Document:

Certificate of Designation

 
Exhibit 4.2

 
CERTIFICATE OF DESIGNATION 
 
OF 
 
SERIES E PREFERRED STOCK 
 
OF 
 
AMERICAN TECHNOLOGY CORPORATION, 
 
a Delaware Corporation 
 

 
PURSUANT TO SECTION 151 OF THE 
GENERAL CORPORATION LAW
OF THE STATE OF DELAWARE 
 

 
AMERICAN TECHNOLOGY CORPORATION, a Delaware corporation (the “Corporation” or the “Company”), does hereby
certify that: 
 

	 	I.	 	The name of the corporation is American Technology Corporation. 

 

	 	II.	 	The Company certifies that pursuant to the authority contained in its Certificate of Incorporation (the “Certificate of Incorporation”) and in accordance
with the provisions of Section 151 of the General Corporation Law of the State of Delaware, the Board of Directors of the Company adopted the following resolution, which resolution remains in full force and effect on the date hereof:

 
RESOLVED, that there is
hereby established a series of authorized preferred stock having a par value of $.00001 per share, which series shall be designated as “Series E Preferred Stock,” shall consist of 350,000 shares and shall have the following voting powers,
preferences and relative, participating, optional and other special rights, and qualifications, limitations and restrictions thereof as follows: 
 
1.    Designation and Amount.    The designation of the series of Preferred Stock shall be
“Series E Preferred Stock,” par value $.00001 per share (the “Series E Preferred Stock”). The number of authorized shares of Series E Preferred Stock shall be 350,000. The Series E Preferred Stock shall have an initial issue
price of Ten Dollars ($10.00) per share (the “Original Issue Price”). The date on which any shares of Series E Preferred Stock are first issued is referred to herein as the “Original Issue Date.” 
 
2.    Dividends.    The
holders of record of shares of Series E Preferred Stock shall be entitled to receive when, as and if a cash dividend on the Company’s common stock, par value $.00001 per share (the “Common Stock”), or any Junior Stock (as defined
below), is declared by the Board of Directors in any year, out of funds legally available therefor, a cash dividend at a 
 

 
rate per share of Series E
Preferred Stock equal to six percent (6%) of the Conversion Value (as defined in 3(a) hereof) per annum, payable in preference and priority to any payment of any dividend on Common Stock of the Company, or any Junior Stock, for such year.

 
3.    Liquidation. 
 
(a)    Preference Upon
Liquidation, Dissolution or Winding Up.    In the event of any liquidation, dissolution or winding up of the affairs of the Company (any or all of such events, a “liquidation”), whether voluntary or involuntary,
subject to the prior preferences and other rights of any Senior Stock (as defined below), if any, the holders of shares of Series E Preferred Stock then outstanding shall be entitled pari passu as if members of a single class of securities
with the holders of any Parity Stock (as defined below), if any, to be paid out of the assets of the Company before any payment shall be made to the holders of Junior Stock (as defined below) an amount per share equal to the Conversion Value (as
defined in Section 5(a) below), plus any declared but unpaid dividends (the “Liquidation Amount”). Except as provided in this Section 3(a), holders of Series E Preferred Stock shall not be entitled to any distribution in the event of
liquidation, dissolution or winding up of the affairs of the Company. The term “Junior Stock” shall mean Common Stock or any other class or series of stock ranking junior to the Series E Preferred Stock in respect of the right to receive
dividends or the right to participate in any distribution upon liquidation, the term “Senior Stock” shall mean the Company’s Series C Preferred Stock and any other class or series of stock of the Company authorized before the date of
issuance of the Series E Preferred Stock, other than the Company’s Series D Preferred Stock, ranking senior to the Series E Preferred Stock in respect of the right to receive dividends or the right to participate in any distribution upon
liquidation, and the term “Parity Stock” shall mean the Company’s Series D Preferred Stock and any class or series of stock of the Company authorized after the date of issuance of the Series E Preferred Stock ranking on a parity with
the Series E Preferred Stock in respect of the right to receive dividends or the right to participate in any distribution upon liquidation. 
 
(b)    Merger or Sale of Assets.    A merger of the Company in which holders of more
than 50% of the outstanding Common Stock of the Company before the merger do not hold more than 50% of the outstanding Common Stock of the Company after the merger, or a sale of all or substantially all of the Company’s assets, shall be deemed
to be a liquidation for purposes of this Section 3; provided, however, that a merger, consolidation or reorganization where the Company is the surviving entity, or a merger of the Company into a wholly-owned subsidiary shall not be deemed a
liquidation. 
 
(c)    Insufficient Assets.    If, upon any liquidation of the Company, the assets of the Company, after payment to the Holders of the Senior Stock, are insufficient to pay the
holders of shares of the Series E Preferred Stock and any Parity Stock, if any, then outstanding the full preferential amounts to which they shall be entitled, such assets shall be distributed to each holder of the Series E Preferred Stock and
Parity Stock, if any, pro rata based on the number of shares of Common Stock into which the Series E Preferred Stock and Parity Stock, if any, held by each is convertible. 
 

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(d)    Rights of Other Holders.    In the event of any liquidation, after payment shall have been made to the holders of the Senior Stock, the Series E Preferred Stock and Parity
Stock, if any, of all preferential amounts to which they shall be entitled, the holders of shares of Junior Stock and other capital stock of the Company shall receive such amounts as to which they are entitled by the terms thereof. 
 
