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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 29, 1997 (August 25,
1997)
AMERICAN TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 0-24248 87-0361799
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(State or other jurisdiction of (Commission (I.R.S. Empl. Ident. No.)
incorporation or organization) File Number)
13114 Evening Creek Drive South, San Diego, California 92128
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(Address of principal executive offices) (Zip Code)
(619) 679-2114
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(Registrant's telephone number, including area code)
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ITEM 5. OTHER EVENTS
On August 25, 1997 the Company completed the private offering and sale for cash
at $10.00 per share a total of 350,000 shares of Series A Convertible Preferred
Stock, par value $.00001 ("Preferred Stock") to a limited number of investors
("Preferred Shareholders") for an aggregate of $3,500,000. The dollar amount of
Preferred Stock, increased by $.60 per share of Preferred Stock per annum and
other adjustments, at the election of the Preferred Shareholder, may be
converted one or more times into fully paid and nonassessable shares of common
stock, $.00001 par value, of the Company, at a conversion price which is the
lower of (i) $5.75 per share or (ii) 85% of five days market price prior to
conversion, but in no event less than $3.00 per share. The shares of Preferred
Stock may be called by the Company for conversion if the common stock market
price exceeds $14.00 per share for ten days and certain conditions are met. The
Preferred Stock shall be subject to mandatory conversion after one year, subject
to certain conditions.
Each purchaser was granted a warrant to purchase 500 common shares of the
Company at $7.50 per share until August 1, 2000 ("Warrant") for each 1,000
shares of Preferred Stock (aggregate Warrants exercisable into 175,000 shares).
These securities were offered and sold without registration under the Securities
Act of 1933, as amended (the "Act"), in reliance upon the exemption provided by
Rule 506 of Regulation D thereunder and an appropriate legend was placed on the
Preferred Stock and Warrants and will be placed on the shares issuable upon
conversion of the Preferred Stock or exercise of the Warrants unless registered
under the Act prior to issuance. The Company has agreed to file a registration
statement covering the stock issuable on conversion of the Preferred Stock and
exercise of the Warrants.
Net proceeds from the sale of the Preferred Stock of approximately $3,350,000 is
intended primarily for working capital to continue the Company's efforts to
exploit its HSS sound reproduction and other technologies. There can be no
assurance that the Company will successfully develop or exploit its various
technologies. The Company also intends to make applicaton for a listing of its
shares on the NASDAQ SmallCap Market.
At August 25, 1997 the Company had 9,744,424 common shares issued and
outstanding.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of businesses acquired.
None
(b) Pro forma financial information.
None
(c) Exhibits
3.1.2 Certificate of Designations of Series A Convertible Preferred
Stock filed on August 15, 1997
3.1.3 Corrected Certificate of Designations of Series A Convertible
Preferred Stock dated and filed on August 25, 1997
4.10 Form of Stock Purchase Warrant exercisable at $7.50 per share
until August 1,2000 granted to eleven investors for an
aggregate of 175,000 common shares
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
AMERICAN TECHNOLOGY CORPORATION
Date: August 29, 1997 By: /s/ ROBERT PUTNAM
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Robert Putnam
President and Chief Executive Officer
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AMERICAN TECHNOLOGY CORPORATION
EXHIBIT 3.1.2
Certificate of Designations
of Series A Convertible Preferred Stock
filed on August 15, 1997
AMERICAN TECHNOLOGY CORPORATION
CERTIFICATE OF DESIGNATIONS OF
SERIES A CONVERTIBLE PREFERRED STOCK
(Pursuant to Section 151 of the General Corporation
Law of the State of Delaware)
American Technology Corporation, a Delaware corporation (the
"Corporation"), in accordance with the provisions of Section 103 of the General
Corporation Law of the State of Delaware DOES HEREBY CERTIFY:
That pursuant to authority vested in the Board of Directors of
the Corporation (the "Board of Directors" or the "Board") by the Certificate of
Incorporation, as amended, of the Corporation, the Board of Directors, by
unanimous written consent dated August 4, 1997, adopted a resolution providing
for the creation of a series of the Corporation's Preferred Stock, $.00001 par
value, which series is designated "Series A Convertible Preferred Stock", which
resolution is as follows:
RESOLVED, that pursuant to authority vested in the Board of
Directors by the Certificate of Incorporation, as amended, the Board of
Directors does hereby provide for the creation of a series of the Preferred
Stock, $.00001 par value (hereafter called the "Preferred Stock"), of the
Corporation, and to the extent that the voting powers and the designations,
preferences and relative, participating, optional or other special rights
thereof and the qualifications, limitations or restrictions of such rights have
not been set forth in the Certificate of Incorporation, as amended, of the
Corporation, does hereby fix the same as follows:
SERIES A CONVERTIBLE PREFERRED STOCK
SECTION 1. CERTAIN DEFINED TERMS. (a) All the agreements or
instruments defined in this Certificate of Designations shall mean such
agreements or instruments as the same may from time to time be supplemented or
amended or the terms thereof waived or modified to the extent permitted by, and
in accordance with, the terms thereof and of this Certificate of Designations.
(b) The following terms shall have the following meanings (such
meanings to be equally applicable to both the singular and plural forms of the
terms defined):
"Affiliate" means, with respect to any person, any other person
that directly, or indirectly through one or more intermediaries, controls, is
controlled by or under common control with the subject person. For purposes of
the term "Affiliate," the term "control" (including the terms "controlling,"
"controlled by" and "under common control with") means the possession, direct or
indirect, of the power to direct or to cause the direction or management and
policies of a person, whether through the ownership of securities, by contract
or otherwise.
"Board of Directors" or "Board" means the Board of Directors of
the Corporation.
"Common Stock" means the Common Stock, $.00001 par value, of the
Corporation.
"Computation Date" means
(1) if the Registration Statement has not been declared effective
by the SEC within 120 days after the Issuance Date, the date which is 91
days after the Issuance Date, unless the Registration Statement
theretofore has been declared effective by the SEC,
(2) each date which is 30 days after the Computation Date
specified in the preceding clause (1) or 30 days after a Computation
Date specified in this clause (2), in each such case if the Registration
Statement has not been declared effective by the SEC prior to such 30th
day, and
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(3) if the Registration Statement has not been declared effective
by the SEC within 120 days after the Issuance Date, the date on which
the Registration Statement is declared effective by the SEC;
provided, however, that the latest Computation Date shall be the date which is
365 days after the Issuance Date, whether or not the Registration Statement has
been declared effective by the SEC on or before such date.
"Conversion Agent" means Interwest Transfer Company, Inc., or its
duly appointed successor.
"Conversion Date" means the date on which the notice of
conversion is actually received by the Conversion Agent, whether by mail,
courier, personal service, telephone line facsimile transmission or other means,
in case of a conversion at the option of the holder pursuant to Section 10(a).
"Conversion Notice" means a written notice, duly signed by or on
behalf of the holder, stating the number of shares of Series A Convertible
Preferred Stock to be converted in the form specified in the Subscription
Agreements.
"Conversion Percentage" means 85%.
"Conversion Value" means as of any date the sum of (1) $10.00;
provided, however, that if the Registration Statement is not ordered effective
by the SEC within 120 days after the Issuance Date, then such $10.00 amount
shall be increased on each Computation Date at the rate of 1% for the first 30
days after such 120th day that the Registration Statement has not been ordered
effective by the SEC (pro rated in the case of any period of less than 30 days)
and at the rate of 3% for each period of 30 days after the 150th day after the
Issuance Date that the Registration Statement has not been ordered effective by
the SEC (pro rated in the case of any period of less than 30 days) plus (2) an
amount which accrues from the Issuance Date without interest at a rate of $0.60
per annum, computed on the basis of a 360-day year of twelve 30-day months, to
such date.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Issuance Date" means the first date of original issuance of any
shares of Series A Convertible Preferred Stock.
"Junior Dividend Stock" means, collectively, the Common Stock and
any other class or series of capital stock of the Corporation ranking junior as
to dividends to the Series A Convertible Preferred Stock.
"Junior Liquidation Stock" means the Common Stock or any other
class or series of the Corporation's capital stock ranking junior as to
liquidation rights to the Series A Convertible Preferred Stock.
"Liquidation Preference" means, for each share of Series A
Convertible Preferred Stock, the Conversion Value on the date of final
distribution to the holders of shares of Series A Convertible Preferred Stock in
connection with the liquidation, dissolution or winding up of the Corporation.
"Mandatory Conversion Date" means the date which is 365 days
after the Issuance Date.
"Market Price" of the Common Stock on any date means the closing
bid price of such security on such date on the principal securities exchange or
other market on which such security is listed for trading, as reported by such
exchange or other market (subject to equitable adjustment from time to time on
terms reasonably acceptable to the holders of the outstanding shares of Series A
Convertible Preferred Stock for (i) stock splits, (ii) stock dividends, (iii)
combinations, (iv) capital reorganizations, (v) issuance to all holders of
Common Stock of rights or warrants to purchase shares of Common Stock at a price
per share less than the Market Price which would otherwise be applicable, (vi)
the distribution by the Company to all holders of Common Stock of evidences of
indebtedness of the Company or cash (other than regular quarterly cash
dividends), (vii) tender offers by the Company or any subsidiary of the Company
or other repurchases of shares of Common Stock in one or more transactions
which, individually or in the aggregate, result in the purchase of more than 10%
of the Common Stock outstanding and (viii) similar events relating to the Common
Stock, in each such case which occur on or after the Issuance Date and during a
Measurement Period); provided, however, that if on any date there shall be no
reported closing bid price of such security, the "Market Price" on such date
shall be the closing bid price of such security on the date next preceding such
date on which a closing bid price for such security has been so reported;
provided further, however, that if on any date there shall be no reported
closing bid price of such security and at the time the closing bid price for
such date is being determined there shall be known a closing bid price so
reported for the date next subsequent to such date on which a closing bid price
shall have been so reported, then the Market Price on such date for which there
shall have been no reported closing bid price shall
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be the lower of (x) the Market Price as determined pursuant to the second
proviso to this definition and (y) the closing bid price as so reported for such
succeeding day for which a closing bid price as so reported is known.
"Measurement Period" means, with respect to any date, the period
of five (5) consecutive Trading Days ending one Trading Day prior to such date.
"Nasdaq" means the Nasdaq National Market or the Nasdaq SmallCap
Market.
"OTC" means the OTC Bulletin Board.
"Parity Liquidation Stock" means any class or series of the
Corporation's capital stock having parity as to liquidation rights with the
Series A Convertible Preferred Stock.
"Registration Rights Agreements" means the several Registration
Rights Agreements entered into between the Corporation and the original holders
of shares of Series A Convertible Preferred Stock, as amended or modified from
time to time in accordance with their terms.
"Registration Statement" means the Registration Statement
required to be filed by the Corporation with the SEC pursuant to Section 2(a) of
the Registration Rights Agreements.
"Restricted Person" shall have the meaning provided in Section
10(a).
"SEC" means the United States Securities and Exchange Commission.
"Senior Dividend Stock" means any class or series of capital
stock of the Corporation ranking senior as to dividends to the Series A
Convertible Preferred Stock.
"Senior Liquidation Stock" means any class or series of capital
stock of the Corporation ranking senior as to liquidation rights to the Series A
Convertible Preferred Stock.
"Series A Convertible Preferred Stock" means the Series A
Convertible Preferred Stock of the Corporation.
"Subscription Agreements" means the several Subscription
Agreements between the Corporation and the original holders of shares of Series
A Convertible Preferred Stock pursuant to which the shares of Series A
Convertible Preferred Stock were issued.
"Tender Offer" means a tender offer or exchange offer.
"Trading Day" means a day on which the national securities
exchange, Nasdaq or the OTC which at the time constitutes the principal
securities market for the Common Stock is open for general trading.
SECTION 2. DESIGNATION AND AMOUNT. The shares of such series
shall be designated as "Series A Convertible Preferred Stock", and the number of
shares constituting the Series A Convertible Preferred Stock shall be 350,000,
and shall not be subject to increase.
SECTION 3. STATED CAPITAL. The amount to be represented in stated
capital at all times for each share of Series A Convertible Preferred Stock
shall be $.00001. For purposes of making any determination as to whether the
Corporation is legally permitted to pay dividends on or to redeem any of its
shares of capital stock pursuant to Section 170 and Section 160, respectively,
of the General Corporation Law of the State of Delaware, the Corporation shall
treat an amount equal to $10.00 per share of Series A Convertible Preferred
Stock as if such amount was the stated capital for each such share.
