Document:

Form of 8% Senior Secured Promissory Note

  
 EXHIBIT 4.1 
  
 THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS, AND ARE “RESTRICTED
SECURITIES” AS THAT TERM IS DEFINED IN RULE 144 UNDER SUCH ACT. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT AND APPLICABLE
LAWS OR SOME OTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND/OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. 
  
 AMERICAN TECHNOLOGY CORPORATION 
 8% SENIOR SECURED PROMISSORY NOTE 
  
 $                         
 San Diego, California 
 September 30, 2002    
  
 AMERICAN TECHNOLOGY CORPORATION, a Delaware corporation (the “Company”), for value received hereby promises to pay to
                                    , or its assigns
(“Holder”), the sum of
                        ($                
         ), or such lesser or greater amount as shall then equal the outstanding principal amount hereof and any unpaid accrued interest hereon or other amounts due, as set forth below. Payment for all amounts
due hereunder shall be made by mail to the registered address of the Holder as defined below. 
  
 This 8% Senior
Secured Promissory Note (the “Note”) is one of a duly authorized issue of the Company designated as 8% Senior Secured Promissory Notes (the “Notes”) due December 31, 2003 and limited to the aggregate principal amount of
$2,000,000. 
  
 This Note, and the obligations of the Company hereunder, are secured by that certain Security
Agreement dated as of September 30, 2002 and executed by the Company and each of the holders of the Notes (as the same may from time to time be amended, modified or supplemented or restated, the “Security Agreement”). 

 
 The following is a statement of the rights of the Holder of this Note and the conditions to which this Note is subject, and to
which the Holder hereof, by the acceptance of this Note, agrees: 
  
 1.    Definitions.    As used in this Note, the following terms, unless the context otherwise requires, have the following meanings: 
  

1.1    “Company” includes any corporation which shall succeed to or assume the obligations of the Company under this
Note. 

  
 1.2    “Holder,” when the context
refers to a holder of this Note, shall mean any person who shall at the time be the registered holder of this Note. 
  
 2.    Principal and Interest. 
  
 2.1    The Company shall pay interest at the rate of eight percent (8%) per annum, or the maximum rate permissible under the laws of the State of California relating to permissible rates of interest for commercial
loans, whichever is less (the “Interest Rate”) on the principal of this Note outstanding during the period beginning on the date of issuance of this Note and ending on the earlier to occur of (i) December 31, 2003, or (ii) when declared
due and payable by the Holder upon the occurrence of an Event of Default (the “Maturity Date”). Interest shall be calculated on the basis of a 360-day year for the actual number of days elapsed and 30-day months for the actual number of
months elapsed. 
  
 2.2    All principal and interest owing hereunder shall be
paid as follows: 
  
 2.2.1    A quarterly payment of interest only on the
outstanding principal amount hereof shall be due and payable to Holder on the first business day following the end of each calendar quarter with the first such payment due and payable on January 2, 2003. 
  
 2.2.2    All outstanding principal plus all accrued but unpaid interest therein shall become due and
payable on December 31, 2003, unless sooner accelerated or redeemed in accordance with the provisions herein. 
  
 3.    Events of Default.    If any of the events specified in this Section 3 shall occur (herein individually referred to as an “Event of Default”), the Holder of the Note may,
so long as such condition exists, declare the entire principal and unpaid accrued interest hereon immediately due and payable, by notice in writing to the Company: 
  
 3.1    Default in the payment of either interest or principal of this Note when due and payable if such default is not cured by the
Company within thirty (30) days after the Holder has given the Company written notice of such default; or 
  
 3.2    The institution by the Company of proceedings to be adjudicated as bankrupt or insolvent, or the consent by it to institution of bankruptcy or insolvency proceedings against it or the filing by it of a
petition or answer or consent seeking reorganization or release under the federal Bankruptcy Act, or any other applicable federal or state law, or the consent by it to the filing of any such petition or the appointment of a receiver, liquidator,
assignee, trustee or other similar official of the Company, or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the taking of corporate action by the Company in furtherance of any such
action; or 
  
 3.3    If, within ninety (90) days after the commencement of an
action against the Company (and service of process in connection therewith on the Company) seeking any bankruptcy, insolvency, reorganization, liquidation or dissolution or similar relief under any present or future statute, law or regulation, such
action shall not have been resolved in favor of the Company or all orders or proceedings thereunder affecting the operations or the business of the Company stayed, or if the stay of any such order or proceeding shall thereafter be set aside,

 

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 or if, within ninety (90) days after the appointment without the consent or
acquiescence of the Company of any trustee, receiver or liquidator of the Company or of all or any substantial part of the properties of the Company, such appointment shall not have been vacated. 
  

4.    Rights of Holder Upon Default.    Upon the occurrence or existence of any Event of Default and at
any time thereafter during the continuation of such Event of Default, Holder may declare all outstanding principal and accrued interest due under this Note and payable by the Company hereunder to be immediately due and payable in cash. 