4.    Voting Rights. 
 
(a)    Voting.    Each holder of shares of Series E Preferred Stock shall be entitled to one (1) vote for each share of Series E Preferred Stock held on any matter submitted to
the Company’s stockholders for their approval or consent. Except as otherwise required by law or expressly provided herein, the holders of the Series E Preferred Stock shall vote equally with the shares of Common Stock of the Company and not as
a separate class on any matter to voted upon by the stockholders of the Company. 
 
(b)    Certificate of Incorporation; Certain Stock.    The affirmative vote or consent of the holders of a majority of the outstanding shares of
Series E Preferred Stock, voting separately as a class, will be required for (i) any amendment, alteration, or repeal, whether by merger or consolidation or otherwise, of the Company’s Certificate of Incorporation if the amendment, alteration,
or repeal materially and adversely affects the powers, preferences, or special rights of the Series E Preferred Stock, (ii) any amendment, alteration, or repeal of this Certificate of Designations, or (iii) the creation or issuance of any Senior
Stock; provided, however, that any increase in the authorized preferred stock of the Company or the creation and issuance of any Junior Stock or Parity Stock shall not be deemed to affect materially and adversely such powers, preferences or
special rights and any such increase or creation and issuance may be made without any such vote by the holders of the Series E Preferred Stock, except as otherwise required by law. 
 
5.    Conversion Rights. 
 
(a)    Optional Conversion of Series E Preferred
Stock.    Subject to Sections 5(k) and 5(l) below, the holder of any shares of Series E Preferred Stock shall have the right, at such holder’s option, at any time or from time to time to convert any or all of such
holder’s shares of Series E Preferred Stock into such number of fully paid and nonassessable shares of Common Stock (the “Conversion Shares”) as determined for each share of Series E Preferred Stock by dividing the Conversion Value
(as defined in Section 5(d) below) by the Conversion Price (as defined in Section 5(d) below). The “Conversion Value” per share means, as of any date, the sum of (i) the Original Issue Price plus (ii) an amount which accrues from the
Original Issue Date at a rate of Sixty Cents ($.60) per annum, computed on the basis of a 360-day year to the date of conversion (the “Accrual Amount”). Unless adjusted pursuant to the anti-dilution rights set forth in the following
sentence, the “Conversion Price” shall be Three Dollars and Twenty-Five Cents ($3.25) per share (as adjusted for any stock splits, reorganizations, dividends, recapitalizations and the like). After September 30, 2003, in the event that
ninety percent (90%) of the volume weighted average price of the Company’s Common Stock from the hours of 9:30 a.m. to 4:00 p.m. on the NASDAQ as reported by Bloomberg Financial using the AQR function (the “Market Price”) for the five
(5) trading days immediately preceding the date of conversion for which there are reported transactions in the Common Stock (the “Discount Market Price”) is less 
 

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than Three Dollars and
Twenty-Five Cents ($3.25) per share (as adjusted for any stock splits, reorganizations, dividends, recapitalizations and the like), the Conversion Price shall be reduced to the Discount Market Price; provided, however, that in no event shall
the Conversion Price be less than Two Dollars ($2.00) per share (as adjusted for any stock splits, reorganizations, dividends, recapitalizations and the like). Notwithstanding anything to the contrary set forth above, each such conversion at the
option of the holder pursuant to this Section 5(a) shall cover at least the total number of shares of Series E Preferred Stock then held by such holder or a number of shares of Series E Preferred Stock having an aggregate Conversion Value of at
least $50,000. The Conversion Shares and the Conversion Price are subject to certain adjustments as set forth herein, and the terms Conversion Shares and Conversion Price as used herein shall as of any time be deemed to include all such adjustments
to be given effect as of such time in accordance with the terms hereof. 
 
Upon the exercise of the option of the holder of any shares of Series E Preferred Stock to convert Series E Preferred Stock into Common Stock, the holder of such shares of Series E Preferred Stock to be converted shall
surrender the certificates representing the shares of Series E Preferred Stock to be converted in the manner provided in Section 5(d) below. Immediately following such conversion, the rights of the holders of the Series E Preferred Stock that has
been converted shall cease and the persons entitled to receive the Common Stock upon the conversion of Series E Preferred Stock shall be treated for all purposes as having become the owners of such Common Stock. 
 
(b)    Automatic
Conversion.    Each remaining outstanding share of Series E Preferred Stock shall be automatically converted into shares of Common Stock on December 31, 2006 in accordance with the provisions of Section 5(a) hereof. Pursuant
to this Section 5(b), on the Conversion Date (as defined in Section 5(d) below), all outstanding shares of Series E Preferred Stock shall be converted into that number of shares of Common Stock as determined in accordance with Section 5(a) hereof as
if the conversion of such number of shares of Series E Preferred Stock were made by the holders thereof in accordance therewith without any further action on the part of such holders. 
 