SECTION 4. RANK. All Series A Convertible Preferred Stock shall
rank (i) senior to the Common Stock, now or hereafter issued, as to payment of
dividends and distribution of assets upon liquidation, dissolution, or winding
up of the Corporation, whether voluntary or involuntary, (ii) on a parity with
any additional series of preferred stock of any class which the Board of
Directors may from time to time authorize and any shares of which series are
issued within 240 days after the Issuance Date, both as to payment of dividends
and as to distributions of assets upon liquidation, dissolution, or winding up
of the Corporation, whether voluntary or involuntary, (iii) on a parity with the
shares of any additional class of preferred stock (or series of preferred stock
of such class) which the Board of Directors or the stockholders may from time to
time authorize in accordance herewith, which class (or series
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thereof) by its terms ranks on a parity with the shares of Series A Convertible
Preferred Stock and (iv) senior to any other class or series of preferred stock
(other than as stated in the immediately preceding clauses (ii) and (iii)) of
the Corporation.
SECTION 5. DIVIDENDS AND DISTRIBUTIONS. (a) The holders of shares
of Series A Convertible Preferred Stock shall be entitled to receive dividends,
when, as, and if declared by the Board of Directors out of funds legally
available for such purpose. Such dividends, if any, shall not be cumulative.
(b) Neither the Corporation nor any subsidiary of the Corporation
shall redeem, repurchase or otherwise acquire in any one transaction or series
of related transactions any shares of Common Stock, Junior Dividend Stock or
Junior Liquidation Stock if the number of shares so repurchased, redeemed or
otherwise acquired in such transaction or series of related transactions is more
than either (x) 3.0% of the number of shares of Common Stock, Junior Dividend
Stock or Junior Liquidation Stock, as the case may be, outstanding immediately
prior to such transaction or series of related transactions or (y) 1% of the
number of shares of Common Stock, Junior Dividend Stock or Junior Liquidation
Stock, as the case may be, outstanding immediately prior to such transaction or
series of related transactions if such transaction or series of related
transactions is with any one person or group of affiliated persons, unless the
Corporation or such subsidiary offers to purchase for cash from each holder of
shares of Series A Convertible Preferred Stock at the time of such redemption,
repurchase or acquisition the same percentage of such holder's shares of Series
A Convertible Preferred Stock as the percentage of the number of outstanding
shares of Common Stock, Junior Dividend Stock or Junior Liquidation Stock, as
the case may be, to be so redeemed, repurchased or acquired at a purchase price
per share of Series A Convertible Preferred Stock equal to the greater of (i)
the sum of (a) the Conversion Value on the date of purchase pursuant to this
Section 5(b) plus (b) an amount equal to the product obtained by multiplying (x)
the sum stated in the immediately preceding clause (a) times (y) the quotient
(expressed as a percentage) obtained by dividing (A) the amount determined by
subtracting from 100 percent the Conversion Percentage in effect on the date of
purchase pursuant to this Section 5(b) by (B) the Conversion Percentage in
effect on the date of purchase pursuant to this Section 5(b) and (ii) an amount
equal to the product obtained by multiplying (x) the number of shares of Common
Stock which would, but for the purchase pursuant to this Section 5(b), be
issuable on conversion in accordance with Section 10(a) of one share of Series A
Convertible Preferred Stock if a Conversion Notice were given by the holder of
such share of Series A Convertible Preferred Stock on the date of purchase
pursuant to this Section 5(b) (determined without regard to any limitation on
conversion contained in Section 10(a)) times (y) the arithmetic average of the
Market Price of the Common Stock for the Measurement Period with respect to the
date of purchase pursuant to this Section 5(b).
Any references to "distribution" contained in this Section 5
shall not be deemed to include any stock dividend or distributions made in
connection with any liquidation, dissolution, or winding up of the Corporation,
whether voluntary or involuntary.
(c) Neither the Corporation nor any subsidiary of the Corporation
shall (1) make any Tender Offer for outstanding shares of Common Stock, unless
the Corporation contemporaneously therewith makes an offer, or (2) enter into an
agreement regarding a Tender Offer for outstanding shares of Common Stock by any
person other than the Corporation or any subsidiary of the Corporation, unless
such person agrees with the Corporation to make an offer, in either such case to
each holder of outstanding shares of Series A Convertible Preferred Stock to
purchase for cash at the time of purchase in such Tender Offer the same
percentage of shares of Series A Convertible Preferred Stock held by such holder
as the percentage of outstanding shares of Common Stock offered to be purchased
in such Tender Offer at a price per share of Series A Convertible Preferred
Stock equal to the greater of (i) the sum of (a) the Conversion Value in effect
on the date of purchase pursuant to this Section 5(c), plus (b) an amount equal
to the product obtained by multiplying (x) the sum stated in the immediately
preceding clause (a) times (y) the quotient (expressed as a percentage) obtained
by dividing (A) the amount determined by subtracting from 100 percent the
Conversion Percentage in effect on the date of purchase pursuant to this Section
5(c) by (B) the Conversion Percentage in effect on the date of purchase pursuant
to this Section 5(c) and (ii) an amount equal to the product obtained by
multiplying (x) the number of shares of Common Stock which would, but for the
purchase pursuant to this Section 5(c), be issuable on conversion in accordance
with Section 10(a) of one share of Series A Convertible Preferred Stock if a
Conversion Notice were given by the holder of such share of Series A Convertible
Preferred Stock on the date of purchase pursuant to this Section 5(c)
(determined without regard to any limitation on conversion contained in Section
10(a)) times (y) the price per share of Common Stock offered in such Tender
Offer.
SECTION 6. LIQUIDATION PREFERENCE. In the event of a liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
the holders of Series A Convertible Preferred Stock shall be entitled to receive
out of the assets of the Corporation, whether such assets constitute stated
capital or surplus of any nature, an amount per share of Series A Convertible
Preferred Stock equal to the Liquidation Preference, and no more, before any
payment shall be made or any assets distributed to the holders of Junior
Liquidation Stock; provided, however, that such
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rights shall accrue to the holders of Series A Convertible Preferred Stock only
in the event that the Corporation's payments with respect to the liquidation
preference of the holders of Senior Liquidation Stock are fully met. After the
liquidation preferences of the Senior Liquidation Stock are fully met, the
entire assets of the Corporation available for distribution shall be distributed
ratably among the holders of the Series A Convertible Preferred Stock and any
Parity Liquidation Stock in proportion to the respective preferential amounts to
which each is entitled (but only to the extent of such preferential amounts).
After payment in full of the liquidation price of the shares of the Series A
Convertible Preferred Stock and the Parity Liquidation Stock, the holders of
such shares shall not be entitled to any further participation in any
distribution of assets by the Corporation. Neither a consolidation or merger of
the Corporation with another corporation nor a sale or transfer of all or part
of the Corporation's assets for cash, securities or other property in and of
itself will be considered a liquidation, dissolution or winding up of the
Corporation.
SECTION 7. NO MANDATORY REDEMPTION. The shares of Series A
Convertible Preferred Stock shall not be subject to mandatory redemption by the
Corporation except as provided herein.
SECTION 8. NO SINKING FUND. The shares of Series A Convertible
Preferred Stock shall not be subject to the operation of a purchase, retirement
or sinking fund.
SECTION 9. NO OPTIONAL REDEMPTION. The shares of Series A
Convertible Preferred Stock shall not be subject to redemption at the option of
the Corporation or the holder thereof.
SECTION 10. CONVERSION.
(A) CONVERSION AT OPTION OF HOLDER. The holders of the Series A
Convertible Preferred Stock may convert any or all of their shares of Series A
Convertible Preferred Stock into fully paid and nonassessable shares of Common
Stock and such other securities and property as hereinafter provided, provided
that each such conversion shall cover at least 10,000 shares of Series A
Convertible Preferred Stock or such lesser number of shares of Series A
Convertible Preferred Stock as (1) shall be held by a particular holder or (2)
as shall be convertible within the limitation set forth in the second proviso to
the next succeeding sentence or (3) may be permitted from time to time by the
Corporation in its discretion. Commencing on the Issuance Date, and at any time
thereafter, each share of Series A Convertible Preferred Stock may be converted
at the office of the Conversion Agent or at such other additional office or
offices, if any, as the Board of Directors may designate, initially into such
number of fully paid and nonassessable shares of Common Stock (calculated as to
each conversion to the nearest 1/100th of a share) determined by dividing (x)
the Conversion Value in effect on the applicable Conversion Date by (y) the
product of (a) the Conversion Percentage with respect to the applicable
Conversion Date times (b) the arithmetic average of the Market Price of the
Common Stock for the Measurement Period with respect to the applicable
Conversion Date; provided, however, that in no event shall the amount determined
in accordance with this clause (b) be greater than $5.75 or less than $3.00
(each such figure in this proviso to be subject to equitable adjustments from
time to time on terms acceptable to the holders of the Series A Convertible
Preferred Stock for stock splits, stock dividends, combinations,
recapitalizations, reclassifications and similar events occurring on or after
the date of filing of this Certificate of Designations with the Secretary of
State of the State of Delaware); provided further, however, that in no event
shall any holder of shares of Series A Convertible Preferred Stock be entitled
to convert any shares of Series A Convertible Preferred Stock in excess of that
number of shares of Series A Convertible Preferred Stock upon conversion of
which the sum of (1) the number of shares of Common Stock beneficially owned by
such holder and any person whose beneficial ownership of shares of Common Stock
would be aggregated with such holder's beneficial ownership of shares of Common
Stock for purposes of Section 13(d) of the Exchange Act, and Regulation 13D-G
thereunder (each a "Restricted Person" and collectively, the "Restricted
Persons") (other than shares of Common Stock deemed beneficially owned through
the ownership of unconverted shares of Series A Convertible Preferred Stock) and
(2) the number of shares of Common Stock issuable upon the conversion of the
number of shares of Series A Convertible Preferred Stock with respect to which
the determination in this proviso is being made, would result in beneficial
ownership by such holder and all Restricted Persons of such holder of more than
4.9% of the outstanding shares of Common Stock. For purposes of the proviso to
the immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Exchange Act and Regulation 13D-G
thereunder, except as otherwise provided in clause (1) of the second proviso to
the immediately preceding sentence.
(B) OTHER PROVISIONS. (1) The holders of shares of Series A
Convertible Preferred Stock at the close of business on the record date for any
dividend payment to holders of Series A Convertible Preferred Stock shall be
entitled to receive the dividend payable on such shares on the corresponding
dividend payment date notwithstanding the conversion thereof after such dividend
payment record date or the Corporation's default in payment of the dividend due
on such dividend payment date; provided, however, that the holder of shares of
Series A Convertible Preferred Stock surrendered for conversion during the
period between the close of business on any record date for a dividend payment
and the opening of business on the corresponding dividend payment date must pay
to the Corporation, within
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five days after receipt by such holder, an amount equal to the dividend payable
on such shares on such dividend payment date if such dividend is paid by the
Corporation to such holder. A holder of shares of Series A Convertible Preferred
Stock on a record date for a dividend payment who (or whose transferee) tenders
any of such shares for conversion into shares of Common Stock on or after such
dividend payment date will receive the dividend payable by the Corporation on
such shares of Series A Convertible Preferred Stock on such date, and the
converting holder need not make any payment of the amount of such dividend in
connection with such conversion of shares of Series A Convertible Preferred
Stock. Except as provided above, no adjustment shall be made in respect of cash
dividends on Common Stock or Series A Convertible Preferred Stock that may be
accrued and unpaid at the date of surrender of shares of Series A Convertible
Preferred Stock.
(2) (A) The right of the holders of Series A Convertible
Preferred Stock to convert their shares shall be exercised by delivering (which
may be done by telephone line facsimile transmission) a Conversion Notice to the
Conversion Agent together with a certificate or certificates representing at
least the number of shares of Series A Convertible Preferred Stock being
converted. The Corporation, acting through the Conversion Agent, will, within
three Trading Days after receipt of such certificate(s), forthwith issue and
deliver upon the order of such holder of shares of Series A Convertible
Preferred Stock new certificate(s) of like tenor, registered as such holder of
shares of Series A Convertible Preferred Stock may request, representing in the
aggregate the remaining number of unconverted shares of Series A Convertible
Preferred Stock, if any, represented by such certificate(s).
