Exhibit 4.11
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
CONVERTIBLE SUBORDINATED PROMISSORY NOTE
$ San Diego, California
-------------------
, 2001
----------------
AMERICAN TECHNOLOGY CORPORATION, a Delaware corporation (the "Company"), for
value received hereby promises to pay to _________________, or its assigns, the
sum of _________________ ($____________ ), or such lesser amount as shall then
equal the outstanding principal amount hereof and any unpaid accrued interest
hereon, as set forth below, which shall all be due and payable in one (1)
installment on the earlier to occur of (i) December 31, 2002, or (ii) when
declared due and payable by the Holder upon the occurrence of an Event of
Default (as defined below) ("Maturity Date"). Payment for all amounts due
hereunder shall be made by mail to the registered address of the Holder as
defined below.
This Note is one of a duly authorized issue of the Company designated
as 12% Convertible Subordinated Promissory Notes (the "Notes") due December 31,
2002 and limited to the aggregate principal amount of $3,000,000. 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
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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. Interest. The Company shall pay interest at the rate of twelve percent
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(12%) 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 Maturity Date. Subject to the provisions of Section 7 regarding
conversion of this Note, all outstanding principal plus all accrued but unpaid
interest therein shall become due and
Exhibit 4.11
payable in one (1) installment on December 31, 2002, unless sooner accelerated
in accordance with the provisions herein.
3. Events of Default. If any of the events specified in this Section 3
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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 the principal and unpaid accrued
interest 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, 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 continuance 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.
5.1 Senior Indebtedness. As used in this Note, the term "Senior
-------------------
Indebtedness" shall mean the principal of and unpaid accrued interest on: (i)
all indebtedness of the Company to banks, commercial finance lenders, insurance
companies or other financial institutions regularly engaged in the business of
lending money, which is for money borrowed by the Company (whether or not
secured), and (ii) amounts owed to equipment lessors pursuant to equipment lease
lines approved by the Company's Board of Directors, and (iii) all indebtedness
of the Company evidenced by notes, debentures, bonds or other securities of the
Company which are
2
Exhibit 4.11
designated by and approved by the Company's Board of Directors, and (iv) all
obligations and liabilities in connection with the lease of real property, and
(v) all modifications, renewals, extensions and refundings of indebtedness,
liabilities or obligations of the kind described in any of the preceding
clauses, provided, however no indebtedness of the Company, all or part of which
is convertible into equity, and no indebtedness which has a material equity
component shall be designated as Senior Indebtedness by the Company without the
consent of a majority of the Holders of the Notes.
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 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
3
Exhibit 4.11
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. Prepayment. This Note may not be prepaid in whole or in part without
----------
the prior written consent of the Holder and the Company.
7. Conversion.
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7.1 Voluntary Conversion. Any Holder of this Note has the right, at
--------------------
the Holder's option, at any time beginning forty-eight (48) hours after the date
of the Note and prior to payment in full of the principal balance of this Note,
to convert this Note, in accordance with the provisions of Section 7.3.1 hereof,
in whole or in part, into fully paid and nonassessable shares of common stock of
the Company (the "Common Stock"). The number of shares of Common Stock into
which this Note may be converted ("Conversion Shares") shall be determined by
dividing the aggregate principal amount together with all accrued interest to
the date of conversion by the Conversion Price (as defined below) in effect at
the time of such conversion. The initial Conversion Price shall be equal to Two
Dollars ($2.00).
7.2 Mandatory Conversion. The Company has the right, at the Company's
--------------------
option, at any time prior to the payment in full of the principal balance of
this Note, to require that any Holder of this Note must convert the entire
principal balance of this Note, in accordance with the provisions of Section
7.3.1 hereof, into Common Stock of the Company in the event that the closing bid
price of the Common Stock of the Company is at least $5.00 per share (as
adjusted in accordance with the Conversion Price adjustment set forth in
Sections 8.2 and 8.3 herein) for five (5) consecutive days of regular trading on
the over-the-counter market or on an exchange where the Common Stock of the
Company is then traded, at the Conversion Price in effect on the first trading
day immediately prior to the first day such five (5) day period. Such mandatory
conversion is subject to the further requirement that a registration statement
registering the Conversion Shares is filed under the Securities Act of 1933, as
amended, ("Securities Act") and declared effective by the Securities and
Exchange Commission ("Commission") which shall be effective and current at all
times beginning on the date the Company exercises its right of mandatory
conversion as set forth in Section 7.3.2 below and continuing until the
Conversion Shares are issued.