(c)    Conversion at Option of Company.    If for any
ten (10) consecutive trading days the Market Price of the Company’s Common Stock is at least Nine Dollars and Fifty Cents ($9.50) per share (as adjusted for stock splits, reorganizations, dividends, recapitalizations and the like), then at any
time within ten (10) business days after the end of such ten (10) trading day period, the Company shall have the right to require the conversion of all outstanding shares of Series E Preferred Stock into shares of Common Stock in accordance with the
provisions of Section 5(a) hereof by giving written notice to each holder of Series E Preferred Stock at such holder’s registered address. Such notice shall state the Conversion Date calculated pursuant to Section 5(d) below, and shall inform
holders that they may be required to divest beneficial ownership prior to the Conversion Date to avoid the restriction on conversion contained in Section 5(l) below. In the event that the Company elects to convert shares of Series E Preferred Stock
to Common Stock pursuant to the terms of this Section 5(c) prior to March 31, 2005, the Company shall only be able to require such conversion if a registration statement filed with the SEC registering the resale of the Conversion Shares is then
effective. For purposes of this Section 5(c), if on any date there shall be no reported closing bid price, the “Market Price” on 
 

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such date shall be the closing
bid price on the date next preceding such date on which a closing bid price for such security has been reported. Pursuant to this Section 5(c), on the Conversion Date (as defined in Section 5(d) below), all outstanding shares of Series E Preferred
Stock shall be converted into that number of shares of Common Stock as determined in accordance with Section 5(a) hereof as if the conversion of such number of shares of Series E Preferred Stock were made by the holders thereof in accordance
therewith without any further action on the part of such holders; provided, however, that if the Conversion Date is prior to the date which is one year after the Original Issue Date, the Conversion Value shall be equal to the higher of (i) Ten
Dollars and Sixty Cents ($10.60) (as adjusted for any stock splits, reorganizations, dividends, recapitalizations and the like), or (ii) the Conversion Value determined in accordance with Section 5(a) hereof and further provided that conversion
shall be limited as set forth in Section 5(l) below. 
 
(d)    Delivery of Stock Certificates.    The holder of any shares of Series E Preferred Stock may exercise the optional conversion right pursuant to Section 5(a) above by
delivering to the Company or its duly authorized transfer agent during regular business hours at the office of the Company the certificate or certificates for the shares of Series E Preferred Stock to be converted, duly endorsed or assigned either
in blank or to the Company (if required by it), accompanied by written notice (the “Conversion Notice”) stating that such holder elects to convert such shares of Series E Preferred Stock and shall provide a certificate to the Company or
its duly authorized transfer agent as to the date of such conversion. Upon the occurrence of an automatic conversion pursuant to Section 5(b) above or conversion at the option of the Company pursuant to Section 5(c) above, the Company shall deliver
notice to each holder of Series E Preferred Stock and the holder of any shares of Series E Preferred Stock shall deliver to the Company at the office of the Company the certificate or certificates for all shares of Series E Preferred Stock then held
by such holder, duly endorsed or assigned either in blank or to the Company (if requested by it). Conversion shall be deemed to have been effected (1) in the case of an optional conversion pursuant to Section 5(a), on the date when the aforesaid
delivery of the Conversion Notice is made if such day is a business day and otherwise on the business day following the date of the aforesaid delivery, (2) in the case of an automatic conversion pursuant to Section 5(b) on December 31, 2006, or (3)
in the case of conversion at the option of the Company pursuant to Section 5(c), ten (10) trading days after the date of the notice, and in each case such date is referred to herein as the “Conversion Date.” As promptly as practicable
thereafter, the Company, through its transfer agent, if any, shall issue and deliver to or upon the written order of such holder, to the place designated by such holder, a certificate or certificates for the number of full shares of Common Stock to
which such holder is entitled and a check or cash in respect of any fractional interest in a share of Common Stock, as provided below; provided, however, that in the case of a conversion in connection with liquidation, no such certificates
need be issued. The person in whose name the certificate or certificates for Common Stock are to be issued shall be deemed to have become the stockholder of record in respect of such Common Stock on the applicable Conversion Date unless the transfer
books of the Company are closed on that date, in which event such holder shall be deemed to have become the stockholder of record in respect of such Common Stock on the next succeeding date on which the transfer books are open, but the Conversion
Value and the Conversion Price shall be that in effect on the Conversion Date. Upon conversion of only a portion of the number of shares 
 

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covered by a stock certificate
representing shares of Series E Preferred Stock surrendered for conversion, the Company shall issue and deliver to or upon the written order of the holder of the stock certificate so surrendered for conversion, at the expense of the Company, a new
stock certificate covering the number of shares of Series E Preferred Stock representing the unconverted portion of the certificate so surrendered. Any transfer taxes applicable to the above described transactions shall be paid by such transferee.
The Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of Common Stock or the reissuance of the Preferred Stock in a name other than that in which the shares of Series E
Preferred Stock so converted were registered, and no such issuance or delivery shall be made unless and until the person requesting such issuance has paid to the Company the amount of any such tax or has established to the satisfaction of the
Company that such tax has been paid. 
 
(e)    No Fractional Shares of Common Stock.    No fractional shares of Common Stock shall be issued upon conversion of shares of Series E Preferred Stock and in lieu thereof, the
Company shall pay to the holder of such fractional share interest cash in respect of such fractional interest in an amount equal to the Market Price on the Conversion Date multiplied by such fractional interest. The holders of fractional interests
shall not be entitled to any rights as stockholders of the Company in respect of such fractional interests. In determining the number of shares of Common Stock and the payment, if any, in lieu of fractional shares that a holder of Series E Preferred
Stock shall receive, the total number of shares of Series E Preferred Stock surrendered for conversion by such holder shall be aggregated. 
 