(B) The Corporation shall pay any transfer tax arising in
connection with any conversion of shares of Series A Convertible Preferred Stock
except that the Corporation shall not, however, be required to pay any tax which
may be payable in respect of any transfer involved in the issue and delivery
upon conversion of shares of Common Stock or other securities or property in a
name other than that of the holder of the shares of the Series A Convertible
Preferred Stock being converted, and the Corporation shall not be required to
issue or deliver any such shares or other securities or property unless and
until the person or persons requesting the issuance thereof shall have paid to
the Corporation the amount of any such tax or shall have established to the
satisfaction of the Corporation that such tax has been paid. The number of
shares of Common Stock to be issued upon each conversion of shares of Series A
Convertible Preferred Stock shall be the number set forth in the applicable
Conversion Notice which number shall be conclusive absent manifest error. The
Corporation shall notify a holder who has given a Conversion Notice of any claim
of manifest error within one business day after such holder gives such
Conversion Notice and no such claim of error shall limit or delay performance of
the Corporation's obligation to issue upon such conversion the number of shares
of Common Stock which are not in dispute. A Conversion Notice shall be deemed
for all purposes to be in proper form unless the Corporation notifies a holder
of shares of Series A Convertible Preferred Stock being converted within one
business day after a Conversion Notice has been given (which notice shall
specify all defects in the Conversion Notice) and any Conversion Notice
containing any such defect shall nonetheless be effective on the date given if
the converting holder promptly corrects all such defects.
(3) The Corporation (and any successor corporation) shall take
all action necessary so that a number of shares of the authorized but unissued
Common Stock (or common stock in the case of any successor corporation)
sufficient to provide for the conversion of the Series A Convertible Preferred
Stock outstanding upon the basis hereinbefore provided are at all times reserved
by the Corporation (or any successor corporation), free from preemptive rights,
for such conversion, subject to the provisions of the next succeeding paragraph.
If the Corporation shall issue any securities or make any change in its capital
structure which would change the number of shares of Common Stock into which
each share of the Series A Convertible Preferred Stock shall be convertible as
herein provided, the Corporation shall at the same time also make proper
provision so that thereafter there shall be a sufficient number of shares of
Common Stock authorized and reserved, free from preemptive rights, for
conversion of the outstanding Series A Convertible Preferred Stock on the new
basis. If at any time the number of authorized but unissued shares of Common
Stock shall not be sufficient to effect the conversion of all of the outstanding
shares of Series A Convertible Preferred Stock, the Corporation promptly shall
seek 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 purpose.
(4) In case of any consolidation or merger of the Corporation
with any other corporation (other than a wholly-owned subsidiary of the
Corporation) in which the Corporation is not the surviving corporation, or in
case of any sale or transfer of all or substantially all of the assets of the
Corporation, or in the case of any share exchange pursuant to which all of the
outstanding shares of Common Stock are converted into other securities or
property, the Corporation shall make appropriate provision or cause appropriate
provision to be made so that each holder of shares of Series A Convertible
Preferred Stock then outstanding shall have the right thereafter to convert such
shares of Series A Convertible Preferred Stock into the kind of shares of stock
and other securities and property receivable upon such consolidation, merger,
sale, transfer, or share exchange by a holder of shares of Common Stock into
which such shares of Series A Convertible Preferred Stock could have been
converted immediately prior to the effective date of such consolidation, merger,
sale, transfer, or share exchange and on a basis which preserves the economic
benefits of the
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<PAGE> 7
conversion rights of the holders of shares of Series A Convertible Preferred
Stock on a basis as nearly as practical as such rights exist hereunder prior
thereto. If, in connection with any such consolidation, merger, sale, transfer,
or share exchange, each holder of shares of Common Stock is entitled to elect to
receive securities, cash, or other assets upon completion of such transaction,
the Corporation shall provide or cause to be provided to each holder of Series A
Convertible Preferred Stock the right to elect the securities, cash, or other
assets into which the Series A Convertible Preferred Stock held by such holder
shall be convertible after completion of any such transaction on the same terms
and subject to the same conditions applicable to holders of the Common Stock
(including, without limitation, notice of the right to elect, limitations on the
period in which such election shall be made, and the effect of failing to
exercise the election). The Corporation shall not effect any such transaction
unless the provisions of this paragraph have been complied with. The above
provisions shall similarly apply to successive consolidations, mergers, sales,
transfers, or share exchanges.
(5) If a holder shall have given a Conversion Notice for shares
of Series A Convertible Preferred Stock and delivered certificate(s)
representing such shares in accordance with Section 10(b)(2)(A), the Corporation
shall issue and deliver to such person certificates for the Common Stock
issuable upon such conversion within three Trading Days after such Conversion
Notice is given and such certificates for Series A Convertible Preferred Stock
are delivered and the person converting shall be deemed to be the holder of
record of the Common Stock issuable upon such conversion, and all rights with
respect to the shares surrendered shall forthwith terminate except the right to
receive the Common Stock or other securities, cash, or other assets as herein
provided. If a holder shall have given a Conversion Notice and delivered
certificates for shares of Series A Convertible Preferred Stock as provided
herein, the Corporation's obligation to issue and deliver the certificates for
Common Stock shall be absolute and unconditional, irrespective of any action or
inaction by the converting holder to enforce the same, any waiver or consent
with respect to any provision thereof, the recovery of any judgment against any
person or any action to enforce the same, any failure or delay in the
enforcement of any other obligation of the Corporation to the holder of record,
or any setoff, counterclaim, recoupment, limitation or termination, or any
breach or alleged breach by the holder of any obligation to the Corporation, and
irrespective of any other circumstance which might otherwise limit such
obligation of the Corporation to the holder in connection with such conversion.
The occurrence of an event which requires an equitable adjustment of the Market
Price as contemplated by the definition thereof in Section 1(b) shall in no way
restrict or delay the right of the holder to receive certificates for Common
Stock upon conversion of shares of Series A Convertible Preferred Stock and the
Company shall use its best efforts to implement such adjustment on terms
reasonably acceptable to the holder within two Business Days of such occurrence
and in any event shall be required to issue any such shares of Common Stock as
to which there is no dispute within three Trading Days after a Conversion Notice
is given by such holder. If the Corporation fails to issue and deliver the
certificates for the Common Stock to the holder converting shares of Series A
Convertible Preferred Stock pursuant to the first sentence of this paragraph as
and when required to do so, in addition to any other liabilities the Corporation
may have hereunder and under applicable law (1) the Corporation shall pay or
reimburse such holder on demand for all out-of-pocket expenses including,
without limitation, reasonable fees and expenses of legal counsel incurred by
such holder as a result of such failure, (2) the Conversion Percentage
applicable to such conversion shall be reduced by two-and-one-half percentage
points from the Conversion Percentage otherwise applicable to such conversion
and (3) such holder may by written notice (which may be given by mail, courier,
personal service or telephone line facsimile transmission) or oral notice
(promptly confirmed in writing) given at any time prior to delivery to such
holder of the certificates for the shares of Common Stock issuable upon such
conversion of shares of Series A Convertible Preferred Stock, rescind such
conversion, whereupon such holder shall have the right to convert such shares of
Series A Convertible Preferred Stock thereafter in accordance herewith.
(6) No fractional shares of Common Stock shall be issued upon
conversion of Series A Convertible Preferred Stock but, in lieu of any fraction
of a share of Common Stock to purchase fractional shares of Common Stock which
would otherwise be issuable in respect of the aggregate number of such shares
surrendered for conversion at one time by the same holder, the Corporation shall
pay in cash an amount equal to the product of (i) the arithmetic average of the
Market Price of a share of Common Stock on the three consecutive Trading Days
ending on the Trading Day immediately preceding the Conversion Date and (ii)
such fraction of a share.
(7) Whenever the Corporation shall propose to take any of the
actions specified in Section 10(b)(4), the Corporation shall cause a notice to
be mailed at least 20 days prior to the date on which the books of the
Corporation will close or on which a record will be taken for such action, to
the holders of record of the outstanding Series A Convertible Preferred Stock on
the date of such notice. Such notice shall specify the action proposed to be
taken by the Corporation and the date as of which holders of record of the
Common Stock shall participate in any such actions or be entitled to exchange
their Common Stock for securities or other property, as the case may be. Failure
by the Corporation to mail the notice or any defect in such notice shall not
affect the validity of the transaction.
(C) MANDATORY CONVERSION. So long as the Corporation shall be in
compliance in all material respects with its obligations to the holders of the
Series A Convertible Preferred Stock (including its obligations under
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<PAGE> 8
the Registration Rights Agreements and the provisions of this Certificate of
Designations) and so long as the Registration Statement shall be effective, on
the Mandatory Conversion Date all of the outstanding shares of Series A
Convertible Preferred Stock shall be converted, in accordance with the
provisions, and subject to the limitations, of this Section 10 into shares of
Common Stock to the extent the same are at such time convertible into shares of
Common Stock. On the Mandatory Conversion Date all outstanding shares of Series
A Convertible Preferred Stock (or such lesser number of shares of Series A
Convertible Preferred Stock as are convertible into Common Stock on the
Mandatory Conversion Date) shall be converted into such number of shares of
Common Stock as shall be determined pursuant to this Section 10 as if the
conversion of such number of shares of Series A Convertible Preferred Stock were
made by the holders thereof in accordance herewith without any further action on
the part of the holders of such shares of Series A Convertible Preferred Stock.
Upon receipt by the Corporation of certificates for shares of Series A
Convertible Preferred Stock converted into shares of Common Stock in accordance
with this Section 10(c), the Corporation shall issue and, within three Trading
Days after such surrender, deliver to or upon the order of such holder (1) that
number of shares of Common Stock as shall be issuable in respect of the
conversion of the number of shares of Series A Convertible Preferred Stock
converted into Common Stock as shall be determined in accordance herewith, (2)
cash in lieu of any fraction of a share of Common Stock (determined in
accordance with Section 10(b)(6)) and (3) a new certificate for the balance of
shares of Series A Convertible Preferred Stock, if any.
(D) CONVERSION AT THE OPTION OF THE CORPORATION. So long as the
Corporation shall be in compliance in all material respects with its obligations
to the holders of the Series A Convertible Preferred Stock (including its
obligations under the Registration Rights Agreements and this Certificate of
Designations) and so long as the Registration Statement shall be effective and
available for use by all the holders of shares of Series A Convertible Preferred
Stock on the conversion date pursuant to this Section 10(d), if on any ten
consecutive Trading Days the Market Price is at least $14.00 per share (subject
to equitable adjustments from time to time on terms acceptable to the holders of
the Series A Convertible Preferred Stock for stock splits, stock dividends,
combinations, recapitalizations, reclassifications and similar events occurring
on or after the date of filing of this Certificate of Designations with the
Secretary of State of the State of Delaware), then at any time within five
Trading Days after the end of such ten-day period the Corporation shall have the
right, by notice to the holders of Series A Convertible Preferred Stock to
require the conversion, in accordance with the provisions, and subject to the
limitations, of this Section 10, of all outstanding shares of Series A
Convertible Preferred Stock (except as otherwise provided in this Section 10(d))
into shares of Common Stock on the date specified in such notice (which date
shall not be more than 15 Trading Days after the date such notice is given to
all holders of shares of Series A Convertible Preferred Stock). On the
conversion date so specified in such notice, all outstanding shares of Series A
Convertible Preferred Stock (or such lesser number of shares of Series A
Convertible Preferred Stock as shall be convertible into shares of Common Stock
on such conversion date) shall be converted into such number of shares of Common
Stock as shall be determined pursuant to this Section 10 as if the conversion of
such number of shares of Series A Convertible Preferred Stock were made by the
holders thereof in accordance herewith without any further action on the part of
the holders of such shares of Series A Convertible Preferred Stock. Upon receipt
by the Corporation of certificates for shares of Series A Convertible Preferred
Stock converted into shares of Common Stock in accordance with this Section 10
(d), the Corporation shall issue and, within three Trading Days after such
receipt, deliver to or upon the order of such holder (1) that number of shares
of Common Stock as shall be issuable in respect of the conversion of the number
of shares of Series A Convertible Preferred Stock converted into Common Stock as
shall be determined in accordance herewith and (2) cash in lieu of any fraction
of a share of Common Stock (determined in accordance with Section 10 (b)(6)) and
(3) a new certificate for the balance of shares of Series A Convertible
Preferred Stock, if any.
SECTION 11. VOTING RIGHTS; CERTAIN LIMITATIONS.
(A) VOTING RIGHTS. Except as otherwise required by law or
expressly provided herein, shares of Series A Convertible Preferred Stock shall
not be entitled to vote on any matter.