4
Exhibit 4.11
7.3 Conversion Procedure.
--------------------
7.3.1 Notice of Conversion Pursuant to Section 7.1. Before the
--------------------------------------------
Holder shall be entitled to voluntarily convert this Note into shares of Common
Stock, it shall surrender this Note at the office of the Company and shall give
written notice by mail, postage prepaid, to the Company at its principal
corporate office, of the election to convert the same pursuant to this Section
7.3, and shall state therein the name or names in which the certificate or
certificates for shares of Common Stock are to be issued. Unless waived by the
Company in its sole discretion, the minimum conversion amount accepted by the
Company for conversion hereunder shall be the lesser of: a $50,000 principal
balance on the Holder's Note, or the remaining principal and accrued interest
balance on the Holder's Note. The Company shall, as soon as practicable
thereafter, issue and deliver at such office to the Holder of this Note a
certificate or certificates for the number of shares of Common Stock to which
the Holder of this Note shall be entitled as aforesaid. Such conversion shall be
deemed to have been made immediately prior to the close of business on the date
of such surrender of this Note, and the person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock as
of such date.
7.3.2 Notice of Conversion Pursuant to Section 7.2. If this Note
--------------------------------------------
is mandatorily converted in accordance with Section 7.2 above, written notice
shall be delivered to the Holder of this Note not less than ten (10) days prior
to the date fixed for such conversion ("Notice of Mandatory Conversion")
specifying the date of such conversion, at the address last shown on the records
of the Company for the Holder or given by the Holder to the Company for the
purpose of notice or, if no such address appears or is given, at the place where
the principal executive office of the Company is located, notifying the Holder
of the mandatory conversion to be effected, specifying the Conversion Price, the
principal amount of the Note to be converted, the amount of accrued interest to
be converted, the date on which such conversion will occur and calling upon such
Holder to surrender to the Company, in the manner and at the place designated,
the Note. The mandatory conversion pursuant to the preceding sentence is
effective with respect to each Holder on the tenth (10th) day following the
mailing to the Holder or any other person at the Holder's designated address of
the Notice of Mandatory Conversion.
7.3.3 Delivery of Stock Certificates. As promptly as practicable
------------------------------
after the conversion of this Note, the Company at its expense will issue and
deliver to the Holder of this Note a certificate or certificates for the number
of full shares of Common Stock issuable upon such conversion.
7.4 Mechanics and Effect of Conversion. No fractional shares of
----------------------------------
Common Stock shall be issued upon conversion of this Note. In lieu of the
Company issuing any fractional shares to the Holder upon the conversion of this
Note, the Company shall pay to the Holder the amount of outstanding principal
that is not so converted, such payment to be in the form as provided below. Upon
the conversion of this Note pursuant to Section 7.1 above, the Holder shall
surrender this Note, duly endorsed, at the principal office of the Company. At
its expense, the Company shall, as soon as practicable thereafter, issue and
deliver to such Holder at such principal office a certificate or certificates
for the number of shares of such Common Stock to which the Holder shall be
entitled upon such conversion (bearing such legends as are required hereby and
by applicable state and federal securities laws in the opinion of counsel to the
5
Exhibit 4.11
Company), together with any other securities and property to which the
Holder is entitled upon such conversion under the terms of this Note, including
a check payable to the Holder for any cash amounts payable as described above.
Upon conversion of this Note, the Company shall be forever released from all its
obligations and liabilities under this Note, except that the Company shall be
obligated to pay the Holder, within thirty (30) days after the date of such
conversion, any interest accrued and unpaid or unconverted to and including the
date of such conversion, and no more.