(f)    Changes in Common Stock.    If any capital reorganization or reclassification
of the capital stock of the Company, or consolidation or merger of the Company with another corporation, or the sale, transfer or other disposition of all or substantially all of its assets to another corporation for cash or stock of such other
corporation, shall be effected, then, as a condition of such reorganization, reclassification, consolidation, merger, sale, transfer or other disposition, lawful and adequate provision shall be made whereby each holder of Series E Preferred Stock
shall thereafter have the right to purchase and receive upon the basis and upon the terms and conditions herein specified and in lieu of the shares of the Common Stock of the Company immediately theretofore issuable upon conversion of the Series E
Preferred Stock, such shares of stock, securities or properties as may be issuable or payable with respect to or in exchange for a number of outstanding shares of such Common Stock equal to the number of shares of such Common Stock immediately
theretofore issuable upon conversion of the Series E Preferred Stock had such reorganization, reclassification, consolidation, merger, sale, transfer or other disposition not taken place, and in any such case appropriate provisions shall be made
with respect to the rights and interests of each holder of Series E Preferred Stock to the end that the provisions hereof (including without limitation provisions for adjustment of the Conversion Price) shall thereafter be applicable, as nearly
equivalent as may be practicable in relation to any shares of stock, securities or properties thereafter deliverable upon the exercise thereof. The Company shall not effect any such consolidation, merger, sale, transfer or other disposition, unless
prior to or simultaneously with the consummation thereof the successor corporation (if other than the Company) resulting from such consolidation or merger or the corporation purchasing or otherwise acquiring such properties shall assume, by written
instrument executed and mailed or delivered to the holders of Series E Preferred Stock at the last address of such 
 

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holders appearing on the books of the Company, the obligation to deliver to such holders such shares of
stock, securities or properties as, in accordance with the foregoing provisions, such holders may be entitled to acquire. The above provisions of this subparagraph shall similarly apply to successive reorganizations, reclassifications,
consolidations, mergers, sales, transfers, or other dispositions. 
 
(g)    Stock to be Reserved.    The Company will at all times reserve and keep available out of its authorized Common Stock, solely for the purpose of issue upon the
conversion of Series E Preferred Stock as herein provided, such number of shares of Common Stock as shall then be issuable upon the conversion of all outstanding Series E Preferred Stock. The Company covenants that all shares of Common Stock which
shall be so issuable shall, upon issuance, be duly authorized, validly issued, fully paid and nonassessable, free from preemptive or similar rights on the part of the holders of any shares of capital stock or securities of the Company, and free from
all liens and charges with respect to the issue thereof; and without limiting the generality of the foregoing, the Company covenants that it will from time to time take all such action as may be requisite to assure that the par value, if any, per
share of the Common Stock is at all times equal to or less than the then effective Conversion Price. The Company will take all such action as may be necessary to assure that such shares of Common Stock may be so issued without violation by the
Company of any applicable law or regulation or agreement, or of any requirements of any domestic securities exchange upon which the Common Stock may be listed. Without limiting the foregoing, the Company will take all such action as may be necessary
to assure that, upon conversion of any of the Series E Preferred Stock, an amount equal to the lesser of (i) the par value of each share of Common Stock outstanding immediately prior to such conversion, or (ii) the Conversion Price shall be credited
to the Company’s stated capital account for each share of Common Stock issued upon such conversion, and that, if clause (i) above is applicable, the balance of the Conversion Price of Series E Preferred Stock converted shall be credited to the
Company’s capital surplus account. 
 
(h)    Closing of Books.    The Company will at no time close its transfer books against the transfer of any Series E Preferred Stock or of any shares of Common Stock issued or
issuable upon the conversion of any Series E Preferred Stock in any manner which interferes with the timely conversion of such Series E Preferred Stock. 
 
(i)    Taxes.    The Company shall pay all documentary, stamp or other transactional
taxes attributable to the issuance or delivery of shares of capital stock of the Company upon conversion of any shares of Series E Preferred Stock. The Company shall not, however, be required to pay any tax which may be payable in respect of any
transfer involved in the issuance and delivery of Common Stock or the reissuance of the Series E Preferred Stock in a name other than that in which the shares of Series E Preferred Stock so converted were registered, and no such issuance or delivery
shall be made unless and until the person requesting such issuance has paid to the Company the amount of any such tax or has established to the satisfaction of the Company that such tax has been paid. 
 
(j)    Exclusion of Other
Rights.    Except as may otherwise be required by law, the shares of Series E Preferred Stock shall not have any voting powers, preferences and relative, 
 

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participating, optional or other special rights, other than those specifically set forth in this
Certificate of Designations and in the Certificate of Incorporation. 
 
(k)    Limitation on Issuance of Conversion Shares. 
 
(i)    Notwithstanding any adjustment of the Conversion Price made under this Section 5, and
except as provided below, the Company shall not be obligated to issue upon conversion of the Series E Preferred Stock, in the aggregate, more than that number of shares of Common Stock, which when added to the maximum number of shares of Common
Stock issuable upon exercise of all warrants issued by the Company in connection with the sale of the Series E Preferred Stock, is equal to 19.99% of the number of shares of Common Stock of the Company outstanding on the Original Issue Date (such
amount to be proportionately and equitably adjusted from time to time in the event of stock splits, stock dividends, combinations, reverse stock splits, reclassifications, capital reorganization and similar events relating to the Common Stock) (the
“Maximum Share Amount”) if the issuance of shares of Common Stock in excess of the Maximum Share Amount (such number of excess shares referred to in the aggregate as the “Excess Shares”) would constitute a breach or violation of
the rules or regulations of the Nasdaq Stock Market or any other principal securities exchange or market upon which the Common Stock is or becomes listed or traded (the “Exchange Rules”). 
 