(B) CERTIFICATE OF INCORPORATION; CERTAIN STOCK. The affirmative
vote or consent of the holders of a majority of the outstanding shares of the
Series A Convertible Preferred Stock, voting separately as a class, will be
required for (1) any amendment, alteration, or repeal, whether by merger or
consolidation or otherwise, of the Corporation's Certificate of Incorporation if
the amendment, alteration, or repeal materially and adversely affects the
powers, preferences, or special rights of the Series A Convertible Preferred
Stock, or (2) except as permitted by Section 4, the creation and issuance of any
Senior Dividend Stock or Senior Liquidation Stock; provided, however, that any
increase in the authorized preferred stock of the Corporation or the creation
and issuance of any stock which is both Junior Dividend Stock and Junior
Liquidation 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 Series A
Convertible Preferred Stock except as otherwise required by law.
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<PAGE> 9
(C) REPURCHASES OF SHARES OF SERIES A CONVERTIBLE PREFERRED
STOCK. The Corporation shall not repurchase or otherwise acquire any shares of
Series A Convertible Preferred Stock unless the Corporation offers to repurchase
or otherwise acquire simultaneously a pro rata portion of each holder's shares
of Series A Convertible Preferred Stock for cash at the same price per share.
SECTION 12. OUTSTANDING SHARES. For purposes of this Certificate
of Designations, all shares of Series A Convertible Preferred Stock shall be
deemed outstanding except (i) from the date of surrender of certificates
representing shares of Series A Convertible Preferred Stock for conversion into
Common Stock, all shares of Series A Convertible Preferred Stock converted into
Common Stock and (ii) from the date of registration of transfer, all shares of
Series A Convertible Preferred Stock held of record by the Corporation or any
subsidiary or Affiliate (as defined herein) of the Corporation. For the purposes
of this Section 12, "Affiliate" means any Affiliate of the Corporation, other
than the original holders of the shares of Series A Convertible Preferred Stock.
IN WITNESS WHEREOF, American Technology Corporation has caused
this certificate to be signed by Robert Putnam its President, as of the 14th day
of August, 1997.
AMERICAN TECHNOLOGY
CORPORATION
By /s/ ROBERT PUTNAM
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<PAGE> 1
AMERICAN TECHNOLOGY CORPORATION
EXHIBIT 3.1.3
Corrected Certificate of Designations
of Series A Convertible Preferred Stock
dated and filed on August 25, 1997
AMERICAN TECHNOLOGY CORPORATION
CORRECTED CERTIFICATE OF DESIGNATIONS OF
SERIES A CONVERTIBLE PREFERRED STOCK
(Pursuant to Section 103(f) and 151(g) of the
Delaware General Corporation Law)
American Technology Corporation, a Delaware corporation (the
"Corporation"), in accordance with the provisions of Sections 103(f) and 151(g)
of the Delaware General Corporation Law DOES HEREBY CERTIFY THAT:
Pursuant to authority vested in its Board of Directors of the
Corporation (the "Board of Directors" or the "Board") by the Certificate of
Incorporation, as amended, of the Corporation, the Board of Directors, by
unanimous written consent dated August 4, 1997, adopted a resolution providing
for the creation of a series of the Corporation's Preferred Stock, $.00001 par
value, which series was designated "Series A Convertible Preferred Stock." The
Corporation on August 15, 1997, filed with the Delaware Secretary of State its
"Certificate of Designations of Series A Convertible Preferred Stock" dated
August 14, 1997 (the "Certificate of Designations").
Due to inadvertence resulting from clerical error, the Certificate of
Designations contained several errors which now require correction by this
instrument. FIRST, Section 1 (Certain Defined Terms) omitted to include
definitions of the terms "Cash and Cash Equivalents," "Marketable Securities"
and "Short-Term Investments." SECOND, paragraph (b) of Section 5 (Dividends and
Distributions) omitted to include the language "directly or indirectly for a
consideration consisting in whole or in part of Cash or Cash Equivalents,
Short-Term Investments or Marketable Securities."
The Corporation now wishes, pursuant to Section 103(f), to file with the
Delaware Secretary of State a corrected Certificate of Designations by setting
forth the entire Certificate of Designations in corrected form. This instrument
is not a "certificate of correction" as such term is used in Section 103(f).
Following is the entire text of the Certificate of Designations in corrected
form:
RESOLVED, that pursuant to authority vested in the Board of Directors by
the Certificate of Incorporation, as amended, the Board of Directors does hereby
provide for the creation of a series of the Preferred Stock, $.00001 par value
(hereafter called the "Preferred Stock"), of the Corporation, and to the extent
that the voting powers and the designations, preferences and relative,
participating, optional or other special rights thereof and the qualifications,
limitations or restrictions of such rights have not been set forth in the
Certificate of Incorporation, as amended, of the Corporation, does hereby fix
the same as follows:
SERIES A CONVERTIBLE PREFERRED STOCK
SECTION 1. CERTAIN DEFINED TERMS. (a) All the agreements or instruments
defined in this Certificate of Designations shall mean such agreements or
instruments as the same may from time to time be supplemented or amended or the
terms thereof waived or modified to the extent permitted by, and in accordance
with, the terms thereof and of this Certificate of Designations.
(b) The following terms shall have the following meanings (such meanings
to be equally applicable to both the singular and plural forms of the terms
defined):
"Affiliate" means, with respect to any person, any other person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by or under common control with the subject person. For purposes of
the term "Affiliate," the term "control" (including the terms "controlling,"
"controlled by" and "under common control with") means the possession, direct or
indirect, of the power to direct or to cause the direction or management and
policies of a person, whether through the ownership of securities, by contract
or otherwise.
"Board of Directors" or "Board" means the Board of Directors of the
Corporation.
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"Cash and Cash Equivalents" means cash and any asset which would, on a
balance sheet prepared in accordance with generally accepted accounted
principles in the United States, be classified as cash or cash equivalents.
"Common Stock" means the Common Stock, $.00001 par value, of the
Corporation.
"Computation Date" means
(1) if the Registration Statement has not been declared
effective by the SEC within 120 days after the Issuance Date, the date
which is 91 days after the Issuance Date, unless the Registration
Statement theretofore has been declared effective by the SEC,
(2) each date which is 30 days after the Computation Date
specified in the preceding clause (1) or 30 days after a Computation
Date specified in this clause (2), in each such case if the Registration
Statement has not been declared effective by the SEC prior to such 30th
day, and
(3) if the Registration Statement has not been declared
effective by the SEC within 120 days after the Issuance Date, the date
on which the Registration Statement is declared effective by the SEC;
provided, however, that the latest Computation Date shall be the date which is
365 days after the Issuance Date, whether or not the Registration Statement has
been declared effective by the SEC on or before such date.
"Conversion Agent" means Interwest Transfer Company, Inc., or its duly
appointed successor.
"Conversion Date" means the date on which the notice of conversion is
actually received by the Conversion Agent, whether by mail, courier, personal
service, telephone line facsimile transmission or other means, in case of a
conversion at the option of the holder pursuant to Section 10(a).
"Conversion Notice" means a written notice, duly signed by or on behalf
of the holder, stating the number of shares of Series A Convertible Preferred
Stock to be converted in the form specified in the Subscription Agreements.
"Conversion Percentage" means 85%.
"Conversion Value" means as of any date the sum of (1) $10.00; provided,
however, that if the Registration Statement is not ordered effective by the SEC
within 120 days after the Issuance Date, then such $10.00 amount shall be
increased on each Computation Date at the rate of 1% for the first 30 days after
such 120th day that the Registration Statement has not been ordered effective by
the SEC (pro rated in the case of any period of less than 30 days) and at the
rate of 3% for each period of 30 days after the 150th day after the Issuance
Date that the Registration Statement has not been ordered effective by the SEC
(pro rated in the case of any period of less than 30 days) plus (2) an amount
which accrues from the Issuance Date without interest at a rate of $0.60 per
annum, computed on the basis of a 360-day year of twelve 30-day months, to such
date.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Issuance Date" means the first date of original issuance of any shares
of Series A Convertible Preferred Stock.
"Junior Dividend Stock" means, collectively, the Common Stock and any
other class or series of capital stock of the Corporation ranking junior as to
dividends to the Series A Convertible Preferred Stock.
"Junior Liquidation Stock" means the Common Stock or any other class or
series of the Corporation's capital stock ranking junior as to liquidation
rights to the Series A Convertible Preferred Stock.
"Liquidation Preference" means, for each share of Series A Convertible
Preferred Stock, the Conversion Value on the date of final distribution to the
holders of shares of Series A Convertible Preferred Stock in connection with the
liquidation, dissolution or winding up of the Corporation.
"Mandatory Conversion Date" means the date which is 365 days after the
Issuance Date.
"Marketable Securities" means securities which would, on a balance sheet
prepared in accordance with generally recognized accounting principles in the
United States, be classified as marketable securities.
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<PAGE> 3
"Market Price" of the Common Stock on any date means the closing bid
price of such security on such date on the principal securities exchange or
other market on which such security is listed for trading, as reported by such
exchange or other market (subject to equitable adjustment from time to time on
terms reasonably acceptable to the holders of the outstanding shares of Series A
Convertible Preferred Stock for (i) stock splits, (ii) stock dividends, (iii)
combinations, (iv) capital reorganizations, (v) issuance to all holders of
Common Stock of rights or warrants to purchase shares of Common Stock at a price
per share less than the Market Price which would otherwise be applicable, (vi)
the distribution by the Company to all holders of Common Stock of evidences of
indebtedness of the Company or cash (other than regular quarterly cash
dividends), (vii) tender offers by the Company or any subsidiary of the Company
or other repurchases of shares of Common Stock in one or more transactions
which, individually or in the aggregate, result in the purchase of more than 10%
of the Common Stock outstanding and (viii) similar events relating to the Common
Stock, in each such case which occur on or after the Issuance Date and during a
Measurement Period); provided, however, that if on any date there shall be no
reported closing bid price of such security, the "Market Price" on such date
shall be the closing bid price of such security on the date next preceding such
date on which a closing bid price for such security has been so reported;
provided further, however, that if on any date there shall be no reported
closing bid price of such security and at the time the closing bid price for
such date is being determined there shall be known a closing bid price so
reported for the date next subsequent to such date on which a closing bid price
shall have been so reported, then the Market Price on such date for which there
shall have been no reported closing bid price shall be the lower of (x) the
Market Price as determined pursuant to the second proviso to this definition and
(y) the closing bid price as so reported for such succeeding day for which a
closing bid price as so reported is known.
"Measurement Period" means, with respect to any date, the period of five
(5) consecutive Trading Days ending one Trading Day prior to such date.
"Nasdaq" means the Nasdaq National Market or the Nasdaq SmallCap Market.
"OTC" means the OTC Bulletin Board.
"Parity Liquidation Stock" means any class or series of the
Corporation's capital stock having parity as to liquidation rights with the
Series A Convertible Preferred Stock.
"Registration Rights Agreements" means the several Registration Rights
Agreements entered into between the Corporation and the original holders of
shares of Series A Convertible Preferred Stock, as amended or modified from time
to time in accordance with their terms.
"Registration Statement" means the Registration Statement required to be
filed by the Corporation with the SEC pursuant to Section 2(a) of the
Registration Rights Agreements.
"Restricted Person" shall have the meaning provided in Section 10(a).
"SEC" means the United States Securities and Exchange Commission.
"Senior Dividend Stock" means any class or series of capital stock of
the Corporation ranking senior as to dividends to the Series A Convertible
Preferred Stock.
"Senior Liquidation Stock" means any class or series of capital stock of
the Corporation ranking senior as to liquidation rights to the Series A
Convertible Preferred Stock.
"Series A Convertible Preferred Stock" means the Series A Convertible
Preferred Stock of the Corporation.
"Short-Term Investments" means investments which would, on a balance
sheet prepared in accordance with generally recognized accounting principles in
the United States, be classified as short-term investments.
"Subscription Agreements" means the several Subscription Agreements
between the Corporation and the original holders of shares of Series A
Convertible Preferred Stock pursuant to which the shares of Series A Convertible
Preferred Stock were issued.
"Tender Offer" means a tender offer or exchange offer.
"Trading Day" means a day on which the national securities exchange,
Nasdaq or the OTC which at the time constitutes the principal securities market
for the Common Stock is open for general trading.
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SECTION 2. DESIGNATION AND AMOUNT. The shares of such series shall be
designated as "Series A Convertible Preferred Stock", and the number of shares
constituting the Series A Convertible Preferred Stock shall be 350,000, and
shall not be subject to increase.
SECTION 3. STATED CAPITAL. The amount to be represented in stated
capital at all times for each share of Series A Convertible Preferred Stock
shall be $.00001. For purposes of making any determination as to whether the
Corporation is legally permitted to pay dividends on or to redeem any of its
shares of capital stock pursuant to Section 170 and Section 160, respectively,
of the General Corporation Law of the State of Delaware, the Corporation shall
treat an amount equal to $10.00 per share of Series A Convertible Preferred
Stock as if such amount was the stated capital for each such share.