 
 5.    Subordination.    The indebtedness evidenced by this Note
is hereby expressly subordinated, to the extent and in the manner hereinafter set forth, in right of payment to the prior payment in full of all the Company’s Senior Indebtedness, as hereinafter defined. All indebtedness of the Company other
than Senior Indebtedness is hereby expressly subordinated to the indebtedness evidenced by this Note. 
  
 5.1    Senior Indebtedness.    As used in this Note, the term “Senior Indebtedness” shall mean the principal of and unpaid accrued interest on: (i) amounts owed to equipment
lessors pursuant to equipment lease lines approved by the Company’s Board of Directors, (ii) all obligations and liabilities in connection with the lease of real property, (iii) all other current and future indebtedness which the holders of
more than 50% of the aggregate principal amount of the Notes agree in writing to be deemed Senior Indebtedness and (iv) all modifications, renewals, extensions and refundings of indebtedness, liabilities or obligations of the kind described in any
of the preceding clauses. 
  
 5.2    Default on Senior
Indebtedness.    If there should occur any receivership insolvency, assignment for the benefit of creditors, bankruptcy, reorganization or arrangement with creditors (whether or not pursuant to bankruptcy or other insolvency
laws), sale of all or substantially all of the assets, dissolution, liquidation or any other marshalling of the assets and liabilities of the Company, or if this Note shall be declared due and payable upon the occurrence of an Event of Default with
respect to any Senior Indebtedness, then (i) no amount shall be paid by the Company in respect of the principal of or interest on this Note at the time outstanding, unless and until the principal of and interest on the Senior Indebtedness then
outstanding shall be satisfied, and (ii) no claim or proof of claim shall be filed with the Company by or on behalf of the Holder of this Note that shall assert any right to receive any payment in respect of the principal of and interest on this
Note, except subject to the satisfaction of the principal of and interest on all of the Senior Indebtedness then outstanding. If there occurs an event of default that has been declared in writing with respect to any Senior Indebtedness, or in the
instrument under which any Senior Indebtedness is outstanding, permitting the holder of such Senior Indebtedness to accelerate the maturity thereof, then, unless and until such event of default shall have been cured or waived or shall have ceased to
exist, or all Senior Indebtedness shall have been satisfied, no payment shall be made in respect of the principal of or interest on this Note, unless within three (3) months after the happening of such event of default, the maturity of such Senior
Indebtedness shall not have been accelerated. 
  
 5.3    Effect of
Subordination.    Subject to the rights, if any, of the holders of Senior Indebtedness under this Section 5 to receive cash, securities or other properties otherwise payable or deliverable to the Holder of this Note, nothing
contained in this Section 5 shall 
 

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 impair, as between the Company and the Holder, the obligation of the Company,
subject to the terms and conditions hereof, to pay to the Holder the principal hereof and interest hereon as and when the same become due and payable, or shall prevent the Holder of this Note, upon default hereunder, from exercising all rights,
powers and remedies otherwise provided herein or by applicable law. 
  
 5.4    Subrogation.    Subject to the payment in full of all Senior Indebtedness and until this Note shall be paid in full, the Holder shall be subrogated to the rights of the holders of
Senior Indebtedness (to the extent of payments or distributions previously made to such holders of Senior Indebtedness pursuant to the provisions of Section 5.2 above) to receive payments or distributions of assets of the Company applicable to the
Senior Indebtedness. No such payments or distributions applicable to the Senior Indebtedness shall, as between the Company and its creditors, other than the holders of Senior Indebtedness and the Holder, be deemed to be a payment by the Company to
or on account of this Note; and for the purposes of such subrogation, no payments or distributions to the holders of Senior Indebtedness to which the Holder would he entitled except for the provisions of this Section 5 shall, as between the Company
and its creditors, other than the holders of Senior Indebtedness and the Holder, be deemed to be a payment by the Company to or on account of the Senior Indebtedness. 
  
 5.5    Undertaking.    By its acceptance of this Note, the Holder agrees to execute and deliver such
documents as may be reasonably requested from time to time by the Company or the lender of any Senior Indebtedness in order to implement the foregoing provisions of this Section 5. 
  
 5.6    Pro Rata Distribution.    In the event that the Company’s assets are insufficient to satisfy the
Holder of this Note and the holders of all other Notes issued contemporaneously or in connection with the offering of the Notes by the Company, the Company’s available assets shall be distributed pro rata to all such holders based on the total
principal and interest then due to each such holder. 
  
 6.    Redemption.

  
 6.1    Optional Redemption by Company.    At any
time after the date hereof, the Note will be redeemable at the Company’s option, in whole or in part. If less than all of the outstanding Notes are to be redeemed, the Notes shall be redeemed pro rata based on the aggregate principal amount
outstanding on the Notes as of the date of redemption. 
  
 6.2    Mandatory
Redemption by Company.    Upon the closing of one or more sales by the Company of securities, involving the issuance and sale of Equity Securities (as defined below), of the Company in which the aggregate gross proceeds
received by the Company equals or exceeds $3,000,000 (a “Qualified Financing”), the Note shall be redeemed in its entirety by the Company. “Equity Securities” means capital stock (common or preferred) and any security
convertible, exchangeable, redeemable or exercisable for capital stock of the Company. 
  