(ii)    To the
extent the Company will be required, or it appears likely to the Board of Directors of the Company that it will be required, to issue any Excess Shares as a result of an adjustment to the Conversion Price, the Company shall promptly use its best
efforts to seek stockholder approval. The number of shares comprising the Maximum Share Amount (and if applicable, any Excess Shares to be issued) shall be allocated among the holders of the shares of Series E Preferred Stock pro rata based on the
total number of shares of Series E Preferred Stock then outstanding. 
 
(iii)    The limitations in this Section 5(k) will apply so long as shares of Series E Preferred Stock remain outstanding and will not be terminated due to any change in the
status of the Company’s listing on the Nasdaq Stock Market. 
 
(l)    Additional Restrictions on Conversion or Transfer. 
 
(i)    In no event shall a holder of shares of Series E Preferred Stock of the Company have the
right to convert or be required to convert the shares of Series E Preferred Stock into shares of Common Stock to the extent that such right to effect such conversion would result in the holder or any of its affiliates together beneficially owning
more than 9.99% of the outstanding shares of Common Stock (the “Threshold”). For purposes of this subsection, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and
Regulation 13D-G thereunder. The provisions of this subsection may be waived by a holder of shares of Series E Preferred Stock as to itself (and solely as to itself) upon not less than 65 days prior written notice to the Company, and the provisions
of this subsection shall continue to apply until such 65th day (or later, if stated in the notice of waiver). In the case of conversion at the option of the Company pursuant to Section 5(c), any shares of Series E Preferred Stock not
converted into Common Stock on the Conversion 
 

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Date (as
defined in Section 5(d)) due to the limits imposed by the Threshold shall be redeemed by the Company on such Conversion Date for an amount equal to the Conversion Value of such shares on such Conversion Date, which amount shall be due and payable,
without interest, on the one year anniversary of such Conversion Date. 
 
(ii)    Notwithstanding anything to the contrary contained in this Section 5(l), this Section 5(l) shall be of no further force or effect after October 31, 2006, the date
that is 61 days prior to the automatic conversion date of December 31, 2006 as described in Section 5(b). 
 
6.    No Redemption.    Except as set forth in Section 5(l) above, the Series E Preferred Stock shall not be redeemable by the Company.

 
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IN WITNESS
WHEREOF, this Certificate of Designation of Series E Preferred Stock has been subscribed this 28th day of February 2003, by the undersigned who affirms that the statements made herein are true and correct. 
 

	 American Technology Corporation

	
	 By:
	 	 /s/    Elwood G.
Norris      

	 	 	 Name: Elwood G. Norris

	 	 	 Title: Chairman of the BoardWarrant to Purchase

 
Exhibit 4.3

 
 
No. W-E             
 
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS. 
 
WARRANT TO PURCHASE
             SHARES 
OF COMMON STOCK 
OF AMERICAN TECHNOLOGY CORPORATION 
(Void after December 31, 2007) 
 
This certifies that                      or its assigns (the “Holder”), for value
received, is entitled to purchase from AMERICAN TECHNOLOGY CORPORATION, a Delaware corporation (the “Company”), having a place of business at 13114 Evening Creek Drive South, San Diego, California 92128, a maximum of
             fully paid and nonassessable shares of the Company’s Common Stock (“Common Stock”) for cash at a price of Three Dollars and Twenty-Five Cents ($3.25) per
share, as may be adjusted as provided herein (the “Stock Purchase Price”), at any time or from time to time up to and including 5:00 p.m. (Pacific time) on December 31, 2007 (the “Expiration Date”), upon surrender to the Company
at its principal office (or at such other location as the Company may advise the Holder in writing) of this Warrant properly endorsed with the Form of Subscription attached hereto duly filled in and signed and, if applicable, upon payment in cash or
by check of the aggregate Stock Purchase Price for the number of shares for which this Warrant is being exercised determined in accordance with the provisions hereof. The Stock Purchase Price and the number of shares purchasable hereunder are
subject to adjustment as provided in Section 3 of this Warrant. 
 
This warrant to purchase Common Stock (this “Warrant”) is one of a series of warrants issued pursuant to the Series E Preferred Stock and Warrant Purchase Agreement dated as of
            , 2003 (the “Purchase Agreement”), which warrants are collectively referred to herein as the “Warrants.” 
 