SECTION 4. RANK. All Series A Convertible Preferred Stock shall rank (i)
senior to the Common Stock, now or hereafter issued, as to payment of dividends
and distribution of assets upon liquidation, dissolution, or winding up of the
Corporation, whether voluntary or involuntary, (ii) on a parity with any
additional series of preferred stock of any class which the Board of Directors
may from time to time authorize and any shares of which series are issued within
240 days after the Issuance Date, both as to payment of dividends and as to
distributions of assets upon liquidation, dissolution, or winding up of the
Corporation, whether voluntary or involuntary, (iii) on a parity with the shares
of any additional class of preferred stock (or series of preferred stock of such
class) which the Board of Directors or the stockholders may from time to time
authorize in accordance herewith, which class (or series thereof) by its terms
ranks on a parity with the shares of Series A Convertible Preferred Stock and
(iv) senior to any other class or series of preferred stock (other than as
stated in the immediately preceding clauses (ii) and (iii)) of the Corporation.
SECTION 5. DIVIDENDS AND DISTRIBUTIONS. (a) The holders of shares of
Series A Convertible Preferred Stock shall be entitled to receive dividends,
when, as, and if declared by the Board of Directors out of funds legally
available for such purpose. Such dividends, if any, shall not be cumulative.
(b) Neither the Corporation nor any subsidiary of the Corporation shall
redeem, repurchase or otherwise acquire in any one transaction or series of
related transactions any shares of Common Stock, Junior Dividend Stock or Junior
Liquidation Stock directly or indirectly for a consideration consisting in whole
or in part of Cash or Cash Equivalents, Short-Term Investments or Marketable
Securities if the number of shares so repurchased, redeemed or otherwise
acquired in such transaction or series of related transactions is more than
either (x) 3.0% of the number of shares of Common Stock, Junior Dividend Stock
or Junior Liquidation Stock, as the case may be, outstanding immediately prior
to such transaction or series of related transactions or (y) 1% of the number of
shares of Common Stock, Junior Dividend Stock or Junior Liquidation Stock, as
the case may be, outstanding immediately prior to such transaction or series of
related transactions if such transaction or series of related transactions is
with any one person or group of affiliated persons, unless the Corporation or
such subsidiary offers to purchase for cash from each holder of shares of Series
A Convertible Preferred Stock at the time of such redemption, repurchase or
acquisition the same percentage of such holder's shares of Series A Convertible
Preferred Stock as the percentage of the number of outstanding shares of Common
Stock, Junior Dividend Stock or Junior Liquidation Stock, as the case may be, to
be so redeemed, repurchased or acquired at a purchase price per share of Series
A Convertible Preferred Stock equal to the greater of (i) the sum of (a) the
Conversion Value on the date of purchase pursuant to this Section 5(b) plus (b)
an amount equal to the product obtained by multiplying (x) the sum stated in the
immediately preceding clause (a) times (y) the quotient (expressed as a
percentage) obtained by dividing (A) the amount determined by subtracting from
100 percent the Conversion Percentage in effect on the date of purchase pursuant
to this Section 5(b) by (B) the Conversion Percentage in effect on the date of
purchase pursuant to this Section 5(b) and (ii) an amount equal to the product
obtained by multiplying (x) the number of shares of Common Stock which would,
but for the purchase pursuant to this Section 5(b), be issuable on conversion in
accordance with Section 10(a) of one share of Series A Convertible Preferred
Stock if a Conversion Notice were given by the holder of such share of Series A
Convertible Preferred Stock on the date of purchase pursuant to this Section
5(b) (determined without regard to any limitation on conversion contained in
Section 10(a)) times (y) the arithmetic average of the Market Price of the
Common Stock for the Measurement Period with respect to the date of purchase
pursuant to this Section 5(b).
Any references to "distribution" contained in this Section 5 shall not
be deemed to include any stock dividend or distributions made in connection with
any liquidation, dissolution, or winding up of the Corporation, whether
voluntary or involuntary.
(c) Neither the Corporation nor any subsidiary of the Corporation shall
(1) make any Tender Offer for outstanding shares of Common Stock, unless the
Corporation contemporaneously therewith makes an offer, or (2) enter into an
agreement regarding a Tender Offer for outstanding shares of Common Stock by any
person other than the Corporation or any subsidiary of the Corporation, unless
such person agrees with the Corporation to make an offer, in either such case to
each holder of outstanding shares of Series A Convertible Preferred Stock to
purchase for cash at the
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time of purchase in such Tender Offer the same percentage of shares of Series A
Convertible Preferred Stock held by such holder as the percentage of outstanding
shares of Common Stock offered to be purchased in such Tender Offer at a price
per share of Series A Convertible Preferred Stock equal to the greater of (i)
the sum of (a) the Conversion Value in effect on the date of purchase pursuant
to this Section 5(c), plus (b) an amount equal to the product obtained by
multiplying (x) the sum stated in the immediately preceding clause (a) times (y)
the quotient (expressed as a percentage) obtained by dividing (A) the amount
determined by subtracting from 100 percent the Conversion Percentage in effect
on the date of purchase pursuant to this Section 5(c) by (B) the Conversion
Percentage in effect on the date of purchase pursuant to this Section 5(c) and
(ii) an amount equal to the product obtained by multiplying (x) the number of
shares of Common Stock which would, but for the purchase pursuant to this
Section 5(c), be issuable on conversion in accordance with Section 10(a) of one
share of Series A Convertible Preferred Stock if a Conversion Notice were given
by the holder of such share of Series A Convertible Preferred Stock on the date
of purchase pursuant to this Section 5(c) (determined without regard to any
limitation on conversion contained in Section 10(a)) times (y) the price per
share of Common Stock offered in such Tender Offer.
SECTION 6. LIQUIDATION PREFERENCE. In the event of a liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
the holders of Series A Convertible Preferred Stock shall be entitled to receive
out of the assets of the Corporation, whether such assets constitute stated
capital or surplus of any nature, an amount per share of Series A Convertible
Preferred Stock equal to the Liquidation Preference, and no more, before any
payment shall be made or any assets distributed to the holders of Junior
Liquidation Stock; provided, however, that such rights shall accrue to the
holders of Series A Convertible Preferred Stock only in the event that the
Corporation's payments with respect to the liquidation preference of the holders
of Senior Liquidation Stock are fully met. After the liquidation preferences of
the Senior Liquidation Stock are fully met, the entire assets of the Corporation
available for distribution shall be distributed ratably among the holders of the
Series A Convertible Preferred Stock and any Parity Liquidation Stock in
proportion to the respective preferential amounts to which each is entitled (but
only to the extent of such preferential amounts). After payment in full of the
liquidation price of the shares of the Series A Convertible Preferred Stock and
the Parity Liquidation Stock, the holders of such shares shall not be entitled
to any further participation in any distribution of assets by the Corporation.
Neither a consolidation or merger of the Corporation with another corporation
nor a sale or transfer of all or part of the Corporation's assets for cash,
securities or other property in and of itself will be considered a liquidation,
dissolution or winding up of the Corporation.
SECTION 7. NO MANDATORY REDEMPTION. The shares of Series A Convertible
Preferred Stock shall not be subject to mandatory redemption by the Corporation
except as provided herein.
SECTION 8. NO SINKING FUND. The shares of Series A Convertible Preferred
Stock shall not be subject to the operation of a purchase, retirement or sinking
fund.
SECTION 9. NO OPTIONAL REDEMPTION. The shares of Series A Convertible
Preferred Stock shall not be subject to redemption at the option of the
Corporation or the holder thereof.
SECTION 10. CONVERSION.
(A) CONVERSION AT OPTION OF HOLDER. The holders of the Series A
Convertible Preferred Stock may convert any or all of their shares of Series A
Convertible Preferred Stock into fully paid and nonassessable shares of Common
Stock and such other securities and property as hereinafter provided, provided
that each such conversion shall cover at least 10,000 shares of Series A
Convertible Preferred Stock or such lesser number of shares of Series A
Convertible Preferred Stock as (1) shall be held by a particular holder or (2)
as shall be convertible within the limitation set forth in the second proviso to
the next succeeding sentence or (3) may be permitted from time to time by the
Corporation in its discretion. Commencing on the Issuance Date, and at any time
thereafter, each share of Series A Convertible Preferred Stock may be converted
at the office of the Conversion Agent or at such other additional office or
offices, if any, as the Board of Directors may designate, initially into such
number of fully paid and nonassessable shares of Common Stock (calculated as to
each conversion to the nearest 1/100th of a share) determined by dividing (x)
the Conversion Value in effect on the applicable Conversion Date by (y) the
product of (a) the Conversion Percentage with respect to the applicable
Conversion Date times (b) the arithmetic average of the Market Price of the
Common Stock for the Measurement Period with respect to the applicable
Conversion Date; provided, however, that in no event shall the amount determined
in accordance with this clause (b) be greater than $5.75 or less than $3.00
(each such figure in this proviso to be subject to equitable adjustments from
time to time on terms acceptable to the holders of the Series A Convertible
Preferred Stock for stock splits, stock dividends, combinations,
recapitalizations, reclassifications and similar events occurring on or after
the date of filing of this Certificate of Designations with the Secretary of
State of the State of Delaware); provided further, however, that in no event
shall any holder of shares of Series A Convertible Preferred Stock be entitled
to convert any shares of Series A Convertible Preferred Stock in excess of that
number of
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<PAGE> 6
shares of Series A Convertible Preferred Stock upon conversion of which the sum
of (1) the number of shares of Common Stock beneficially owned by such holder
and any person whose beneficial ownership of shares of Common Stock would be
aggregated with such holder's beneficial ownership of shares of Common Stock for
purposes of Section 13(d) of the Exchange Act, and Regulation 13D-G thereunder
(each a "Restricted Person" and collectively, the "Restricted Persons") (other
than shares of Common Stock deemed beneficially owned through the ownership of
unconverted shares of Series A Convertible Preferred Stock) and (2) the number
of shares of Common Stock issuable upon the conversion of the number of shares
of Series A Convertible Preferred Stock with respect to which the determination
in this proviso is being made, would result in beneficial ownership by such
holder and all Restricted Persons of such holder of more than 4.9% of the
outstanding shares of Common Stock. For purposes of the proviso to the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Exchange Act and Regulation 13D-G
thereunder, except as otherwise provided in clause (1) of the second proviso to
the immediately preceding sentence.
(b) OTHER PROVISIONS. (1) The holders of shares of Series A Convertible
Preferred Stock at the close of business on the record date for any dividend
payment to holders of Series A Convertible Preferred Stock shall be entitled to
receive the dividend payable on such shares on the corresponding dividend
payment date notwithstanding the conversion thereof after such dividend payment
record date or the Corporation's default in payment of the dividend due on such
dividend payment date; provided, however, that the holder of shares of Series A
Convertible Preferred Stock surrendered for conversion during the period between
the close of business on any record date for a dividend payment and the opening
of business on the corresponding dividend payment date must pay to the
Corporation, within five days after receipt by such holder, an amount equal to
the dividend payable on such shares on such dividend payment date if such
dividend is paid by the Corporation to such holder. A holder of shares of Series
A Convertible Preferred Stock on a record date for a dividend payment who (or
whose transferee) tenders any of such shares for conversion into shares of
Common Stock on or after such dividend payment date will receive the dividend
payable by the Corporation on such shares of Series A Convertible Preferred
Stock on such date, and the converting holder need not make any payment of the
amount of such dividend in connection with such conversion of shares of Series A
Convertible Preferred Stock. Except as provided above, no adjustment shall be
made in respect of cash dividends on Common Stock or Series A Convertible
Preferred Stock that may be accrued and unpaid at the date of surrender of
shares of Series A Convertible Preferred Stock.
(2)(A) The right of the holders of Series A Convertible Preferred
Stock to convert their shares shall be exercised by delivering (which may be
done by telephone line facsimile transmission) a Conversion Notice to the
Conversion Agent together with a certificate or certificates representing at
least the number of shares of Series A Convertible Preferred Stock being
converted. The Corporation, acting through the Conversion Agent, will, within
three Trading Days after receipt of such certificate(s), forthwith issue and
deliver upon the order of such holder of shares of Series A Convertible
Preferred Stock new certificate(s) of like tenor, registered as such holder of
shares of Series A Convertible Preferred Stock may request, representing in the
aggregate the remaining number of unconverted shares of Series A Convertible
Preferred Stock, if any, represented by such certificate(s).