 6.3    Redemption Price. 
  
 6.3.1    In the event the Redemption Date (as defined below) occurs on or after January 1, 2003, the price of redemption payable by the Company to the Holder (the 
 

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 “Redemption Price”) shall be (i) the outstanding principal on the
Note, or the portion of the Note to be redeemed (in either case, the “Redemption Principal”), plus (ii) accrued but unpaid interest on the Redemption Principal through the Redemption Date, plus (iii) an amount equal to two (2) months’
interest on the Redemption Principal (the “Early Retirement Premium”). 
  
 6.3.2    In the event the Redemption Date occurs on or prior to December 31, 2002, the Redemption Price shall be (i) the Redemption Principal, plus (ii) accrued but unpaid interest on the Redemption Principal
through December 31, 2002 regardless of whether or not the actual Redemption Date was prior to such date, plus (iii) the Early Retirement Premium. For example, if the Redemption Date is October 31, 2002, the Redemption Price would be the Redemption
Principal plus an amount equal to five (5) months’ interest on the Redemption Principal. 
  
 6.3.3    For purposes of redemption pursuant to Section 6.1, the “Redemption Date” shall be the date set by the Company for such redemption. For purposes of redemption pursuant to Section 6.2, the
“Redemption Date” shall be the closing date of the Qualified Financing. In either case, payment shall be made on the Redemption Date in accordance with the opening paragraph of this Note. 
  
 6.4    Notwithstanding any other provision of this Section 6, payment by the Company to the Holder of
outstanding principal plus all accrued but unpaid interest on the Note pursuant to Section 2 hereof any time after the fifth (5th) business day before the Maturity Date shall not be considered a redemption or notice of redemption pursuant to this Section 6. 
  
 7.    Representations and Warranties of the Holder. 
  
 7.1    Holder Bears Economic Risk.    Holder has substantial experience in evaluating and investing in
private placement transactions of securities in companies similar to the Company and can afford a complete loss of its investment. Holder must bear the economic risk of this investment indefinitely unless the Note is registered pursuant to the
Securities Act or an exemption from registration is available. Holder understands that the Company has no present intention of registering the Note. Holder also understands that there is no assurance that any exemption from registration under the
Securities Act will be available and that, even if available, such exemption may not allow Holder to transfer all or any portion of the Note under the circumstances, in the amounts or at the times Holder might propose. 
  
 7.2    Acquisition for Own Account.    Holder is acquiring the Note for
Holder’s own account for investment only, and not with a view towards their distribution. 
  
 7.3    Holder Can Protect Its Interest.    Holder represents that it has such knowledge and experience in business and financial matters as to be capable of evaluating the merits and
risks of the investment and has the ability to bear the economic risks of its investment, and by reason of its, or of its management’s, business or financial experience, Holder has the capacity to protect its own interests in connection with
the transactions contemplated in this Agreement. Further, Holder is aware of no publication of any advertisement in connection with the transactions contemplated in the Agreement. 
 

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 7.4    Accredited
Investor.    Holder represents that it is an accredited investor within the meaning of Regulation D under the Securities Act. 
  
 7.5    Company Information.    Holder has received and read the Company’s Form 10-K Annual Report for
the fiscal year ended September 30, 2001 and the Form 10-Q Quarterly Reports, including any amendments thereto, for the quarters ended December 31, 2001, March 31, 2002, June 30, 2002, and all other reports filed after September 30, 2001 through the
date hereof with the Commission under the Securities Exchange Act of 1934, as amended. Holder has also had the opportunity to ask questions of and receive answers from, the Company and its management regarding the terms and conditions of this
investment. 
  
 7.6    Rule 144.    Holder
acknowledges and agrees that the Note must be held indefinitely unless it is subsequently registered under the Securities Act or an exemption from such registration is available. Holder has been advised or is aware of the provisions of Rule 144
promulgated under the Securities Act as in effect from time to time. 
  
 7.7    Residence.    If the Holder is an individual, then the Holder resides in the state, province or country identified in the address of the Holder set forth on the signature page
hereto; if the Holder is a partnership, corporation, limited liability company or other entity, then the office or offices of the Holder in which its investment decision was made is located at the address or addresses of the Holder set forth on the
signature page hereto. 
  
 7.8    Disposition of
Note.    The Holder further agrees not to make any disposition of all or any part of the Note unless and until: 
  
 7.8.1    The Company shall have received a letter secured by the Holder from the Commission stating that no action will be recommended to the Commission with respect to the proposed
disposition; or 
  
 7.8.2    The Holder shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, and if reasonably requested by the Company, the Holder shall have furnished the Company with an opinion of
counsel, satisfactory to the Company, for the Holder to the effect that such disposition will not require registration of such Note under the Securities Act or any applicable state securities laws. 
  