This Warrant is subject to the following terms and conditions:

 
1.    EXERCISE; ISSUANCE OF CERTIFICATES;
PAYMENT FOR SHARES. 
 
1.1    General.     This Warrant is exercisable at the option of the holder of record hereof, at any time or from time to time, up to the Expiration Date for all or any part of the
shares of Common Stock (but not for a fraction of a share) which may be purchased hereunder. The Company agrees that the shares of Common Stock purchased under this Warrant shall be and are deemed to be issued to the Holder hereof as the record
owner of such shares as of the close of business on the date on which this Warrant shall have been surrendered, properly endorsed, the completed, executed Form of Subscription delivered and payment made for such shares. Certificates for the shares
of Common Stock so purchased, together with any other securities or 
 

1 

 
property to which the Holder
hereof is entitled upon such exercise, shall be delivered to the Holder hereof by the Company at the Company’s expense within five (5) business days after the rights represented by this Warrant have been so exercised. In case of a purchase of
less than all the shares which may be purchased under this Warrant, the Company shall cancel this Warrant and execute and deliver a new Warrant or Warrants of like tenor for the balance of the shares purchasable under the Warrant surrendered upon
such purchase to the Holder hereof within five (5) business days. Each stock certificate so delivered shall be in such denominations of Common Stock as may be requested by the Holder hereof and shall be registered in the name of such Holder.
Notwithstanding anything to the contrary set forth above, each exercise of the Warrant shall cover at least the lesser of (i) 10,000 shares of Common Stock (as adjusted for stock splits, stock dividends, combinations and the like), or (ii) the total
number of shares of Common Stock then subject to the Warrant. 
 
1.2    Net Issue Exercise. 
 
(a)    Section 1.2(b) shall not apply and shall have no force or effect if, in accordance with the terms of the Purchase Agreement, the shares of Common Stock issuable upon
exercise of this Warrant have been registered for resale under the Securities Act of 1933, as amended, on a registration statement on Form S-3, or another appropriate form. 
 
(b)    Notwithstanding any provisions herein to the contrary
(other than Section 1.2(a)), if the fair market value of one share of the Company’s Common Stock is greater than the Stock Purchase Price (at the date of calculation as set forth below), in lieu of exercising this Warrant for cash, the Holder
may elect to receive shares equal to the value (as determined below) of this Warrant (or the portion thereof being canceled) by surrender of this Warrant at the principal office of the Company together with the properly endorsed Form of Subscription
and notice of such election in which event the Company shall issue to the Holder a number of shares of Common Stock computed using the following formula: 
 

	 X =
	  	 Y (A-B)

	  	 A

 
Where X =
the number of shares of Common Stock to be issued to the Holder 
 
Y =     the number of shares of Common Stock purchasable under the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being canceled (at the date of such calculation)

 
A =    the fair market
value of one share of the Company’s Common Stock (at the date of such calculation) 
 
B =    Stock Purchase Price (as adjusted to the date of such calculation) 
 

	 

 

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For purposes
of the above calculation, fair market value of one share of Common Stock shall be the volume weighted average price of the Company’s Common Stock from the hours of 9:30 a.m. to 4:00 p.m. on the NASDAQ as reported by Bloomberg Financial using
the AQR function for the five (5) trading days immediately preceding the date of exercise for which there are reported transactions in the Common Stock. 
 
2.    SHARES TO BE FULLY PAID; RESERVATION OF SHARES.    The Company covenants and agrees that all shares
of Common Stock that may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be duly authorized, validly issued, fully paid and nonassessable and free from all preemptive rights of any stockholder and free of
all taxes, liens and charges with respect to the issue thereof. The Company further covenants and agrees that, during the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and
reserved, for the purpose of issue or transfer upon exercise of the subscription rights evidenced by this Warrant, a sufficient number of shares of authorized but unissued Common Stock, or other securities and property, when and as required to
provide for the exercise of the rights represented by this Warrant. The Company will take all such action as may be necessary to assure that such shares of Common Stock may be issued as provided herein without violation of any applicable law or
regulation, or of any requirements of any domestic securities exchange upon which the Common Stock may be listed; provided, however, that the Company shall not be required to effect a registration under Federal or State securities laws with respect
to such exercise other than as provided pursuant to the Purchase Agreement. The Company will not take any action which would result in any adjustment of the Stock Purchase Price (as set forth in Section 3 hereof) if the total number of shares of
Common Stock issuable after such action upon exercise of all outstanding warrants, together with all shares of Common Stock then outstanding and all shares of Common Stock then issuable upon exercise of all options and upon the conversion of all
convertible securities then outstanding, would exceed the total number of shares of Common Stock then authorized by the Company’s Certificate of Incorporation. 
 
3.    ADJUSTMENT OF STOCK PURCHASE PRICE AND NUMBER OF SHARES.    The Stock
Purchase Price and the number of shares purchasable upon the exercise of this Warrant shall be subject to adjustment from time to time upon the occurrence of certain events described in this Section 3. Upon each adjustment of the Stock Purchase
Price, the Holder of this Warrant shall thereafter be entitled to purchase, at the Stock Purchase Price resulting from such adjustment, the number of shares obtained by multiplying the Stock Purchase Price in effect immediately prior to such
adjustment by the number of shares purchasable pursuant hereto immediately prior to such adjustment, and dividing the product thereof by the Stock Purchase Price resulting from such adjustment. 
 
3.1    Subdivision or Combination of
Stock.    In case the Company shall at any time subdivide its outstanding shares of Common Stock into a greater number of shares, the Stock Purchase Price in effect immediately prior to such subdivision shall be
proportionately reduced, and conversely, in case the outstanding shares of Common Stock of the Company shall be combined into a smaller number of shares, the Stock Purchase Price in effect immediately prior to such combination shall be
proportionately increased. 
 

