan shall not be impaired by any amendment of the Plan unless (i) the Company requests the consent of the person to whom the Option was granted and (ii) such person consents in writing. (e) The Board at any time, and from time to time, may amend the terms of any one or more Options; provided, however, that the rights and obligations under any Option shall not be impaired by any such amendment unless (i) the Company requests the consent of the person to whom the Option was granted and (ii) such person consents in writing. 19 20 12. TERMINATION OR SUSPENSION OF THE PLAN. (a) The Board may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate on January 22, 2008, which shall be within ten (10) years from the date the Plan is adopted by the Board or approved by the stockholders of the Company, whichever is earlier. No Options may be granted under the Plan while the Plan is suspended or after it is terminated. (b) Rights and obligations under any Option granted while the Plan is in effect shall not be impaired by suspension or termination of the Plan, except with the written consent of the person to whom the Option was granted. 13. EFFECTIVE DATE OF PLAN. The Plan shall become effective as determined by the Board, but no Options granted under the Plan shall be exercised unless and until the Plan has been approved by the stockholders of the Company, which approval shall be within twelve (12) months before or after the date the Plan is adopted by the Board, and, if required, an appropriate permit has been issued by the Commissioner of Corporations of the State of California. 20 EX-10.2 5 EXHIBIT 10.2 1 EXHIBIT 10.2 AMERICAN TECHNOLOGY CORPORATION - ------------------------------ Special Stock Option - ---------------- Granted Under the Approval of the Board of Directors of American Technology Corporation THIS SPECIAL STOCK OPTION, dated as of October 2, 1997 (the "Date of Grant"), is granted by AMERICAN TECHNOLOGY CORPORATION, a Delaware corporation ("Company"), to Cornelius J. Brosnan (the "Optionee"), whose status with the Company is described on the signature page hereof below his signature. WHEREAS, the Optionee is now a Director of the Company and the Company desires to have the Optionee remain in its service and desires to encourage stock ownership by the Optionee and to increase the Optionee's proprietary interest in the Company's success; and as an inducement thereto has determined to grant to the Optionee the option herein provided for, to the end that the Optionee may thereby be assisted in obtaining an interest, or an increased interest, as the case may be, in the stock ownership of the Company; NOW, THEREFORE, in consideration of the covenants and agreements herein contained, the parties hereto hereby agree as follows: 1. GRANT. Pursuant to the Unanimous Consent of Directors of the Company dated October 2, 1997, the Company hereby grants to the Optionee an option (the "Option") to purchase 50,000 shares of the Company's common stock, $.00001 par value per share (the "Option Shares") at the price of $16.00 per share (the "Purchase Price" or "Exercise Price") and vesting 25,000 option shares on October 2, 1998 and 25,000 option shares on October 2, 1999. This Option is granted separately at the discretion of the Board of Directors and is not an option pursuant to the 1992 option plans. Both the Purchase Price and the number of Option Shares purchasable may be adjusted pursuant to Paragraph 10 hereof. 2. TERM. This Option is exercisable during the period beginning with the Date of Grant and ending October 2, 2002, at 5:00 p.m. (Pacific Time), except as provided in Paragraph 7 hereof. 3. EXERCISE OF OPTION. During the Optionee's life, this Option may only be exercised by him or her. This Option may only be exercised by presentation at the principal offices of the Company in San Diego, California of written notice to the Company's Secretary advising the Company of the Optionee's election to purchase Option Shares, specifying the number of Option Shares being purchased, accompanied by payment. No Option Shares shall be issued until full payment is made therefor. Payment shall be made in cash, represented by bank or cashier's check, certified check or money order. 1. 2 4. ISSUANCE OF OPTION SHARES; RESTRICTIVE LEGEND. (a) Upon proper exercise of this Option, the Company shall mail or deliver to the Optionee, as promptly as practicable, a stock certificate or certificates representing the Option Shares purchased, subject to clause (b) below. The Company shall not be required to sell or issue any shares under the Option if the issuance of such shares shall constitute a violation of any applicable law or regulation or of any requirements of any national securities exchange upon which the Company's common stock may be listed. (b) Upon any exercise of this Option, if a registration statement under the Securities Act of 1933 (the "Act") is not in effect with respect to the Option Shares, then the Company shall not be required to issue any Option Shares unless the Company has received evidence reasonably satisfactory to it to the effect that the Optionee is acquiring such shares for investment and not with a view to the distribution thereof. Any reasonable determination in this connection by the Company shall be final, binding and conclusive. (c) Unless and until removed as provided below, each certificate evidencing unregistered Option Shares shall bear a legend in substantially the following form: "The shares of stock represented by this certificate have not been registered under the Securities Act of 1933 or under the securities laws of any state and may not be sold or transferred except upon such registration or upon receipt by this Corporation of an opinion or counsel satisfactory to this Corporation, in form and substance satisfactory