 7.9    Additional Restrictions on Transfer.    Registry books are kept at
the office of the Company. The transfer of this Note must be registered on the registry of the Company. This Note must be surrendered for transfer at the office or agency of the Company, duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to the Company, duly executed by the Holder hereof or its attorney-in-fact, duly authorized in writing. Thereafter, one or more new Notes, or authorized denominations, and for the same aggregate principal amount, shall
be issued to the designated transferee or transferees. The parties intend that the interest earned under this Note shall be “portfolio interest” of an “obligation in registered form” for U.S. income tax purposes in accordance
with IRC Sections 871(h) and 881(c) and Treasury Regulation Section 1.871-14. 
 

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 7.10    Usury.    Holder acknowledges it has been advised by the Company that the Company believes the Interest Rate payable herein is exempt from the usury provisions of the General
Corporations Law of the State of California (“GCLC”), pursuant to Section 25118 of the California Corporations Code, provided, however, the Company expressly disclaims any representation or warranty that the Interest Rate payable in this
Note is exempt from the usury provisions of the GCLC under such section or is otherwise exempt from the usury provisions of applicable California law. 
  
 8.    Assignment.    Subject to the restrictions on transfer described herein, the rights and obligations of
the Company and the Holder of this Note shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties. 
  
 9.    Expenses; Waivers.    If action is instituted to collect this Note, the Company promises to pay all
reasonable costs and expenses, including without limitation reasonable attorneys’ fees and costs, incurred in respect with such action. The Company hereby waives notice of default, presentation or demand for payment, protest or notice of
nonpayment or dishonor and all other notices or demands relative to this Note. 
  
 10.    Waiver and Amendment.    Any provision of this Note may be amended, waived or modified upon the written consent of the Company and the holders of a majority of the face amount of
all then outstanding Notes. 
  
 11.    Notices.    Any
notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given if personally delivered or if telegraphed or mailed by registered or certified mail, postage prepaid, at the
respective addresses of the parties as set forth herein. Any party hereto may by notice so given change its address for future notice hereunder. Notice shall conclusively be deemed to have been given when personally delivered or when deposited in
the mail or telegraphed in the manner set forth above and shall be deemed to have been received when delivered. 
  
 12.    No Stockholder Rights.    Nothing contained in this Note shall be construed as conferring upon the Holder or any other person the right to vote or to consent, or to receive notice
as a stockholder in respect of meetings of stockholders for the election of directors of the Company or any other matters or any rights whatsoever as a stockholder of the Company. 
  
 13.    Governing Law.    This Note and all actions arising out of or in connection with this Note shall be
governed by and construed in accordance with the laws of the State of California, excluding that body of law relating to conflict of laws. 
  
 14.    Heading; References.    All headings used herein are used for convenience only and shall not be used to construe or interpret this Note. Except
where otherwise indicated, all references herein to Sections refer to Sections hereof. 
  
 [REMAINDER OF PAGE INTENTIONALLY
LEFT BLANK] 
 

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 IN WITNESS WHEREOF, the Company has caused this Note to be issued this
30th day of September 2002. 
  
 
	 AMERICAN TECHNOLOGY CORPORATION
 
	 
	 By:
 	 	 

	 
	 Name:
 	 	 

	 
	 Title:
 	 	 

 
  
  
 Acknowledged and Agreed: 
  
 
	 
	 

	 
	 By:
 	 	 

	 
	 Title:
 	 	 

	 
	 Address:
 	 	 

 
 

 8Form of Security Agreement

  
 EXHIBIT 4.2 
  
 AMERICAN TECHNOLOGY CORPORATION 
 SECURITY AGREEMENT 
  
 This SECURITY AGREEMENT dated as of September 30, 2002 (this “Security Agreement”), is made by AMERICAN TECHNOLOGY CORPORATION,
a Delaware corporation (“Grantor”), in favor of the persons and entities listed on Schedule A hereto (each, a “Secured Party” and collectively, the “Secured Parties”). 
  
 RECITALS 
  
 A.    The Secured Parties have made and have agreed to make an advance of money and to extend certain financial accommodation to Grantor (the “Loans”) as evidenced by those certain Senior Secured
Promissory Notes (each, a “Note” and collectively, the “Notes”) dated of even date herewith executed by Grantor in favor of the Secured Parties. Capitalized terms used herein and not otherwise defined shall have the meanings
ascribed to them in the Notes. 
  
 B.    The Secured Parties are willing to make the Loans to
Grantor, but only upon the condition, among others, that Grantor shall have executed and delivered to each Secured Party this Security Agreement. 
  
 AGREEMENT 
  
 NOW, THEREFORE, in order to induce the Secured Parties to make the
Loans and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, and intending to be legally bound, Grantor hereby represents, warrants, covenants and agrees as follows: 
  
 1.    Defined Terms.    When used in this Security Agreement the
following terms shall have the following meanings (such meanings being equally applicable to both the singular and plural forms of the terms defined): 
  
 1.1    “Collateral” shall have the meaning assigned to such term in Section 2 of this Security Agreement. 

 
 1.2    “Event of Default” means (i) any failure by Grantor forthwith to pay or
perform any of the Secured Obligations, or (ii) any “Event of Default” as defined in the Notes. 
  