3 

 
3.2    Dividends in Common Stock, Other Stock, Property, Reclassification.    If at any time or from time to time the Holders of Common Stock (or any shares of stock or other securities
at the time receivable upon the exercise of this Warrant) shall have received or become entitled to receive, without payment therefor, 
 
(a)    Common Stock or any shares of stock or other securities which are at any time directly
or indirectly convertible into or exchangeable for Common Stock, or any rights or options to subscribe for, purchase or otherwise acquire any of the foregoing by way of dividend or other distribution, 
 
(b)    any cash
paid or payable otherwise than as a cash dividend, or 
 
(c)    Common Stock or additional stock or other securities or property (including cash) by way of spinoff, split-up, reclassification, combination of shares or similar corporate rearrangement,
(other than shares of Common Stock issued as a stock split or adjustments in respect of which shall be covered by the terms of Section 3.1 above), 
 
then and in each such case, the Holder hereof shall, upon the exercise of this Warrant, be entitled to receive, in addition to the number of shares of
Common Stock receivable thereupon, and without payment of any additional consideration therefor, the amount of stock and other securities and property (including cash in the cases referred to in clause (b) above and this clause (c)) which such
Holder would hold on the date of such exercise had he been the holder of record of such Common Stock as of the date on which holders of Common Stock received or became entitled to receive such shares or all other additional stock and other
securities and property. 
 
3.3    Reorganization, Reclassification, Consolidation, Merger or Sale.    If any recapitalization, reclassification or reorganization of the capital stock of the Company, or any
consolidation or merger of the Company with another corporation, or the sale of all or substantially all of its assets or other transaction shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities,
or other assets or property (an “Organic Change”), then, as a condition of such Organic Change, lawful and adequate provisions shall be made by the Company whereby the Holder hereof shall thereafter have the right to purchase and receive
(in lieu of the shares of the Common Stock of the Company immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby) such shares of stock, securities or other assets or property as may be issued or payable
with respect to or in exchange for a number of outstanding shares of such Common Stock equal to the number of shares of such stock immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby; provided,
however, that in the event the value of the stock, securities or other assets or property (determined in good faith by the Board of Directors of the Company) issuable or payable with respect to one share of the Common Stock of the Company
immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby is in excess of the Stock Purchase Price hereof effective at the time of a merger and securities received in such reorganization, if any, are
publicly traded, then this Warrant shall expire unless exercised prior to or simultaneous with such Organic Change. In the event of any Organic Change, appropriate provision shall be made by the Company with respect to the rights and interests of
the Holder of this Warrant to the end that the provisions hereof (including, without limitation, 
 

4 

 
provisions for adjustments of
the Stock Purchase Price and of the number of shares purchasable and receivable upon the exercise of this Warrant) shall thereafter be applicable, in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise
hereof. The Company will not effect any such consolidation, merger or sale unless, prior to the consummation thereof, the successor corporation (if other than the Company) resulting from such consolidation or the corporation purchasing such assets
shall assume by written instrument reasonably satisfactory in form and substance to the Holders of a majority of the warrants to purchase Common Stock then outstanding, executed and mailed or delivered to the registered Holder hereof at the last
address of such Holder appearing on the books of the Company, the obligation to deliver to such Holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such Holder may be entitled to purchase. 
 
3.4    Certain
Events.    If any change in the outstanding Common Stock of the Company or any other event occurs as to which the foregoing provisions of this Section 3 are not strictly applicable or if strictly applicable would not fairly
protect the purchase rights of the Holder of the Warrant in accordance with such provisions, then the Board of Directors of the Company shall make an adjustment in the number and class of shares available under the Warrant, the Stock Purchase Price
or the application of such provisions, so as to protect such purchase rights as aforesaid. The adjustment shall be such as will give the Holder of the Warrant upon exercise for the same aggregate Stock Purchase Price the total number, class and kind
of shares as he would have owned had the Warrant been exercised prior to the event and had he continued to hold such shares until after the event requiring adjustment. 
 
3.5    Notices of Change. 
 
(a)    Within 10
business days after any adjustment in the number or class of the shares subject to this Warrant and of the Stock Purchase Price, the Company shall give written notice thereof to the Holder, setting forth in reasonable detail and certifying the
calculation of such adjustment. 
 
(b)    The Company shall give written notice to the Holder at least 15 business days prior to the date on which the Company closes its books or takes a record for determining rights to receive any dividends
or distributions. 
 
(c)  The Company shall also give written notice to the Holder at least 15 business days prior to the date on which an Organic Change shall take place. 
 
4.    ISSUE TAX.    The issuance of certificates for shares of Common Stock
upon the exercise of the Warrant shall be made without charge to the Holder of the Warrant for any issue tax (other than any applicable income taxes) in respect thereof; provided, however, that the Company shall not be required to pay any tax which
may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the then Holder of the Warrant being exercised. 
 
5.    CLOSING OF BOOKS.    The Company will at no time close its transfer
books against the transfer of any warrant or of any shares of Common Stock issued or issuable 
 

5 

 
upon the exercise of any
warrant in any manner which interferes with the timely exercise of this Warrant. 
 
6.    NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY.    Other than as set forth herein, nothing contained in this Warrant shall be construed as conferring upon the Holder hereof
the right to vote or to consent or to receive notice as a shareholder of the Company or any other matters or any rights whatsoever as a shareholder of the Company. No dividends or interest shall be payable or accrued in respect of this Warrant or
the interest represented hereby or the shares purchasable hereunder until, and only to the extent that, this Warrant shall have been exercised. No provisions hereof, in the absence of affirmative action by any holder, and no mere enumeration herein
of the rights or privileges of the holder hereof, shall give rise to any liability of such Holder for the Stock Purchase Price or as a shareholder of the Company, whether such liability is asserted by the Company or by its creditors. 
 