8. Conversion Price Adjustments.
----------------------------
8.1 Shares Issued for Less Than Conversion Price. If at any time or
--------------------------------------------
from time to time prior to the Maturity Date, the Company sells any Common Stock
or any indebtedness, bonds, debentures, notes, preferred stock or similar equity
securities which are convertible into or exercisable for Common Stock at a price
less than the Conversion Price, the Conversion Price shall thereupon be reduced
to such lesser price. Notwithstanding anything to the contrary herein, the
provisions of this Section 8.1 shall not apply to any such securities issued or
to be issued pursuant to (i) securities issued to employees, consultants,
officers or directors of the Company pursuant to any stock option, stock
purchase or stock bonus plan, agreement or arrangement approved by the Board of
Directors; (ii) securities issued pursuant to the acquisition of another
business entity or business segment of any such entity by the Company by merger,
purchase of substantially all of the assets or other reorganization whereby the
Company will own more than fifty (50%) of the voting power of such business
segment of any such entity; (iii) securities issued to vendors or customers or
to other persons in similar commercial situations with the Company if such
issuance is approved by the Board of Directors; (iv) securities issued in
corporate partnering transactions on terms approved by the Board of Directors;
(v) securities issued in accordance with the terms of any of the Company's
preferred stock or warrants outstanding on the date hereof; and (vi) borrowings,
direct or indirect, from financial institutions regularly engaged in the
business of lending money, whether or not presently authorized with an equity
component which is not a major component of such borrowing. Notwithstanding
anything to the contrary herein, the provisions of this Section 8.1 shall not
apply to the first $100,000 in proceeds received by the Company from the sale of
any Common Stock or any securities convertible into or exercisable for Common
Stock or similar equity securities sold in any separate 180-day period beginning
on the date of this Note and continuing through the Maturity Date. For example,
to demonstrate the operation of the preceding sentence, the Company may sell
such equity securities and receive $100,000 in the first 180-day period after
the date of this Note, and after the expiration of the first 180-day period may
sell another $100,000 in such securities during the succeeding 180-day period
and the $200,000 in total proceeds received from the sales in both such
transactions shall not apply to and shall be exempt from the operation of this
Section 8.1.
8.2 Adjustments for Stock Splits and Subdivisions. In the event the
---------------------------------------------
Company should at any time or from time to time after the date of issuance
hereof fix a record date for the effectuation of a split or subdivision of the
outstanding shares of Common Stock or the determination of holders of Common
Stock entitled to receive a dividend or other distribution payable in additional
shares of Common Stock or other securities or rights convertible into, or
entitling the holder thereof to receive directly or indirectly, additional
shares of Common Stock (hereinafter referred to as "Common Stock Equivalents")
without payment of any consideration
6
Exhibit 4.11
by such holder for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common Stock issuable upon
conversion or exercise thereof), then, as of such record date (or the date of
such dividend distribution, split or subdivision if no record date is fixed),
the Conversion Price of this Note shall be appropriately decreased so that the
number of shares of Common Stock issuable upon conversion of this Note shall be
increased in proportion to such increase of outstanding shares.
8.3 Adjustment for Reverse Stock Splits. If the number of shares of
-----------------------------------
Common Stock outstanding at any time after the date hereof is decreased by a
combination of the outstanding shares of Common Stock, then, following the
record date of such combination, the Conversion Price for this Note shall be
appropriately increased so that the number of shares of Common Stock issuable on
conversion hereof shall be decreased in proportion to such decrease in
outstanding shares.
8.4 Notices of Record Date, etc.
---------------------------
In the event of:
8.4.1 Any taking by the Company of a record of the holders of any
class of securities of the Company for the purpose of determining the holders
thereof who are entitled to receive any dividend (other than a cash dividend
payable out of earned surplus at the same rate as that of the last such cash
dividend theretofore paid) or other distribution, or any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right; or
8.4.2 Any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or any
transfer of all or substantially all of the assets of the Company to any other
person or any consolidation or merger involving the Company; or
8.4.3 Any voluntary or involuntary dissolution, liquidation or
winding up of the Company, the Company will mail to the holder of this Note at
least ten (10) days prior to the earliest date specified therein, a notice
specifying:
8.4.3.1 The date on which any such record is to be taken
for the purpose of such dividend, distribution or right, and the amount and
character of such dividend, distribution or right; and
8.4.3.2 The date on which any such reorganization,
reclassification, transfer, consolidation, merger, dissolution, liquidation or
winding up is expected to become effective and the record date for determining
stockholders entitled to vote thereon.
8.5 Reservation of Stock Issuable Upon Conversion. The Company shall
---------------------------------------------
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock solely for the purpose of effecting the conversion of the
Note such number of its shares of Common Stock as shall from time to time be
sufficient to effect the conversion of the Note; and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of the entire outstanding principal amount of this Note,
in addition to such other
7
Exhibit 4.11
remedies as shall be available to the holder of this Note, the Company will use
its best efforts to take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purposes.
9. Representations and Warranties of the Holder.
--------------------------------------------
9.1 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 or the Conversion Shares are 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,
the Conversion Shares or any shares of its Common Stock. 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 Conversion Shares or the
Note under the circumstances, in the amounts or at the times Holder might
propose.