 1.3    “Intellectual Property” means all General Intangibles of Grantor, including, without limitation, all copyrights, copyright applications and any extensions thereof, patents, patent applications and
any extensions thereof, trademarks, trade names, and applications therefor and extensions thereof, licenses, designs, drawings, technical information, marketing plans, customer lists, trade secrets, proprietary or confidential information,
inventions (whether or not patentable), procedures, formulae, methods, know-how, models, data and all other intellectual property and any and all rights with respect thereto of any kind or nature whatsoever and any goodwill associated therewith.

  
 1.4    “Lien” means any mortgage,
lien, deed of trust, charge, pledge, security interest or other encumbrance. 
  
 1.5    “Permitted Lien” means: (a) Liens for taxes, fees, assessments or other governmental charges or levies not delinquent, provided the same have no priority over any of Secured Parties’ security
interests; (b) Liens (i) upon or in any Equipment acquired or held by Grantor to secure the purchase price of such Equipment or indebtedness incurred solely for the purpose of financing the acquisition of such Equipment or (ii) existing on such
Equipment at the time of its acquisition, provided that the Lien is confined solely to the Equipment so acquired, improvements thereon and the Proceeds of such Equipment; (c) leases or subleases and licenses or sublicenses granted to others in the
ordinary course of Grantor’s business if such are otherwise permitted under this Security Agreement and do not interfere in any material respect with the business of Grantor; (d) any right, title or interest of a licensor under a license
provided that such license or sublicense does not prohibit the grant or enforcement of the security interest granted hereunder; (e) Liens arising from judgments, decrees or attachments to the extent and only so long as such judgment, decree or
attachment has not caused or resulted in an Event of Default under the Notes; (f) Liens arising solely by virtue of any statutory or common law provision relating to banker’s liens, rights of setoff or similar rights and remedies as to deposit
accounts or other funds maintained with a creditor depository institution; (g) Liens securing capital lease obligations on assets subject to such capital leases and Liens on equipment leased by Grantor pursuant to an operating lease in the ordinary
course of Grantor’s business (including proceeds thereof and accessions thereto), all incurred solely for the purpose of financing the lease of such equipment (including Liens arising from UCC financing statements regarding such leases); (h)
Liens securing the other Notes, if any; and (i) all other Liens listed on Schedule B attached hereto. 
  
 1.6    “Secured Obligations” means (a) the obligation of Grantor to repay each Secured Party all of the unpaid principal amount of, and accrued interest on (including any interest that accrues after the
commencement of bankruptcy), each Note, (b) the obligation of Grantor to pay any fees, costs and expenses of the Secured Parties under the Notes or under Section 7.2 hereof, and (c) all other indebtedness, liabilities and obligations of Grantor to
the Secured Parties, whether now existing or hereafter incurred, and arising out of or in connection with this Agreement or the Notes. 
  
 1.7    “UCC” means the Uniform Commercial Code as the same may, from time to time, be in effect in the State of California; provided, however, in the event that, by reason
of mandatory provisions of law, any or all of the attachment, perfection or priority of the Secured Parties’ security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of
California, the term “UCC” shall mean the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such attachment, perfection of priority and for purposes of definitions related to
such provisions. 
  
 In addition, the following terms sihall be defined terms having the meaning set
forth for such terms in the UCC: “Accounts”; “Chattel Paper”; “Deposit Accounts”; “Equipment”; “Financial Assets”; “Fixtures”; “General Intangibles”; “Goods”;
“Instruments”; 
 

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 “Inventory”; “Investment Property”; “Proceeds”.
Each of the foregoing defined terms shall include all of such items now owned, or hereafter acquired, by Grantor. 
  
 2.    Grant of Security Interest.    As collateral security for the prompt and complete payment and performance when due (whether at stated maturity, by acceleration or otherwise) of all
the Secured Obligations and in order to induce the Secured Parties to cause the Loans to be made, Grantor hereby assigns, conveys, mortgages, pledges, hypothecates and transfers to the Secured Parties, and hereby grants to Secured Parties, a
security interest in all of Grantor’s right, title and interest in, to and under the following, whether now owned or hereafter acquired (all of which being collectively referred to herein as the “Collateral”): 
  
 2.1    All Accounts of Grantor; 
  
 2.2    All Equipment of Grantor; 
  
 2.3    All Goods of Grantor; 
  
 2.4    All Instruments of Grantor; 
  
 2.5    All Inventory of Grantor; 
  
 2.6    All property of Grantor held by the Secured Parties, or any other party for whom a Secured Party is acting as agent hereunder, including, without limitation, all property of every description now or
hereafter in the possession or custody of or in transit to any Secured Party or such other party for any purpose, including, without limitation, safekeeping, collection or pledge, for the account of Grantor, or as to which Grantor may have any right
or power; and 
  
 2.7    To the extent not otherwise included, all Proceeds of
each of the foregoing and all accessions to, substitutions and replacements for and rents, profits and products of each of the foregoing. 
  