7.    WARRANTS
TRANSFERABLE.    Subject to compliance with applicable federal and state securities laws, this Warrant and all rights hereunder are transferable, in whole or in part, without charge to the holder hereof (except for transfer
taxes), upon surrender of this Warrant properly endorsed. Each taker and holder of this Warrant, by taking or holding the same, consents and agrees that this Warrant, when endorsed in blank, shall be deemed negotiable, and that the holder hereof,
when this Warrant shall have been so endorsed, may be treated by the Company, at the Company’s option, and all other persons dealing with this Warrant as the absolute owner hereof for any purpose and as the person entitled to exercise the
rights represented by this Warrant, or to the transfer hereof on the books of the Company any notice to the contrary notwithstanding; but until such transfer on such books, the Company may treat the registered owner hereof as the owner for all
purposes. 
 
8.    RIGHTS AND OBLIGATIONS
SURVIVE EXERCISE OF WARRANT.    The rights and obligations of the Company, of the holder of this Warrant and of the holder of shares of Common Stock issued upon exercise of this Warrant, shall survive the exercise of this
Warrant. 
 
9.    MODIFICATION AND
WAIVER.    This Warrant and any provision hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of the same is sought; provided, however, that
any term of this Warrant may be amended with the written consent of the Company and the holders of Warrants representing a majority in interest of the shares of Common Stock then issuable upon exercise of the Warrants issued pursuant to the Purchase
Agreement, and any amendment so effected shall be binding upon each holder of such Warrants. 
 
10.    NOTICES.    Any notice, request or other document required or permitted to be given or delivered to the holder hereof or the Company shall be
delivered or shall be sent by certified mail, postage prepaid, to each such holder at its address as shown on the books of the Company or to the Company at the address indicated therefor in the first paragraph of this Warrant or such other address
as either may from time to time provide to the other. 
 

6 

11.    BINDING EFFECT ON SUCCESSORS.    This Warrant shall
be binding upon any corporation succeeding the Company by merger, consolidation or acquisition of all or substantially all of the Company’s assets. All of the obligations of the Company relating to the Common Stock issuable upon the exercise of
this Warrant shall survive the exercise and termination of this Warrant. All of the covenants and agreements of the Company shall inure to the benefit of the successors and assigns of the holder hereof. 
 
12.    DESCRIPTIVE HEADINGS AND GOVERNING
LAW.    The description headings of the several sections and paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. This Warrant shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of the State of California. 
 
13.    LOST WARRANTS.    The Company represents and warrants to the Holder hereof that upon receipt of evidence reasonably satisfactory to the Company of
the loss, theft, destruction, or mutilation of this Warrant and, in the case of any such loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory to the Company, or in the case of any such mutilation upon surrender and
cancellation of such Warrant, the Company, at its expense, will make and deliver a new Warrant, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant. 
 
14.    FRACTIONAL SHARE.    No fractional shares shall be issued upon
exercise of this Warrant. The Company shall, in lieu of issuing any fractional share, pay the holder entitled to such fraction a sum in cash equal to such fraction multiplied by the then effective Stock Purchase Price. 
 
15.    SPECIFIC
PERFORMANCE.    The parties hereto hereby declare that it is impossible to measure in money the damages which will accrue to a party hereto or to their heirs, personal representatives, or assigns by reason of a failure to
perform any of the obligations under this Warrant and agree that the terms of this Warrant shall be specifically enforceable. If any party hereto or his heirs, personal representatives, or assigns institutes any action or proceeding to specifically
enforce the provisions hereof, any person against whom such action or proceeding is brought hereby waives the claim or defense therein that such party or such personal representative has an adequate remedy at law, and such person shall not offer in
any such action or proceeding the claim or defense that such remedy at law exists. 
 
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] 
 

7 

 
IN WITNESS
WHEREOF, the Company has caused this Warrant to be duly executed by its officers, thereunto duly authorized this              day of
            , 2003. 
 

	 AMERICAN TECHNOLOGY CORPORATION,
 a Delaware corporation
  

	
	 By:
	 	

	 	 	 Name:                                    
                                        
       

	 	 	 Title:                                    
                                        
         

 
 

8 

 
Exhibit A

SUBSCRIPTION FORM 
 
Date:             ,
         
 
American
Technology Corporation 
13114 Evening Creek Drive South 
San Diego, California 92128 
Attn: President 
 
Ladies and Gentlemen: 
 
The undersigned hereby elects to exercise the warrant issued to it by American Technology Corporation (the “Company”) and dated
                         , 2003, Warrant No.
W-D             (the “Warrant”) and to purchase thereunder              shares of the Common Stock of the
Company (the “Shares”) at a purchase price of Three Dollars and Twenty-Five Cents ($3.25) per Share for an aggregate purchase price of              Dollars
($            ) (the “Purchase Price”). 
 
Pursuant to the terms of the Warrant the undersigned has (check one that applies): 
 

	 	 ̈	 	Delivered the aggregate Purchase Price herewith in full in cash or by certified check or wire transfer; or 

 

	 	 ̈	 	Elected to Net Issue Exercise as described in Section 1.2 of the Warrant. 

 
 

	 Very truly yours,

	
	                                      
                                        
                          

	 Signature

	  
 Name:
                                       
                                        
          

	  
 Title:

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