(B) The Corporation shall pay any transfer tax arising in
connection with any conversion of shares of Series A Convertible Preferred Stock
except that the Corporation shall not, however, be required to pay any tax which
may be payable in respect of any transfer involved in the issue and delivery
upon conversion of shares of Common Stock or other securities or property in a
name other than that of the holder of the shares of the Series A Convertible
Preferred Stock being converted, and the Corporation shall not be required to
issue or deliver any such shares or other securities or property unless and
until the person or persons requesting the issuance thereof shall have paid to
the Corporation the amount of any such tax or shall have established to the
satisfaction of the Corporation that such tax has been paid. The number of
shares of Common Stock to be issued upon each conversion of shares of Series A
Convertible Preferred Stock shall be the number set forth in the applicable
Conversion Notice which number shall be conclusive absent manifest error. The
Corporation shall notify a holder who has given a Conversion Notice of any claim
of manifest error within one business day after such holder gives such
Conversion Notice and no such claim of error shall limit or delay performance of
the Corporation's obligation to issue upon such conversion the number of shares
of Common Stock which are not in dispute. A Conversion Notice shall be deemed
for all purposes to be in proper form unless the Corporation notifies a holder
of shares of Series A Convertible Preferred Stock being converted within one
business day after a Conversion Notice has been given (which notice shall
specify all defects in the Conversion Notice) and any Conversion Notice
containing any such defect shall nonetheless be effective on the date given if
the converting holder promptly corrects all such defects.
(3) The Corporation (and any successor corporation) shall take
all action necessary so that a number of shares of the authorized but unissued
Common Stock (or common stock in the case of any successor corporation)
sufficient to provide for the conversion of the Series A Convertible Preferred
Stock outstanding upon the basis hereinbefore provided are at all times reserved
by the Corporation (or any successor corporation), free from preemptive rights,
for such conversion, subject to the provisions of the next succeeding paragraph.
If the Corporation
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<PAGE> 7
shall issue any securities or make any change in its capital structure which
would change the number of shares of Common Stock into which each share of the
Series A Convertible Preferred Stock shall be convertible as herein provided,
the Corporation shall at the same time also make proper provision so that
thereafter there shall be a sufficient number of shares of Common Stock
authorized and reserved, free from preemptive rights, for conversion of the
outstanding Series A Convertible Preferred Stock on the new basis. If at any
time the number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of all of the outstanding shares of Series A
Convertible Preferred Stock, the Corporation promptly shall seek 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 purpose.
(4) In case of any consolidation or merger of the Corporation
with any other corporation (other than a wholly-owned subsidiary of the
Corporation) in which the Corporation is not the surviving corporation, or in
case of any sale or transfer of all or substantially all of the assets of the
Corporation, or in the case of any share exchange pursuant to which all of the
outstanding shares of Common Stock are converted into other securities or
property, the Corporation shall make appropriate provision or cause appropriate
provision to be made so that each holder of shares of Series A Convertible
Preferred Stock then outstanding shall have the right thereafter to convert such
shares of Series A Convertible Preferred Stock into the kind of shares of stock
and other securities and property receivable upon such consolidation, merger,
sale, transfer, or share exchange by a holder of shares of Common Stock into
which such shares of Series A Convertible Preferred Stock could have been
converted immediately prior to the effective date of such consolidation, merger,
sale, transfer, or share exchange and on a basis which preserves the economic
benefits of the conversion rights of the holders of shares of Series A
Convertible Preferred Stock on a basis as nearly as practical as such rights
exist hereunder prior thereto. If, in connection with any such consolidation,
merger, sale, transfer, or share exchange, each holder of shares of Common Stock
is entitled to elect to receive securities, cash, or other assets upon
completion of such transaction, the Corporation shall provide or cause to be
provided to each holder of Series A Convertible Preferred Stock the right to
elect the securities, cash, or other assets into which the Series A Convertible
Preferred Stock held by such holder shall be convertible after completion of any
such transaction on the same terms and subject to the same conditions applicable
to holders of the Common Stock (including, without limitation, notice of the
right to elect, limitations on the period in which such election shall be made,
and the effect of failing to exercise the election). The Corporation shall not
effect any such transaction unless the provisions of this paragraph have been
complied with. The above provisions shall similarly apply to successive
consolidations, mergers, sales, transfers, or share exchanges.
(5) If a holder shall have given a Conversion Notice for shares
of Series A Convertible Preferred Stock and delivered certificate(s)
representing such shares in accordance with Section 10(b)(2)(A), the Corporation
shall issue and deliver to such person certificates for the Common Stock
issuable upon such conversion within three Trading Days after such Conversion
Notice is given and such certificates for Series A Convertible Preferred Stock
are delivered and the person converting shall be deemed to be the holder of
record of the Common Stock issuable upon such conversion, and all rights with
respect to the shares surrendered shall forthwith terminate except the right to
receive the Common Stock or other securities, cash, or other assets as herein
provided. If a holder shall have given a Conversion Notice and delivered
certificates for shares of Series A Convertible Preferred Stock as provided
herein, the Corporation's obligation to issue and deliver the certificates for
Common Stock shall be absolute and unconditional, irrespective of any action or
inaction by the converting holder to enforce the same, any waiver or consent
with respect to any provision thereof, the recovery of any judgment against any
person or any action to enforce the same, any failure or delay in the
enforcement of any other obligation of the Corporation to the holder of record,
or any setoff, counterclaim, recoupment, limitation or termination, or any
breach or alleged breach by the holder of any obligation to the Corporation, and
irrespective of any other circumstance which might otherwise limit such
obligation of the Corporation to the holder in connection with such conversion.
The occurrence of an event which requires an equitable adjustment of the Market
Price as contemplated by the definition thereof in Section 1(b) shall in no way
restrict or delay the right of the holder to receive certificates for Common
Stock upon conversion of shares of Series A Convertible Preferred Stock and the
Company shall use its best efforts to implement such adjustment on terms
reasonably acceptable to the holder within two Business Days of such occurrence
and in any event shall be required to issue any such shares of Common Stock as
to which there is no dispute within three Trading Days after a Conversion Notice
is given by such holder. If the Corporation fails to issue and deliver the
certificates for the Common Stock to the holder converting shares of Series A
Convertible Preferred Stock pursuant to the first sentence of this paragraph as
and when required to do so, in addition to any other liabilities the Corporation
may have hereunder and under applicable law (1) the Corporation shall pay or
reimburse such holder on demand for all out-of-pocket expenses including,
without limitation, reasonable fees and expenses of legal counsel incurred by
such holder as a result of such failure, (2) the Conversion Percentage
applicable to such conversion shall be reduced by two-and-one-half percentage
points from the Conversion Percentage otherwise applicable to such conversion
and (3) such holder may by written notice (which may be given by mail, courier,
personal service or telephone line facsimile transmission) or oral notice
(promptly confirmed in writing) given at any time prior to delivery to such
holder of the certificates for the shares of Common Stock issuable upon such
conversion of shares of Series A Convertible Preferred Stock, rescind such
conversion, whereupon such
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<PAGE> 8
holder shall have the right to convert such shares of Series A Convertible
Preferred Stock thereafter in accordance herewith.
(6) No fractional shares of Common Stock shall be issued upon
conversion of Series A Convertible Preferred Stock but, in lieu of any fraction
of a share of Common Stock to purchase fractional shares of Common Stock which
would otherwise be issuable in respect of the aggregate number of such shares
surrendered for conversion at one time by the same holder, the Corporation shall
pay in cash an amount equal to the product of (i) the arithmetic average of the
Market Price of a share of Common Stock on the three consecutive Trading Days
ending on the Trading Day immediately preceding the Conversion Date and (ii)
such fraction of a share.
(7) Whenever the Corporation shall propose to take any of the
actions specified in Section 10(b)(4), the Corporation shall cause a notice to
be mailed at least 20 days prior to the date on which the books of the
Corporation will close or on which a record will be taken for such action, to
the holders of record of the outstanding Series A Convertible Preferred Stock on
the date of such notice. Such notice shall specify the action proposed to be
taken by the Corporation and the date as of which holders of record of the
Common Stock shall participate in any such actions or be entitled to exchange
their Common Stock for securities or other property, as the case may be. Failure
by the Corporation to mail the notice or any defect in such notice shall not
affect the validity of the transaction.
(c) MANDATORY CONVERSION. So long as the Corporation shall be in
compliance in all material respects with its obligations to the holders of the
Series A Convertible Preferred Stock (including its obligations under the
Registration Rights Agreements and the provisions of this Certificate of
Designations) and so long as the Registration Statement shall be effective, on
the Mandatory Conversion Date all of the outstanding shares of Series A
Convertible Preferred Stock shall be converted, in accordance with the
provisions, and subject to the limitations, of this Section 10 into shares of
Common Stock to the extent the same are at such time convertible into shares of
Common Stock. On the Mandatory Conversion Date all outstanding shares of Series
A Convertible Preferred Stock (or such lesser number of shares of Series A
Convertible Preferred Stock as are convertible into Common Stock on the
Mandatory Conversion Date) shall be converted into such number of shares of
Common Stock as shall be determined pursuant to this Section 10 as if the
conversion of such number of shares of Series A Convertible Preferred Stock were
made by the holders thereof in accordance herewith without any further action on
the part of the holders of such shares of Series A Convertible Preferred Stock.
Upon receipt by the Corporation of certificates for shares of Series A
Convertible Preferred Stock converted into shares of Common Stock in accordance
with this Section 10(c), the Corporation shall issue and, within three Trading
Days after such surrender, deliver to or upon the order of such holder (1) that
number of shares of Common Stock as shall be issuable in respect of the
conversion of the number of shares of Series A Convertible Preferred Stock
converted into Common Stock as shall be determined in accordance herewith, (2)
cash in lieu of any fraction of a share of Common Stock (determined in
accordance with Section 10(b)(6)) and (3) a new certificate for the balance of
shares of Series A Convertible Preferred Stock, if any.
(d) CONVERSION AT THE OPTION OF THE CORPORATION. So long as the
Corporation shall be in compliance in all material respects with its obligations
to the holders of the Series A Convertible Preferred Stock (including its
obligations under the Registration Rights Agreements and this Certificate of
Designations) and so long as the Registration Statement shall be effective and
available for use by all the holders of shares of Series A Convertible Preferred
Stock on the conversion date pursuant to this Section 10(d), if on any ten
consecutive Trading Days the Market Price is at least $14.00 per share (subject
to equitable adjustments from time to time on terms acceptable to the holders of
the Series A Convertible Preferred Stock for stock splits, stock dividends,
combinations, recapitalizations, reclassifications and similar events occurring
on or after the date of filing of this Certificate of Designations with the
Secretary of State of the State of Delaware), then at any time within five
Trading Days after the end of such ten-day period the Corporation shall have the
right, by notice to the holders of Series A Convertible Preferred Stock to
require the conversion, in accordance with the provisions, and subject to the
limitations, of this Section 10, of all outstanding shares of Series A
Convertible Preferred Stock (except as otherwise provided in this Section 10(d))
into shares of Common Stock on the date specified in such notice (which date
shall not be more than 15 Trading Days after the date such notice is given to
all holders of shares of Series A Convertible Preferred Stock). On the
conversion date so specified in such notice, all outstanding shares of Series A
Convertible Preferred Stock (or such lesser number of shares of Series A
Convertible Preferred Stock as shall be convertible into shares of Common Stock
on such conversion date) shall be converted into such number of shares of Common
Stock as shall be determined pursuant to this Section 10 as if the conversion of
such number of shares of Series A Convertible Preferred Stock were made by the
holders thereof in accordance herewith without any further action on the part of
the holders of such shares of Series A Convertible Preferred Stock. Upon receipt
by the Corporation of certificates for shares of Series A Convertible Preferred
Stock converted into shares of Common Stock in accordance with this Section 10
(d), the Corporation shall issue and, within three Trading Days after such
receipt, deliver to or upon the order of such holder (1) that number of shares
of Common Stock as shall be issuable in respect of the conversion of the number
of shares of Series A Convertible Preferred Stock converted into Common Stock as
shall be determined in accordance herewith and (2) cash in lieu of any fraction
of a
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<PAGE> 9
share of Common Stock (determined in accordance with Section 10 (b)(6)) and (3)
a new certificate for the balance of shares of Series A Convertible Preferred
Stock, if any.
SECTION 11. VOTING RIGHTS; CERTAIN LIMITATIONS.
(a) VOTING RIGHTS. Except as otherwise required by law or expressly
provided herein, shares of Series A Convertible Preferred Stock shall not be
entitled to vote on any matter.