 Notwithstanding the foregoing provisions of this Section 2, the grant, assignment and transfer of a security interest as provided herein shall not extend to, and the term “Collateral” shall
not include: any assets of Grantor other than those specifically set forth above, Grantor’s Intellectual Property, Chattel Paper, Fixtures, Financial Assets, Investment Property, Deposit Accounts or any other assets of Grantor other than
specifically set forth in Sections 2.1 to 2.7 above. 
  
 3.    Rights of
Secured Parties.    THIS SECURITY AGREEMENT AND ALL RIGHTS PROVIDED FOR HEREIN ARE EXPRESSLY SUBJECT AND SUBORDINATE TO ANY AND ALL SECURITY AGREEMENTS WITH, AND TO ANY AND ALL SECURITY INTERESTS IN OR TO ANY OR ALL OF THE
COLLATERAL OR SECURITY GRANTED BY GRANTOR PURSUANT TO A PERMITTED LIEN WHETHER GRANTED BEFORE OR AFTER THE DATE HEREOF. 
  
 4.    Representations and Warranties.    Grantor hereby represents and warrants to the Secured Parties that: 
 

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 4.1    Except for the security interest
granted to the Secured Parties under this Security Agreement and Permitted Liens, Grantor is the sole legal and equitable owner of each item of the Collateral in which it purports to grant a security interest hereunder, having good and marketable
title thereto, free and clear of any and all Liens except for Permitted Liens. 
  
 4.2    No effective security agreement, financing statement, equivalent security or lien instrument or continuation statement covering all or any part of the Collateral exists, except for those provided for in
favor of the Secured Parties under this Agreement and Permitted Liens. 
  
 4.3    This Security Agreement creates a legal and valid security interest on and in all of the Collateral in which Grantor now has rights and all filings and other actions necessary or desirable to perfect and
protect such security interest have been duly taken. Accordingly, assuming the filing of a UCC-1 covering the Collateral with the Delaware Secretary of State, the Secured Parties have a fully perfected first priority security interest in all of the
Collateral in which Grantor now has rights subject only to Permitted Liens. This Security Agreement will create a legal and valid and fully perfected first priority security interest in the Collateral in which Grantor later acquires rights, when
Grantor acquires those rights subject only to Permitted Liens. 
  
 5.    Covenants.    Grantor covenants and agrees with the Secured Parties that from and after the date of this Security Agreement and until the Secured Obligations have been performed
and paid in full: 
  
 5.1    Change of Name, Identity or
Structure.    Grantor will not cause or permit any change to its name, identity or organizational structure unless Grantor shall have notified each Secured Party in writing of such change at least thirty (30) days prior to
the effective date of such change and shall have taken all action required by the Secured Parties for the purpose of further perfecting or protecting the lien and security interest of the Secured Parties. 
  
 5.2    Disposition of Collateral.    Grantor shall not sell, lease,
transfer or otherwise dispose of any of the Collateral other in the ordinary course of Grantor’s business without each Secured Party’s prior written consent. 
  
 5.3    Relocation of Business or Collateral.    Grantor shall not relocate its chief executive office,
principal place of business or its records from its current address without twenty (20) days’ prior written notice to each Secured Party. 
  
 5.4    Insurance.    Grantor shall maintain commercial general liability insurance policies insuring the Collateral against loss or damage from such risks
and in such amounts and forms and with such companies as are customarily maintained by businesses similar to Grantor. 
  
 5.5    Taxes, Assessments, Etc.    Grantor shall pay promptly when due all property and other taxes, assessments and government charges or levies imposed upon, and all claims
(including claims for labor, materials and supplies) against, the Collateral, except to the extent the validity thereof is being contested in good faith and adequate reserves are being maintained in connection therewith. 
 

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 5.6    Maintenance of
Records.    Grantor shall keep and maintain at its own cost and expense satisfactory and complete records of the Collateral. 
  
 5.7    Further Assurances; Pledge of Instruments.    At any time and from time to time, upon the written
request of the Secured Parties, and at the sole expense of Grantor, Grantor shall promptly and duly execute and deliver any and all such further instruments and documents and take such further action as the Secured Parties may reasonably deem
necessary or desirable to obtain the full benefits of this Security Agreement, including, without limitation, facilitating the filing of UCC-1 Financing Statements in all applicable jurisdictions. 
  
 6.    Appointment of Agent and Administration and Enforcement of this Security Agreement.

  
 6.1    Appointment of Agent.    Secured Parties
each hereby appoint                      as their Agent (the “Agent”) hereunder with the authority as hereinafter provided to act in their
names and on their behalf in all respects regarding the Collateral. 
  
 6.2    Holder of Instruments; Bookkeeping; Payments on Notes.    Each Secured Party shall hold the original of the Note of which it is the named payee. Agent shall hold, on behalf of the
Secured Parties the original of this Security Agreement and all other instruments delivered in connection with this Agreement. Each Secured Party shall keep its own proper books of account and records reflecting sums paid to each Secured Party. Upon
request by Agent for purpose of determining each Secured Party’s Pro Rata Percentage (as such term is defined in Section 6.3 below) from time to time and for other purposes in connection with the administration and enforcement of this Security
Agreement, each Secured Party shall provide information concerning the amounts owing to such Secured Party. Further, upon reasonable notice from Agent, such books and records shall be accessible for inspection by Agent and each Secured Party or
their representatives and agents at the principal offices of the Secured Parties during business hours. Each Secured Party shall receive all payments on account of interest on and principal of the obligations in connection with the Note of which it
is the named payee. To the extent required by this Security Agreement in connection with any foreclosure or other enforcement action taken with respect to the Notes and this Agreement, Agent is hereby appointed attorney-in-fact for each Secured
Party to execute in the name of the Secured Parties assignments of beneficial interest under this Security Agreement to Agent. 
  