to this Corporation, that registration is not required for such sale or transfer." The Company shall issue a new certificate which does not contain such legend if (i) the shares represented by such certificate are sold pursuant to a registration statement (including a current prospectus) which has become effective under the Act, or (ii) the staff of the Securities and Exchange Commission shall have issued a "no action" letter, reasonably satisfactory to the Company's counsel, to the effect that such shares may be freely sold and thereafter traded publicly without registration under the Act, or (iii) the Company's counsel, or other counsel acceptable to the Company, shall have rendered an opinion satisfactory to the Company to the effect that such shares may be freely sold and thereafter publicly traded without registration under the Act. The Company may, but shall in no event by obligated to, register any securities covered hereby pursuant to the Act. The Company shall not be obligated to take any other affirmative action in order to cause the exercise of the Option or the issuance of any Option Shares to comply with any law or regulation of any governmental authority. 5. TRANSFER OF OPTION SHARES. Option Shares issued upon exercise of this Option which have not been registered under the Act shall be transferable by a holder thereof only upon compliance with the conditions in this Paragraph. Before making any transfer of Option Shares, the holder of the shares shall give written notice to the Company of the holder's intention to make the transfer, describing the manner and circumstances of the transfer. If in the opinion of the Company's counsel, or of other counsel acceptable to the Company, the proposed transfer may be effected without registration under the Act, the Company shall so notify the holder and the holder shall be entitled to transfer such shares as described in the holder's notice to the Company. If such counsel opines that the transfer may not be made without registration under 2. 3 the Act, then the Company shall so notify the holder, in which event the holder shall not be entitled to transfer the shares until (i) the Company notifies the holder that it is permissible to proceed with the transfer, or (ii) registration of the shares under the Act has become effective. The Company may issue "stop transfer" instructions to its transfer agent with respect to any or all of the Option Shares as it deems necessary to prevent any violation of the Act. 6. TRANSFER OR ENCUMBRANCE OF THIS OPTION PROHIBITED. This Option may not be transferred or assigned in any manner by the Optionee, except by will or trust upon the Optionee's death or by operation of law under the laws of descent and distribution. The same restriction on transfer or assignment shall apply to any heirs, devisees, beneficiaries or other persons acquiring this Option or an interest herein under such an instrument or by operation of law. Further, this Option may not be pledged, hypothecated or otherwise encumbered, by operation of law or otherwise, nor shall it be subject to execution, attachment or similar process. 7. TERMINATION OF SERVICE, DEATH, OR DISABILITY. (a) Except as may be otherwise expressly provided in this Agreement, this Option shall terminate as follows: (i) Upon termination of the Optionee's directorship with the Company for cause; (ii) At the expiration of six (6) months from the date of the Optionee's resignation or termination of the Optionee's directorship with the Company without cause, for any reason other than death; provided, that if the Optionee dies within such six-month period, subclause (iii) below shall apply; or (iii) At the expiration of fifteen (15) months after the date of death of the Optionee. (b) This Option confers no right upon the Optionee with respect to the continuation of his directorship (or his position as an officer, director or other provider of services) with the Company or any parent or subsidiary of the Company, and shall not interfere with the right of the Company, or any parent or subsidiary Company, to terminate such relationship(s) at any time in accordance with law and any agreements then in force. 8. NO RIGHTS AS STOCKHOLDER. The Optionee shall have no rights as a stockholder with respect to Option Shares until the date of issuance of a stock certificate for such shares. No adjustment for dividends, or otherwise, except as provided in Paragraph 9, shall be made if the record date therefor is prior to the date of exercise of such Option. 9. CHANGES IN THE COMPANY'S CAPITAL STRUCTURE. The existence of this Option shall not limit or affect in any way the right or power of the Company or its shareholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in the company's capital structure or its business, or any merger or consolidation of the Company, or any issue of bonds, debentures, preferred or prior preference stock ahead of or affecting the Option Shares or the rights thereof, or the dissolution or liquidation of the Company, or any sale 3. 