(b) CERTIFICATE OF INCORPORATION; CERTAIN STOCK. The affirmative vote
or consent of the holders of a majority of the outstanding shares of the Series
A Convertible Preferred Stock, voting separately as a class, will be required
for (1) any amendment, alteration, or repeal, whether by merger or consolidation
or otherwise, of the Corporation's Certificate of Incorporation if the
amendment, alteration, or repeal materially and adversely affects the powers,
preferences, or special rights of the Series A Convertible Preferred Stock, or
(2) except as permitted by Section 4, the creation and issuance of any Senior
Dividend Stock or Senior Liquidation Stock; provided, however, that any increase
in the authorized preferred stock of the Corporation or the creation and
issuance of any stock which is both Junior Dividend Stock and Junior Liquidation
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 Series A Convertible Preferred
Stock except as otherwise required by law.
(c) REPURCHASES OF SHARES OF SERIES A CONVERTIBLE PREFERRED STOCK. The
Corporation shall not repurchase or otherwise acquire any shares of Series A
Convertible Preferred Stock unless the Corporation offers to repurchase or
otherwise acquire simultaneously a pro rata portion of each holder's shares of
Series A Convertible Preferred Stock for cash at the same price per share.
SECTION 12. OUTSTANDING SHARES. For purposes of this Certificate of
Designations, all shares of Series A Convertible Preferred Stock shall be deemed
outstanding except (i) from the date of surrender of certificates representing
shares of Series A Convertible Preferred Stock for conversion into Common Stock,
all shares of Series A Convertible Preferred Stock converted into Common Stock
and (ii) from the date of registration of transfer, all shares of Series A
Convertible Preferred Stock held of record by the Corporation or any subsidiary
or Affiliate (as defined herein) of the Corporation. For the purposes of this
Section 12, "Affiliate" means any Affiliate of the Corporation, other than the
original holders of the shares of Series A Convertible Preferred Stock.
IN WITNESS WHEREOF, American Technology Corporation has caused this
corrected instrument to be signed by its Chairman of the Board and attested by
its Secretary as of the 25th day of August, 1997.
AMERICAN TECHNOLOGY
CORPORATION
By /s/ ELWOOD G. NORRIS
------------------------------
Elwood G. Norris, Chairman
ATTESTED:
By /s/ RICHARD M. WAGNER
-------------------------------
Richard M. Wagner, Secretary
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<PAGE> 1
AMERICAN TECHNOLOGY CORPORATION
EXHIBIT 4.10
Form of Stock Purchase Warrant exercisable
at $7.50 per share until August 1, 2000
granted to eleven investors for an aggregate
of 175,000 common shares
(Individual Stock Purchase Warrants
dated August 25, 1997 differ
as to number and holder)
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS. THE SALE TO THE HOLDER OF
THIS SECURITY OF THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS
SECURITY ARE NOT COVERED BY A REGISTRATION STATEMENT UNDER THE ACT OR
REGISTRATION UNDER STATE SECURITIES LAWS. THIS SECURITY HAS BEEN ACQUIRED, AND
SUCH SHARES OF COMMON STOCK MUST BE ACQUIRED, FOR INVESTMENT ONLY AND MAY NOT BE
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF REGISTRATION OF THE RESALE
THEREOF OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY IN FORM, SCOPE AND
SUBSTANCE TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
Right to Purchase ______ Shares of Common
Stock of American Technology Corporation
AMERICAN TECHNOLOGY CORPORATION
COMMON STOCK PURCHASE WARRANT
AMERICAN TECHNOLOGY CORPORATION, a Delaware corporation (the "Company"), hereby
certifies that, for value received, _________________________ or registered
assigns (the "Holder"), is entitled, subject to the terms set forth below, to
purchase from the Company at any time or from time to time after the date
hereof, and before 5:00 p.m., New York City time, on the Expiration Date (as
hereinafter defined), _______ fully paid and nonassessable shares of Common
Stock, $.00001 par value per share, of the Company at a purchase price per share
equal to the Purchase Price (as hereinafter defined). The number of such shares
of Common Stock and the Purchase Price are subject to adjustment as provided in
this Warrant.
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
(a) "Business Day" means a day on which the New York Stock
Exchange is open for business.
(b) "Common Stock" means the Company's Common Stock, $.00001 par
value per share, as authorized on the date hereof, and any other
securities into which or for which the Common Stock may be converted or
exchanged pursuant to a plan of recapitalization, reorganization,
merger, sale of assets or otherwise.
(c) "Company" means American Technology Corporation, a Delaware
corporation, and any corporation that shall succeed to or assume the
obligation of American Technology Corporation hereunder in accordance
with the terms hereof.
(d) "Expiration Date" means to August 1, 2000.
(e) "Other Securities" means any stock (other than Common Stock)
and other securities of the Company or any other person (corporate or
otherwise) which the Holder at any time shall be entitled to receive, or
shall have received, on the exercise of this Warrant, in lieu of or in
addition to Common Stock, or which at any time shall be issuable or
shall have been issued in exchange for or in replacement of Common Stock
or Other Securities pursuant to Section 4.
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<PAGE> 2
(f) "Purchase Price" means $7.50, subject to adjustment as
provided in this Warrant.
1. EXERCISE OF WARRANT.
1.1 EXERCISE. (a) This Warrant may be exercised by the Holder
hereof in full or in part at any time or from time to time during the exercise
period specified in the first paragraph hereof until the Expiration Date by
surrender of this Warrant and the subscription form annexed hereto (duly
executed by the Holder), to the Company's transfer agent and registrar for the
Common Stock and by making payment, in cash or by certified or official bank
check payable to the order of the Company in the amount obtained by multiplying
(a) the number of shares of Common Stock designated by the Holder in the
subscription form by (b) the Purchase Price then in effect. On any partial
exercise the Company will forthwith issue and deliver to or upon the order of
the Holder hereof a new Warrant or Warrants of like tenor, in the name of the
Holder hereof or as the Holder (upon payment by the Holder of any applicable
transfer taxes) may request, providing in the aggregate on the face or faces
thereof for the purchase of the number of shares of Common Stock for which such
Warrant or Warrants may still be exercised.
(b) Notwithstanding any other provision of this Warrant, in no
event shall the Holder be entitled at any time to purchase a number of shares of
Common Stock on exercise of this Warrant in excess of that number of shares upon
purchase of which the sum of (1) the number of shares of Common Stock
beneficially owned by the Holder and any person whose beneficial ownership of
shares of Common Stock would be aggregated with such holder's beneficial
ownership of shares of Common Stock for purposes of Section 13(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Regulation
13D-G thereunder (each such person other than the Holder a "Related Person" and
collectively, the "Related Persons") (other than shares of Common Stock deemed
beneficially owned through the ownership of the unexercised portion of this
Warrant and other than shares of Common Stock deemed beneficially owned through
the ownership of unconverted shares of Series A Convertible Preferred Stock of
the Company or the ownership of the unconverted or unexercised portion of any
other securities of the Company which contain a restriction similar to this
Section 1(b)) and (2) the number of shares of Common Stock issuable upon
exercise of the portion of this Warrant with respect to which the determination
in this sentence is being made, would result in beneficial ownership by the
Holder and all Related Persons of more than 4.9% of the outstanding shares of
Common Stock. For purposes of the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the Exchange
Act and Regulation 13D-G thereunder, except as otherwise provided in clause (1)
of the immediately preceding sentence. For purposes of the second preceding
sentence, the Company shall be entitled to rely, and shall be fully protected in
relying, on any statement or representation made by the Holder to the Company in
connection with a particular exercise of this Warrant, without any obligation on
the part of the Company to make any inquiry or investigation or to examine its
records or the records of any transfer agent for the Common Stock.
1.2 NET ISSUANCE. (a) This Section 1.2 shall not apply and shall
have no force or effect if, in accordance with the terms of the Registration
Rights Agreement, dated as of August 25, 1997, between the Company and the
original holder of this Warrant (the "Registration Rights 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 (the
"Securities Act"), on a registration statement on Form S-3 (and no other form)
and such registration statement on Form S-3 has remained continuously effective
for 90 days from its initial effective date.
(b) Notwithstanding anything to the contrary contained in Section
1.1, the Holder may elect to exercise this Warrant in whole or in part by
receiving shares of Common Stock equal to the net issuance value (as determined
below) of this Warrant, or any part hereof, upon surrender of this Warrant to
the Company's transfer agent and registrar for the Common Stock together with
the subscription form annexed hereto (duly executed by the Holder), in which
event the Company shall issue to the Holder a number of shares of Common Stock
computed using the following formula:
X = F(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 as to which this Warrant
is to be exercised
A = the current fair market value of one share of Common Stock
calculated as of the last trading day immediately preceding the
exercise of this Warrant
B = the Purchase Price
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<PAGE> 3
As used herein, current fair market value of the Common Stock as
of a specified date shall mean with respect to each share of Common Stock the
average of the closing sale price of the Common Stock on the principal
securities market on which the Common Stock may at the time be listed or, if
there have been no sales on any such exchange on such day, the average of the
highest bid and lowest asked prices on the principal securities market at the
end of such day, or, if on such day the Common Stock is not so listed, the
average of the representative bid and asked prices quoted in the Nasdaq System
as of 4:00 p.m., New York City time, or, if on such day the Common Stock is not
quoted in the Nasdaq System, the average of the highest bid and lowest asked
price on such day in the domestic over-the-counter market as reported by the
National Quotation Bureau, Incorporated, or any similar successor organization,
in each such case averaged over a period of five consecutive Business Days
consisting of the day as of which the current fair market value of a share of
Common Stock is being determined (or if such day is not a Business Day, the
Business Day next preceding such day) and the four consecutive Business Days
prior to such day. If on the date for which current fair market value is to be
determined the Common Stock is not listed on any securities exchange or quoted
in the Nasdaq System or the over-the-counter market, the current fair market
value of one share of Common Stock shall be the highest price per share which
the Company could then obtain from a willing buyer (not a current employee or
director) for shares of Common Stock sold by the Company, from authorized but
unissued shares, as determined in good faith by the Board of Directors of the
Company, unless prior to such date the Company has become subject to a merger,
acquisition or other consolidation pursuant to which the Company is not the
surviving party, in which case the current fair market value of the Common Stock
shall be deemed to be the value received by the holders of the Company's Common
Stock for each share thereof pursuant to the Company's acquisition.
2. DELIVERY OF STOCK CERTIFICATES, ETC., ON EXERCISE. As soon as
practicable after the exercise of this Warrant, and in any event within three
Business Days thereafter, the Company at its expense (including the payment by
it of any applicable issue or stamp taxes) will cause to be issued in the name
of and delivered to the Holder, or as the Holder (upon payment by the Holder of
any applicable transfer taxes) may direct, a certificate or certificates for the
number of fully paid and nonassessable shares of Common Stock (or Other
Securities) to which the Holder shall be entitled on such exercise, in such
denominations as may be requested by the Holder, plus, in lieu of any fractional
share to which the Holder would otherwise be entitled, cash equal to such
fraction multiplied by the then current fair market value (as determined in
accordance with subsection 1.2) of one full share, together with any other stock
or other securities any property (including cash, where applicable) to which the
Holder is entitled upon such exercise pursuant to Section 1 or otherwise. Upon
exercise of this Warrant as provided herein, the Company's obligation to issue
and deliver the certificates for Common Stock shall be absolute and
unconditional, irrespective of the absence of any action by the Holder to
enforce the same, any waiver or consent with respect to any provision thereof,
the recovery of any judgment against any person or any action to enforce the
same, any failure or delay in the enforcement of any other obligation of the
Company to the Holder, or any setoff, counterclaim, recoupment, limitation or
termination, or any breach or alleged breach by the Holder of any obligation to
the Company or any violation or alleged violation of law by the Holder or any
other person, and irrespective of any other circumstance which might otherwise
limit such obligation of the Company to the Holder in connection with such
exercise. If the Company fails to issue and deliver the certificates for the
Common Stock to the Holder pursuant to the first sentence of this paragraph as
and when required to do so, in addition to any other liabilities the Company may
have hereunder and under applicable law, the Company shall pay or reimburse the
Holder on demand for all out-of-pocket expenses including, without limitation,
fees and expenses of legal counsel incurred by the Holder as a result of such
failure.