 6.3    Ownership.    Each Secured Party shall have (i) sole ownership of the Note of which it is the named payee; and (ii) and undivided percentage
ownership in this Agreement and the Collateral based upon each Secured Party’s Pro Rata Percentage (defined below) of all Secured Obligations owed to all Secured Parties hereunder. Each Secured Party’s “Pro Rata Percentage” shall
mean, at any particular time, the percentage of the total amount of all Secured Obligations owed to such Secured Party by Grantor at such time of the total amount of all Secured Obligations owed to all Secured Parties by Grantor at such time.

  
 6.4    General Administration of Security
Agreement.    Unless limited by the terms of this Agreement, Agent shall have the power to have and use its sole discretion with respect to exercising or refraining from exercising any rights or taking or refraining from
taking any actions which it may be entitled to exercise or take in connection with this Agreement or the Collateral (including the filing of UCC-1 Financing Statements in all applicable jurisdictions) and, except 
 

 5 

 in the case of gross negligence or willful misconduct, Agent shall not be under any liability to any Secured Party with
respect to anything which Agent may do or refrain from doing in the exercise of its reasonable business judgment in administering and enforcing the Agreement and with respect to the Collateral. 
  

6.5    Exercising and Waiving Remedies in the Event of a Default; Consent of Secured Parties.    Without
consulting with and securing the written approval of all Secured Parties, Agent shall not have the power to, but upon the direction of all the Secured Parties, Agent shall (i) in the event of the occurrence of an Event of Default under this
Agreement of which the Agent has actual knowledge, exercise or waive any or all of the remedies provided for in this Agreement, on behalf of all Secured Parties, as directed by all Secured Parties, and/or (ii) if no Event of Default under this
Agreement has occurred, waive, modify or amend, or consent to the waiver, modification or amendment, of this Security Agreement as directed by all Secured Parties. Agent shall be fully protected in acting or refraining from acting in accordance with
the directions of all of the Secured Parties and such directions and any action taken or failure to act pursuant thereto shall be binding on Agent and all Secured Parties. Without limiting the foregoing, Agent shall not have the power to modify,
extend or waive any provision of any Note or extend the maturity date thereof or reduce the amount due or interest rate thereunder, or release, cancel or agree to the termination of this Security Agreement or any UCC-1 financing statement in
connection therewith. 
  
 6.6    Standard of
Care.    Agent shall not be liable for any action taken or omitted to be taken by it under or in connection with this Agreement except for gross negligence or willful misconduct. Agent may consult with legal counsel selected
by it and with other experts and shall not be liable for any action taken or suffered in good faith by it in accordance with the advice of such counsel or experts. Agent shall incur no liability by acting in good faith upon any notice, consent,
certificate or other instrument or writing (which may be by telegram, cable or telex) believed by Agent to be genuine and to be signed or sent by the proper party. Upon not less than thirty (30) days prior written notice to Grantor and the Secured
Parties, Agent shall be entitled to resign as Agent hereunder provided that such resignation shall not become effective until a new agent is appointed by all Secured Parties. Agent may be removed for any reason, with or without cause, by the vote of
all Secured Parties. 
  
 6.7    Reimbursement for
Expenses.    Agent shall recover from Grantor all out-of-pocket expenses incurred in the administration and enforcement of this Agreement. If Grantor fails to reimburse agent such expenses promptly after demand therefor, each
Security Holder shall, upon the demand of Agent, reimburse agent for its respective Pro Rata Percentage share of all such expenses. Agent shall promptly reimburse each Secured Party for its Pro Rata Percentage share of such expenses subsequently
recovered by Agent, if applicable. 
  
 6.8    Other Credit
Arrangements.    Agent and each Secured Party acknowledge that Agent and/or Secured Parties may in the future have additional business, financing and/or credit arrangements with Grantor. Nothing in this Agreement shall in any
manner be deemed to limit or preclude the right of Agent or any Secured Party from having or entering into any other business, financing or credit arrangements with Grantor or to exercise any rights or remedies available in connection therewith
including, without limitation, the exercise of set-off or other 
 

 6 

  
 rights available as a matter of law, deemed by it to be in its own best interest
with respect to any such other arrangements. 
  
 7.    Rights And Remedies
Upon Default. 
  
 7.1    After any Event of Default shall have occurred and
while such Event of Default is continuing, the Secured Parties may exercise in addition to all other rights and remedies granted to them under this Security Agreement, all rights and remedies of a secured party under the UCC. 