9.2 Acquisition for Own Account. Holder is acquiring the Note and
----------------------------
the Conversion Shares for Holder's own account for investment only, and not with
a view towards their distribution.
9.3 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.
9.4 Accredited Investor. Holder represents that it is an accredited
--------------------
investor within the meaning of Regulation D under the Securities Act.
9.5 Company Information. Holder has received and read the Company's
-------------------
Form 10-K Annual Report for the fiscal year ended September 30, 2000 and the
Form 10-Q Quarterly Reports for the quarters ended December 31, 2000; March 30,
2001; June 30, 2001 and all other reports filed after December 31, 2000 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.
9.6 Rule 144. Holder acknowledges and agrees that the Note, and, if
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issued, the Conversion Shares must be held indefinitely unless they are
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,
which permits limited resale of shares purchased in a private placement subject
to the satisfaction of certain conditions, including, among other things: the
availability of certain
8
Exhibit 4.11
current public information about the Company, the resale occurring following
the required holding period under Rule 144 and the number of shares being sold
during any three-month period not exceeding specified limitations.
9.7 Residence. If the Holder is an individual, then the Holder
---------
resides in the state or province 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.
9.8 Disposition of Note and Conversion Shares.
-----------------------------------------
9.8.1 The Holder further agrees not to make any disposition of
all or any part of the Note or Conversion Shares unless and until:
9.8.1.1 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
9.8.1.2 There is then in effect a registration statement
under the Securities Act covering such proposed disposition and such disposition
is made in accordance with said registration statement; or
9.8.1.3 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 or
Conversion Shares under the Securities Act or any applicable state securities
laws.
9.8.2 The Holder understands and agrees that all certificates
evidencing the Conversion Shares to be issued to the Holder may bear the
following legend:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"). THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THE SECURITIES UNDER THE ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.
9.9 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.
9
Exhibit 4.11
10. Registration Rights.
-------------------
10.1 Definitions. As used in this Section 10 the following terms shall
-----------
have the following respective meanings:
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Note Holder" means any person owning of record Registrable
Securities that have not been sold to the public or any assignee of record of
such Registrable Securities in accordance with Section 10.8 hereof.
"Register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of
effectiveness of such registration statement or document.
"Registrable Securities" means (a) Common Stock of the Company
issuable upon conversion of the Note or upon exercise of the Warrant issued to
Note Holder of even date herewith in connection with the issuance of the Note
and (b) any Common Stock of the Company issued as (or issuable upon the
conversion or exercise of any warrant, right or other security which is issued
as) a dividend or other distribution with respect to, or in exchange for or in
replacement of, such above-described securities. Notwithstanding the foregoing,
Registrable Securities shall not include any securities sold by a person to the
public either pursuant to a registration statement or Rule 144 adopted by the
SEC under the Securities Act ("Rule 144") or sold in a private transaction in
which the transferor's rights under Section 9.8 of this Note are not assigned.
"Registrable Securities then outstanding" shall be the number
of shares determined by calculating the total number of shares of the Company's
Common Stock that are Registrable Securities and either (a) are then issued and
outstanding or (b) are issuable pursuant to then exercisable or convertible
securities.
"Registration Expenses" shall mean all expenses incurred by
the Company in complying with Section 10.2 hereof, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Company, blue sky fees and expenses and the
expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the Company which shall
be paid in any event by the Company).
"SEC" or "Commission" means the Securities and Exchange
Commission.
"Securities Act" shall mean the Securities Act of 1933, as
amended.
"Selling Expenses" shall mean all underwriting discounts and
selling commissions applicable to the sale.
"Shares" shall mean the Company's Common Stock issued upon
conversion of this Note and held by the investors who purchase the Notes and
their permitted assigns and the Common Stock issuable upon exercise of the
Warrants.
10
Exhibit 4.11
"Special Registration Statement" shall mean a registration
statement relating to any employee benefit plan or with respect to any corporate
reorganization or other transaction under Rule 145 of the Securities Act.
"Warrants" shall mean those certain warrants to purchase
Common Stock issued in connection with the Notes.