4 or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise. However, (a) If, prior to the Company's delivery of all the Option Shares subject to this Option, the Company shall effect a subdivision (split) or combination (reverse split) of shares or other capital readjustment, the payment of a common stock dividend, or other increase or reduction of the number of shares of common stock outstanding, without receiving compensation therefor in money, services or property, then (i) in the event of an increase in the number of such shares outstanding, the Purchase Price shall be proportionately reduced and the number of Option Shares then still purchasable shall be proportionately increased; and (ii) in the event of a reduction in the number of such shares outstanding, the Purchase Price payable per share shall be proportionately increased and the number of Option Shares then still purchasable shall be proportionately reduced. (b) If while this Option remains outstanding the Company is reorganized, merged, consolidated or party to a plan of share exchange with another corporation, or if the Company sells or otherwise disposes of all or substantially all its property or assets to another corporation, then subject to the provisions of clause (ii) below, (i) after the effective date of such reorganization, merger, consolidation, exchange or sale, as the case may be, the Optionee shall be entitled, upon exercise of this Option, to receive, in lieu of the Option Shares, the number and class of shares of such stock, other securities, cash and other property or rights as the holders of shares of the Company's common stock received pursuant to the terms of the reorganization, merger, consolidation, exchange or sale and to which he would have been entitled if, immediately prior to such reorganization, merger, consolidation, exchange or sale, he had been the holder of record of a number of shares of common stock equal to the number of Option Shares as to which this Option shall be so exercised; and (ii) this Option may be canceled by the Board of Directors of the Company as of the effective date of any such reorganization, merger, consolidation, exchange or sale; provided that (x) such reorganization, merger, consolidation, exchange or sale results in a change in control of the Company rather than a mere change of form or domicile of the Company, (y) written notice of such cancellation is given to the Optionee or other holder of this Option not less than 45 days prior to such effective date, and (z) the Options or other holder shall have the right to exercise the Option in full during such 45-day period preceding the effective date of such reorganization, merger, consolidation, exchange or sale. (c) In case the Company shall determine to offer to the holders of its common stock rights to subscribe pro rata for any new or additional shares of common stock, or any securities convertible into common stock, then the Optionee shall be entitled to participate in such pro rata offering in the same manner and to the same extent as if this Option had been exercised at the Purchase Price then in effect and the number of Option Shares then purchasable upon exercise hereof had been issued to the Optionee pursuant to the terms hereof. (d) Except as herein before expressly provided, the issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, for cash or property, or for labor or services either upon direct sale or upon the exercise of rights or warrants to subscribe therefor, or upon conversion of shares or obligations of the Company convertible into such shares or other securities, shall not affect, and no adjustment by reason thereof shall be 4. 5 made with respect to, the Purchase Price or the number of Option Shares then subject to this Option. 10. NOTIFICATION TO COMPANY OF CERTAIN SALES. The Optionee or other holder of Option Shares who sells any of such shares shall notify the Company of such fact in writing within 30 days after the date of sale, if: (a) At the time the Option Shares were sold, less than ONE year had elapsed since the date the Option Shares were purchased by the Optionee, and less than TWO years had elapsed since the Date of Grant of this Option; or (b) The Optionee was not an employee of the Company (or of a parent or subsidiary thereof) at all times during the period beginning on the Date of Grant of this Option and ending on the date three (3) months prior to the date this Option was exercised to purchase the Option Shares sold. The failure of the Optionee or other holder of Option Shares to promptly give such notice to the Company shall entitle the Company to cancel this Option forthwith, without prior notice to the holder hereof. 11. NOTICES, ETC. Any notice hereunder by the Optionee shall be given to the Company in writing, and such notice and any payment by the Optionee hereunder shall be deemed duly given or made only upon receipt thereof at the Company's office at 13114 Evening Creek Drive South, San Diego, California 92128, or at such other address as the Company may designate by notice to the Optionee. Any notice or other communication to the Optionee hereunder shall be in writing and shall be deemed duly given or made if mailed or delivered to the Optionee at the last address as the Optionee may have on file with the Company's Secretary. This Option shall be governed under and construed in accordance with the laws of the State of California. This address shall be binding on the Company and the Optionee and all successors, assigns, heirs, devisees and personal representatives thereof. NOTE: This option must match the Control copy maintained by the Company, in all particulars. 5. 6 IN WITNESS WHEREOF, the parties hereto have executed this Special Stock Option as of the day and year first above written. AMERICAN TECHNOLOGY CORPORATION By ________________________________________ Dale W. Williams, President ATTEST: By ______________________________ Richard Wagner, Secretary OPTIONEE NAME and STATUS; Cornelius J. Brosnan, Director ORIGINAL to Optionee / COPY to Company 6. EX-23.1 6 EXHIBIT 23.1 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS American Technology Corporation San Diego, California We hereby consent to the incorporation by reference in this Registration Statement of our report dated November 5, 1997 relating to the financial statements of American Technology Corporation, appearing on the Company's Annual Report on Form 10-KSB for the year ended September 30, 1997. /s/ BDO SEIDMAN, LLP BDO SEIDMAN, LLP Denver, Colorado July 24, 1998 -----END PRIVACY-ENHANCED MESSAGE-----