 
 7.2    Grantor also agrees to pay all fees, costs and expenses of the Secured Parties,
including, without limitation, reasonable attorneys’ fees, incurred in connection with the enforcement of any of its rights and remedies hereunder. 
  
 7.3    Grantor hereby waives presentment, demand, protest or any notice (to the maximum extent permitted by applicable law) of any kind
in connection with this Security Agreement or any Collateral. 
  
 7.4    The
Proceeds of any sale, disposition or other realization upon all or any part of the Collateral shall be distributed by the Secured Parties in the following order of priorities: 
  
 7.4.1    First, to the Secured Parties in an amount sufficient to pay in full the costs of the Secured Parties in connection with such
sale, disposition or other realization, including all fees, costs, expenses, liabilities and advances incurred or made by the Secured Parties in connection therewith, including, without limitation, reasonable attorneys’ fees; 

 
 7.4.2    Second, to the Secured Parties in an amount equal to the then unpaid Secured
Obligations; and 
  
 7.4.3    Finally, upon payment in full of the Secured
Obligations, to Grantor or its representatives, in accordance with the UCC or as a court of competent jurisdiction may direct. 
  
 8.    Indemnity.    Grantor agrees to defend, indemnify and hold harmless the Secured Parties and their respective officers, employees, and agents against
(a) all obligations, demands, claims, and liabilities claimed or asserted by any other party in connection with the transactions contemplated by this Security Agreement and (b) all losses or expenses in any way suffered, incurred, or paid by the
Secured Parties as a result of or in any way arising out of, following or consequential to transactions between the Secured Parties and Grantor, whether under this Security Agreement or otherwise (including without limitation, reasonable attorneys
fees and expenses), except for losses arising from or out of the Secured Parties’ gross negligence or willful misconduct. 
  
 9.    Limitation on the Secured Parties Duty in Respect of Collateral.    The Secured Parties shall be deemed to have acted reasonably in the custody,
preservation and disposition of any of the Collateral if they take such action as Grantor requests in writing, but failure of the Secured Parties to comply with any such request shall not in itself be deemed a failure to act reasonably,

 

 7 

  
 and no failure of the Secured Parties to do any act not so requested shall be
deemed a failure to act reasonably. 
  
 10.    Reinstatement.    This Security Agreement shall remain in full force and effect and continue to be effective should any petition be filed by or against Grantor for liquidation or
reorganization, should Grantor become insolvent or make an assignment for the benefit of creditors or should a receiver or trustee be appointed for all or any significant part of Grantor’s property and assets, and shall continue to be effective
or be reinstated, as the case may be, if at any time payment and performance of the Secured Obligations, or any part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee of
the Secured Obligations, whether as a “voidable preference,” “fraudulent conveyance,” or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded,
reduced, restored or returned, the Secured Obligations shall be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned. 
  
 11.    Miscellaneous. 
  
 11.1    No Waiver; Cumulative Remedies. 
  
 11.1.1    The Secured Parties shall not by any act, delay, omission or otherwise be deemed to have waived any of their respective rights or remedies hereunder, nor shall any single or partial exercise of
any right or remedy hereunder on any one occasion preclude the further exercise thereof or the exercise of any other right or remedy. 
  
 11.1.2    The rights and remedies hereunder provided are cumulative and may be exercised singly or concurrently, and are not exclusive of any rights and remedies provided by law.

  
 11.1.3    None of the terms or provisions of this Security Agreement may be
waived, altered, modified or amended except by an instrument in writing, duly executed by Grantor and each Secured Party; provided, however, that additional Note holders may be added as parties to this Agreement by executing and
delivering an additional counterpart signature page to this Agreement and each shall be deemed a “Secured Party” hereunder. 
  
 11.2    Termination of this Security Agreement.    Subject to Section 10 hereof, this Security Agreement shall terminate upon the indefeasible payment and
performance in full of the Secured Obligations. 
  
 11.3    Successor and
Assigns.    This Security Agreement and all obligations of Grantor hereunder shall be binding upon the successors and assigns of Grantor, and shall, together with the rights and remedies of the Secured Parties hereunder,
inure to the benefit of the Secured Parties, any future holder of any of the indebtedness and their respective successors and assigns. No sales of participations, other sales, assignments, transfers or other dispositions of any agreement governing
or instrument evidencing the Secured Obligations or any portion thereof or interest therein shall in any manner affect the lien granted to the Secured Parties hereunder. 
 

 8 

  
 11.4    Governing
Law.    In all respects, including all matters of construction, validity and performance, this Security Agreement and the Secured Obligations arising hereunder shall be governed by, and construed and enforced in accordance
with, the laws of the State of California applicable to contracts made and performed in such state, without regard to the principles thereof regarding conflict of laws. 
  
 [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 
 

 9 

  
 IN WITNESS WHEREOF, each of the parties hereto has caused this Security Agreement to be executed
and delivered on the date first set forth above. 
  
 
	 AMERICAN TECHNOLOGY CORPORATION:
 
	 
	 By:
 	 	 

	 
	 Name:
 	 	 

	 
	 Title:
 	 	 

	 
	 SECURED PARTIES:
 

 
  
 

 10

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