10.2 Piggyback Registrations. The Company shall notify all Note
-----------------------
Holders of Registrable Securities in writing at least fifteen (15) days prior to
the filing of any registration statement under the Securities Act for purposes
of a public offering of securities of the Company (including, but not limited
to, registration statements relating to secondary offerings of securities of the
Company, but excluding Special Registration Statements) and will afford each
such Note Holder an opportunity to include in such registration statement all or
part of such Registrable Securities held by such Note Holder. Each Note Holder
desiring to include in any such registration statement all or any part of the
Registrable Securities held by it shall, within fifteen (15) days after the
above-described notice from the Company, so notify the Company in writing. Such
notice shall state the intended method of disposition of the Registrable
Securities by such Note Holder. If a Note Holder decides not to include all of
its Registrable Securities in any registration statement thereafter filed by the
Company, such Note Holder shall nevertheless continue to have the right to
include any Registrable Securities in a subsequent registration statement or
registration statements as may be filed by the Company with respect to offerings
of its securities, all upon the terms and conditions set forth herein, provided,
however, Note Holders shall be entitled to exercise their piggyback registration
rights as set forth herein for a maximum of two (2) such registration
statements.
10.2.1 Underwriting. If the registration statement under which
------------
the Company gives notice under this Section 10.2 is for an underwritten
offering, the Company shall so advise the Note Holders of Registrable
Securities. In such event, the right of any such Note Holder to be included in a
registration pursuant to this Section 10.2 shall be conditioned upon such Note
Holder's participation in such underwriting and the inclusion of such Note
Holder's Registrable Securities in the underwriting to the extent provided
herein. All Note Holders proposing to distribute their Registrable Securities
through such underwriting shall enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting by the Company. Notwithstanding any other provision of the
Agreement, if the underwriter determines in good faith that marketing factors
require a limitation of the number of shares to be underwritten, the number of
shares that may be included in the underwriting shall be allocated, first, to
the Company; second, to the Note Holders on a pro rata basis based on the total
number of Registrable Securities held by the Note Holders; and third, to any
shareholder of the Company (other than a Note Holder) on a pro rata basis. No
such reduction shall reduce the securities being offered by the Company for its
own account to be included in the registration and underwriting. If any Note
Holder disapproves of the terms of any such underwriting, such Note Holder may
elect to withdraw therefrom by written notice to the Company and the
underwriter, delivered at least ten (10) business days prior to the effective
date of the registration statement. Any Registrable Securities excluded or
withdrawn from such underwriting shall be excluded and withdrawn from the
registration. For any Note Holder which is a partnership or corporation, the
partners, retired partners and shareholders of such Note Holder, or the estates
and family members of any such partners and retired partners and any trusts for
the benefit of any of the
11
Exhibit 4.11
foregoing person shall be deemed to be a single "Note Holder," and any
pro rata reduction with respect to such "Note Holder" shall be based upon the
aggregate amount of shares carrying registration rights owned by all entities
and individuals included in such "Note Holder," as defined in this sentence.
10.2.2 Right to Terminate Registration. The Company shall have
-------------------------------
the right to terminate or withdraw any registration initiated by it under this
Section 10.2 prior to the effectiveness of such registration whether or not any
Note Holder has elected to include securities in such registration. The
Registration Expenses of such withdrawn registration shall be borne by the
Company in accordance with Section 10.3 hereof.
10.3 Expenses of Registration. Except as specifically provided herein,
------------------------
all Registration Expenses incurred in connection with any registration,
qualification or compliance pursuant to Section 10.2 shall be borne by the
Company. Fees of counsel for the Note Holders shall be paid for exclusively by
the Note Holders. All Selling Expenses incurred in connection with any
registrations hereunder, shall be borne by the holders of the securities so
registered pro rata on the basis of the number of shares so registered.
10.4 Obligations of the Company. Whenever required to effect the
--------------------------
registration of any Registrable Securities, the Company shall, as expeditiously
as reasonably possible:
10.4.1 Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use all reasonable efforts to
cause such registration statement to become effective, and, upon the request of
the Note Holders holding a majority of the Registrable Securities registered
thereunder, keep such registration statement effective for up to thirty (30)
days or, if earlier, until the Note Holder or Note Holders have completed the
distribution related thereto. The Company shall not be required to file, cause
to become effective or maintain the effectiveness of any registration statement
that contemplates a distribution of securities on a delayed or continuous basis
pursuant to Rule 415 under the Securities Act.
10.4.2 Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the distribution of all
securities covered by such registration statement for the period set forth in
Section 10.4.1 above.
10.4.3 Furnish to the Note Holders such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the distribution of Registrable
Securities owned by them.