3. ADJUSTMENT FOR DIVIDENDS IN OTHER STOCK, PROPERTY, ETC.;
RECLASSIFICATION, ETC. In case at any time or from time to time, all the holders
of Common Stock (or Other Securities) shall have received, or (on or after the
record date fixed for the determination of stockholders eligible to receive)
shall have become entitled to receive, without payment therefor,
(a) other or additional stock or other securities or property
(other than cash) by way of dividend, or
(b) any cash (excluding cash dividends payable solely out of
earnings or earned surplus of the Company), or
(c) other or additional stock or other securities or property
(including cash) by way of spin-off, split-up, reclassification,
recapitalization, combination of shares or similar corporate
rearrangement,
other than additional shares of Common Stock (or Other Securities) issued as a
stock dividend or in a stock-split (adjustments in respect of which are provided
for in Section 5), then and in each such case the Holder on the exercise hereof
as provided in Section 1, shall be entitled to receive the amount of stock and
other securities and property (including cash in the cases referred to in
subdivisions (b) and (c) of this Section 3) which the Holder would hold on the
date of such exercise if on the date of the event listed in subdivisions (a)
through (c) the Holder had been the holder of record of the number of shares of
Common Stock called for on the face of this Warrant and had thereafter, during
the period from the date of the event listed in subdivisions (a) through (c) to
and including the date of such exercise,
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<PAGE> 4
retained such shares and all such other or additional stock and other securities
and property (including cash in the case referred to in subdivisions (b) and (c)
of this Section 3) receivable by the Holder as aforesaid during such period,
giving effect to all adjustments called for during such period by Section 4.
4. EXERCISE UPON REORGANIZATION, CONSOLIDATION, MERGER, ETC. In
case at any time or from time to time, the Company shall (a) effect a
reorganization, (b) consolidate with or merge into any other person, or (c)
transfer all or substantially all of its properties or assets to any other
person under any plan or arrangement contemplating the dissolution of the
Company, then, in each such case, as a condition of such reorganization,
consolidation, merger, sale or conveyance, the Company shall give at least 30
days notice to the Holder of such pending transaction whereby the Holder shall
have the right to exercise this Warrant prior to any such reorganization,
consolidation, merger, sale or conveyance. Any exercise of this Warrant pursuant
to notice under this Section shall be conditioned upon the closing of such
reorganization, consolidation, merger, sale or conveyance which is the subject
of the notice and the exercise of this Warrant shall not be deemed to have
occurred until immediately prior to the closing of such transaction.
5. ADJUSTMENT FOR EXTRAORDINARY EVENTS. In the event that the
Company shall (i) issue additional shares of the Common Stock as a dividend or
other distribution on outstanding Common Stock, (ii) subdivide or reclassify its
outstanding shares of Common Stock, or (iii) combine its outstanding shares of
Common Stock into a smaller number of shares of Common Stock, then, in each such
event, the Purchase Price shall, simultaneously with the happening of such
event, be adjusted by multiplying the Purchase Price in effect immediately prior
to such event by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such event and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately after such event, and the product so obtained shall thereafter be
the Purchase Price then in effect. The Purchase Price, as so adjusted, shall be
readjusted in the same manner upon the happening of any successive event or
events described herein in this Section 5. The Holder shall thereafter, on the
exercise hereof as provided in Section 1, be entitled to receive that number of
shares of Common Stock determined by multiplying the number of shares of Common
Stock which would be issuable on such exercise immediately prior to such
issuance by a fraction of which (i) the numerator is the Purchase Price in
effect immediately prior to such issuance and (ii) the denominator is the
Purchase Price in effect on the date of such exercise.
6. FURTHER ASSURANCES. The Company will take all action that may
be necessary or appropriate in order that the Company may validly and legally
issue fully paid and nonassessable shares of stock, free from all taxes, liens
and charges with respect to the issue thereof, on the exercise of all or any
portion of this Warrant from time to time outstanding.
7. NOTICES OF RECORD DATE, ETC. In the event of
(a) any taking by the Company of a record of the holders of any
class of securities for the purpose of determining the holders thereof
who are entitled to receive any dividend on, 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
(b) 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 or consolidation or merger of the Company with or into any other
person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
then and in each such event the Company will mail or cause to be mailed to the
Holder, at least ten days prior to such record date, a notice specifying (i) the
date on which any such record is to be taken for the purpose of such dividend,
distribution or right, and stating the amount and character of such dividend,
distribution or right, (ii) the date on which any such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding-up is to take place, and the time, if any is
to be fixed, as of which the holders of record of Common Stock (or Other
Securities) shall be entitled to exchange their shares of Common Stock (or Other
Securities) for securities or other property deliverable on such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding-up, and (iii) the amount and character of
any stock or other securities, or rights or options with respect thereto,
proposed to be issued or granted, the date of such proposed issue or grant and
the persons or class of persons to whom such proposed issue or grant is to be
offered or made. Such notice shall also state that the action in question or the
record date is subject to the effectiveness of a registration statement under
the Securities Act or a favorable vote of stockholders if either is required.
Such notice shall be mailed at least ten days prior to the date specified in
such notice on which any such action is to be taken or the record date,
whichever is earlier.
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<PAGE> 5
8. RESERVATION OF STOCK, ETC., ISSUABLE ON EXERCISE OF WARRANTS.
The Company will at all times reserve and keep available out of its authorized
but unissued shares of capital stock, solely for issuance and delivery on the
exercise of this Warrant, a sufficient number of shares of Common Stock (or
Other Securities) to effect the full exercise of this Warrant and the exercise,
conversion or exchange of any other warrant or security of the Company
exerciseable for, convertible into, exchangeable for or otherwise entitling the
Holder to acquire shares of Common Stock (or Other Securities), and if at any
time the number of authorized but unissued shares of Common Stock (or Other
Securities) shall not be sufficient to effect such exercise, conversion or
exchange, the Company shall take such action as may be necessary to increase its
authorized but unissued shares of Common Stock (or Other Securities) to such
number as shall be sufficient for such purposes.
9. TRANSFER OF WARRANT. This Warrant shall inure to the benefit
of the successors to and assigns of the Holder. This Warrant and all rights
hereunder, in whole or in part, are registrable at the office or agency of the
Company referred to below by the Holder hereof in person or by his duly
authorized attorney, upon surrender of this Warrant properly endorsed.
10. REGISTER OF WARRANTS. The Company shall maintain, at the
principal office of the Company (or such other office as it may designate by
notice to the Holder hereof), a register in which the Company shall record the
name and address of the person in whose name this Warrant has been issued, as
well as the name and address of each successor and prior owner of such Warrant.
The Company shall be entitled to treat the person in whose name this Warrant is
so registered as the sole and absolute owner of this Warrant for all purposes.
11. EXCHANGE OF WARRANT. This Warrant is exchangeable, upon the
surrender hereof by the Holder hereof at the office or agency of the Company
referred to in Section 10, for one or more new Warrants of like tenor
representing in the aggregate the right to subscribe for and purchase the number
of shares of Common Stock which may be subscribed for and purchased hereunder,
each of such new Warrants to represent the right to subscribe for and purchase
such number of shares as shall be designated by said Holder hereof at the time
of such surrender.
12. REPLACEMENT OF WARRANT. On 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 of this
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of this Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of like tenor.
13. WARRANT AGENT. In accordance with the Transfer Agent
Agreement, dated as of August , 1997, by and among the Company, Interwest
Transfer Company, Inc. (the "Transfer Agent") and the original holders of this
Warrant and the warrants of like tenor issued on or about the date hereof, the
Transfer Agent agreed to act as the exercise agent for the purpose of issuing
Common Stock (or Other Securities) on the exercise of this Warrant pursuant to
Section 1. The Company may, by written notice to the Holder, appoint an agent
having an office in the United States of America for the purpose of exchanging
this Warrant pursuant to Section 11, and replacing this Warrant pursuant to
Section 12, and thereafter any such exchange or replacement, as the case may be,
shall be made at such office by such agent.
14. REMEDIES. The Company stipulates that the remedies at law of
the Holder in the event of any default or threatened default by the Company in
the performance of or compliance with any of the terms of this Warrant are not
and will not be adequate, and that such terms may be specifically enforced by a
decree for the specific performance of any agreement contained herein or by an
injunction against a violation of any of the terms hereof or otherwise.
15. NO RIGHTS OR LIABILITIES AS A STOCKHOLDER. This Warrant shall
not entitle the Holder to any voting rights or other rights as a stockholder of
the Company. No provision of this Warrant, in the absence of affirmative action
by the Holder hereof to purchase Common Stock, and no mere enumeration herein of
the rights or privileges of the Holder, shall give rise to any liability of the
Holder for the Purchase Price or as a stockholder of the Company, whether such
liability is asserted by the Company or by creditors of the Company.
16. NOTICES, ETC. All notices and other communications from the
Company to the registered Holder shall be mailed by first class certified mail,
postage prepaid, at such address as may have been furnished to the Company in
writing by the Holder or at the address shown for the Holder on the register of
Warrants referred to in Section 10.
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<PAGE> 6
17. INVESTMENT REPRESENTATIONS. By acceptance of this Warrant,
the Holder represents to the Company that this Warrant is being acquired for the
Holder's own account and for the purpose of investment and not with a view to,
or for sale in connection with, the distribution thereof, nor with any present
intention of distributing or selling the Warrant or the Common Stock issuable
upon exercise of the Warrant. The Holder acknowledges that the Holder has been
afforded the opportunity to meet with the management of the Company and to ask
questions of, and receive answers from, such management and the Company's
counsel about the business and affairs of the Company and concerning the terms
and conditions of the offering of this Warrant, and to obtain any additional
information, to the extent that the Company possessed such information or could
acquire it without unreasonable effort or expense, necessary to verify the
accuracy of the information otherwise obtained by or furnished to the Holder
hereof in connection with the offering of this Warrant. The Holder asserts that
it may be considered to be a sophisticated investor, is familiar with the risks
inherent in speculative investments such as in the Company (including the
business, financial and market risks associated with similar unseasoned
companies), has such knowledge and experience in financial and business matters
that it is capable of evaluating the merits and risks of the investment in this
Warrant and the Common Stock issuable upon exercise of this Warrant, and is able
to bear the economic risk of the investment. By acceptance of this Warrant, the
Holder represents to the Company that it is an "accredited investor" as that
term is defined in Rule 501 of the General Rules and Regulations under the
Securities Act by reason of Rule 501(a)(3). The Holder acknowledges and agrees
that this Warrant and, except as otherwise provided in the Registration Rights
Agreement, the shares of Common Stock issuable upon exercise of this Warrant (if
any) have not been (and at the time of acquisition by the Holder, will not have
been or will not be), registered under the Securities Act or under the
securities laws of any state, in reliance upon certain exemptive provisions of
such statutes. The Holder recognizes and acknowledges that such claims of
exemption are based, in part, upon the representations of the Holder contained
herein. The Holder further recognizes and acknowledges that because this Warrant
and, except as provided in the Registration Rights Agreement, the Common Stock
issuable upon exercise of this Warrant (if any) are unregistered, they may not
be eligible for resale, and may only be resold in the future pursuant to an
effective registration statement under the Securities Act and any applicable
state securities laws, or pursuant to a valid exemption from such registration
requirements. Unless the shares of Common Stock issuable upon exercise of this
Warrant have theretofore been registered for resale under the Securities Act,
the Company may require, as a condition to the issuance of Common Stock upon the
exercise of this Warrant (i) in the case of an exercise in accordance with
Section 1.1 hereof, a confirmation as of the date of exercise of the Holder's
representations pursuant to this Section 17, or (ii) in the case of an exercise
in accordance with Section 1.2 hereof, an opinion (reasonably satisfactory in
form, scope and substance to the Company) of counsel that the shares of Common
Stock to be issued upon such exercise may be issued without registration under
the Securities Act.
18. LEGEND. Unless theretofore registered for resale under the
Securities Act, each certificate for shares issued upon exercise of this Warrant
shall bear the following legend:
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended (the "Act"). The securities
have been acquired for investment and may not be resold, transferred or
assigned in the absence of an effective registration statement for the
securities under the Act, or an opinion of counsel reasonably
satisfactory in form, scope and substance to the Company that
registration is not required under said Act.
19. MISCELLANEOUS. This Warrant and any terms hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement or such change, waiver, discharge
or termination is sought. This Warrant shall be construed and enforced in
accordance with and governed by the internal laws of the State of New York. The
headings in this Warrant are for purposes of reference only, and shall not limit
or otherwise affect any of the terms hereof. The invalidity or unenforceability
of any provision hereof shall in no way affect the validity or enforceability of
any other provision.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed on its behalf by one of its officers thereunto duly authorized.
Dated: August 25, 1997 AMERICAN TECHNOLOGY
CORPORATION
By /s/ ROBERT PUTNAM
--------------------------
Name: Robert Putnam
Title: President and CEO
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