10.4.4 In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter(s) of such offering. Each Note
Holder participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
10.4.5 Notify each Note Holder of Registrable Securities covered
by such registration statement at any time when a prospectus relating thereto is
required to be delivered
12
Exhibit 4.11
under the Securities Act of the happening of any event as a result of
which the prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances then existing. The Company will
use reasonable efforts to amend or supplement such prospectus in order to cause
such prospectus not to include any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
10.5 Termination of Registration Rights. All registration rights
----------------------------------
granted under this Section 10 shall terminate and be of no further force and
effect four (4) years after the date the Note is executed by the Company. In
addition, a Note Holder's registration rights shall expire if such Note Holder
(together with its affiliates, partners and former partners) holds less than 1%
of the Company's outstanding Common Stock and all Registrable Securities held by
and issuable to such Note Holder (and its affiliates, partners, former partners,
members and former members) may be sold under Rule 144 during any ninety (90)
day period.
10.6 Delay of Registration; Furnishing Information.
---------------------------------------------
10.6.1 No Note Holder shall have any right to obtain or seek an
injunction restraining or otherwise delaying any such registration as the result
of any controversy that might arise with respect to the interpretation or
implementation of this Section 10.
10.6.2 It shall be a condition precedent to the obligations of
the Company to take any action pursuant to Section 10.2 that the selling Note
Holders shall furnish to the Company such information regarding themselves, the
Registrable Securities held by them and the intended method of disposition of
such securities as shall be required to effect the registration of their
Registrable Securities.
10.7 Indemnification. In the event any Registrable Securities are
---------------
included in a registration statement under Section 10.2:
10.7.1 To the extent permitted by law, the Company will indemnify
and hold harmless each Note Holder, the partners, officers and directors of each
Note Holder, any underwriter (as defined in the Securities Act) for such Note
Holder and each person, if any, who controls such Note Holder or underwriter
within the meaning of the Securities Act or the Exchange Act, against any
losses, claims, damages, or liabilities (joint or several) to which they may
become subject under the Securities Act, the Exchange Act or other federal or
state law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation") by the Company: (i) any
untrue statement or alleged untrue statement of a material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein not misleading, or
(iii) any violation or alleged violation by the Company of the Securities Act,
the Exchange Act, any state securities law or any rule or regulation promulgated
under the Securities Act, the Exchange Act or any state securities law in
13
Exhibit 4.11
connection with the offering covered by such registration statement; and the
Company will pay as incurred to each such Note Holder, partner, officer,
director, underwriter or controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided however, that the
indemnity agreement contained in this Section 10.7.1 shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company, which consent shall
not be unreasonably withheld, nor shall the Company be liable in any such case
for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by such Note Holder, partner, officer, director,
underwriter or controlling person of such Note Holder and provided, however, the
aggregate amount of the Company's obligation to indemnify each Note Holder and
all other related parties referred to herein pursuant to this Section 10.7.1
shall not exceed the net proceeds from the offering received by such Note
Holder.
10.7.2 To the extent permitted by law, each Note Holder will, if
Registrable Securities held by such Note Holder are included in the securities
as to which such registration qualifications or compliance is being effected,
indemnify and hold harmless the Company, each of its directors, its officers and
each person, if any, who controls the Company within the meaning of the
Securities Act, any underwriter and any other Note Holder selling securities
under such registration statement or any of such other Note Holder's partners,
directors or officers or any person who controls such Note Holder, against any
losses, claims, damages or liabilities (joint or several) to which the Company
or any such director, officer, controlling person, underwriter or other such
Note Holder, or partner, director, officer or controlling person of such other
Note Holder may become subject under the Securities Act, the Exchange Act or
other federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereto) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by such Note Holder; and each such Note Holder will pay as incurred
any legal or other expenses reasonably incurred by the Company or any such
director, officer, controlling person, underwriter or other Note Holder, or
partner, officer, director or controlling person of such other Note Holder in
connection with investigating or defending any such loss, claim, damage,
liability or action if it is judicially determined that there was such a
Violation; provided, however, that the indemnity agreement contained in this
Section 10.7.2 shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of the Note Holder, which consent shall not be unreasonably withheld;
provided further, that in no event shall any indemnity under this Section 10.7.2
exceed the net proceeds from the offering received by such Note Holder.
10.7.3 Promptly after receipt by an indemnified party under this
Section 10.7 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 10.7, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and
14
Exhibit 4.11
expenses to be paid by the indemnifying party, if representation of such
indemnified party by the counsel retained by the indemnifying party would be
inappropriate due to actual or potential differing interests between such
indemnified party and any other party represented by such counsel in such
proceeding. The failure to deliver written notice to the indemnifying party
within a reasonable time of the commencement of any such action, if materially
prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
10.7, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 10.7.
10.7.4 If the indemnification provided for in this Section 10.7
is held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any losses, claims, damages or liabilities referred to
herein, the indemnifying party, in lieu of indemnifying such indemnified party
thereunder, shall to the extent permitted by applicable law contribute to the
amount paid or payable by such indemnified party as a result of such loss,
claim, damage or liability in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the indemnified
party on the other in connection with the Violation(s) that resulted in such
loss, claim, damage or liability, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by a court of law by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission; provided, that in no event shall any contribution by a
Note Holder hereunder exceed the net proceeds from the offering received by such
Note Holder.
10.7.5 The obligations of the Company and Note Holders under this
Section 10.7 shall survive completion of any offering of Registrable Securities
in a registration statement and the termination of this Note. No indemnifying
party, in the defense of any such claim or litigation, shall, except with the
consent of each indemnified party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a release from
all liability in respect to such claim or litigation.
10.8 Assignment of Registration Rights. The rights to cause the
---------------------------------
Company to register Registrable Securities pursuant to this Section 10 may be
assigned by a Note Holder to a transferee or assignee of Registrable Securities
which (a) is a subsidiary, parent, general partner, limited partner, retired
partner, member or retired member of a Note Holder, (b) is a Note Holder's
family member or trust for the benefit of an individual Note Holder, or (c)
acquires at least twenty-five thousand (25,000) shares of Registrable Securities
(as adjusted for stock splits and combinations); provided, however, (i) the
transferor shall, within ten (10) days after such transfer, furnish to the
Company written notice of the name and address of such transferee or assignee
and the securities with respect to which such registration rights are being
assigned and (ii) such transferee shall agree to be subject to all restrictions
set forth in this Agreement.
10.9 Amendment of Registration Rights. Any provision of this Section 10
--------------------------------
may be amended and the observance thereof may be waived (either generally or in
a particular instance
15
Exhibit 4.11
and either retroactively or prospectively), only with the written consent
of the Company and the Note Holders holding at least a majority of the
Registrable Securities then outstanding. Any amendment or waiver effected in
accordance with this Section 10.9 shall be binding upon each Note Holder and the
Company. By acceptance of any benefits under this Section 10, Note Holders of
Registrable Securities hereby agree to be bound by the provisions hereunder.
11. 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.
12. 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.
13. 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.
14. 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.
15. 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, except as provided herein, or to receive notice as a shareholder in
respect of meetings of shareholders for the election of directors of the Company
or any other matters or any rights whatsoever as a shareholder of the Company;
and no dividends or interest shall be payable or accrued in respect of this Note
or the interest represented hereby or the shares of Common Stock issuable upon
conversion of this Note until, and only to the extent that, this Note shall have
been converted.
16. 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.
17. Heading; References. All headings used herein are used for
--------------------
this Note. Except where otherwise indicated, all references herein to Sections
refer to Sections hereof.
16
Exhibit 4.11
IN WITNESS WHEREOF, the Company has caused this Note to be issued this
day of , 2001.
----- ------------------
AMERICAN TECHNOLOGY CORPORATION
By:
-----------------------------------
Title:
--------------------------------
Acknowledged and Agreed:
-----------------------------------------------------
By:
-------------------------------------------------
Title:
----------------------------------------------
Address:
--------------------------------------------
--------------------------------------------
17
Exhibit 4.11
NOTICE OF CONVERSION
(To Be Signed Only Upon Conversion of Note)
AMERICAN TECHNOLOGY CORPORATION
The undersigned, the Note Holder of the foregoing Note, hereby surrenders such
Note for conversion into shares of Common Stock of AMERICAN TECHNOLOGY
CORPORATION, to the extent of $_________ unpaid principal amount of such Note,
and requests that the certificates for such shares be issued in the name of, and
delivered to, whose address is _________________________________________________
________________________________________________.
Dated:____________________
---------------------------------------
(Signature must conform in all respects
to name of Note Holder as specified
on the face of the Note)
---------------------------------------
(Address)