EXHIBIT 10.14

FINAL

AGREEMENT OF SETTLEMENT AND MUTUAL RELEASE

                1.             PARTIES. The parties to this Agreement of
Settlement and Mutual Release (the “Agreement”) are American Technology
Corporation, a Delaware Corporation (“ATC” or the “Company”) on the one hand,
and eSoundIdeas, Inc, a California corporation (“eSound”), SoundIdeas, a general
partnership (“SoundIdeas”), Greg O. Endsley, an individual (“Endsley”) and
Douglas J. Paschall, an individual (“Paschall”), on the other hand. eSound,
SoundIdeas, Endsley and Paschall are referred to collectively as the “ESI
Parties.” Gordon & Holmes LLP (“Gordon & Holmes”) is a party for the limited
purposes set forth in Sections 3.2, 3.5, 4 and its sub-parts, and 7.

                2.             RECITALS. This Agreement is made with reference
to the following facts:

                                2.1           On September 28, 2000, SoundIdeas
entered into that certain License, Purchase and Marketing Agreement (the
“Original License Agreement”), pursuant to which ATC granted to SoundIdeas
certain rights to use and sell certain of ATC’s products and trademarks in
exchange for certain license fees and other commitments. The Original License
Agreement was purportedly amended on June 20, 2002 pursuant to a First Amendment
to License, Purchase and Marketing Agreement (the “First Amendment”) to extend
the term thereof and amend certain other provisions. ATC has denied the validity
of the First Amendment. The Original License Agreement, to the extent the same
was amended by the First Amendment, is referred to herein as the “License
Agreement.”

                                2.2           On or about April 25, 2001, ATC
granted to each of Endsley and Paschall a Nonstatutory Stock Option under ATC’s
1997 Stock Option Plan to purchase 10,000 shares of common stock at an exercise
price of $4.50 per share (collectively, the “Stock Options”). On or about
December 11, 2002, ATC sent notices to Endsley and Paschall that the exercise
period of the Stock Options terminated on or about October 5, 2002, as a result
of the termination of Endsley’s and Paschall’s consulting services to the
Company on or about July 5, 2002. Endsley and Paschall have disputed the
termination of the exercise periods of the Stock Options.

                                2.3           On or about May 23, 2003, ATC sent
a notice of termination under License Agreement to eSound, which purported to be
the successor to SoundIdeas under the License Agreement. ATC believes such
notice was effective immediately, subject to a 60-day right of reinstatement,
which expired. The ESI Parties have disputed the validity of such termination.

                                2.4           On or about September 17, 2003,
ATC filed a civil lawsuit in the Superior Court of the State of California for
the County of San Diego entitled, after subsequent amendment, American
Technology Corporation v. SOUNDideas, Greg O. Endsley, Douglas J. Paschall,
eSOUNDideas, Inc. and Does 1 through 20, Case No. GIC 818015 (the “Original
Action”). On or about November 19, 2003, ATC filed separate civil lawsuits
against Endsley and Paschall in the same court entitled, respectively, American
Technology Corporation v. Greg O. Endsley, Case No. GIC 821375, and American
Technology Corporation v. Douglas J. Paschall, Case No. GIC 821376 (together,
the “Stock Option Actions”). Endsley, Paschall and eSound subsequently filed a
cross-action against ATC in the Original Action on or about December 5, 2003.
The Original Action and the Stock Option Actions (collectively the “Lawsuits”)
were thereafter consolidated by the court, with the Original Action designated
as the lead case.

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                                2.5           It is the intention of the parties
hereto to settle and dispose of, fully and completely, any and all claims,
demands, causes of action, obligations, damages, and liabilities of any nature
whatsoever, existing prior to the effective date hereof, whether known or
unknown, asserted in, arising out of, connected with or incidental to the
relationship and business dealings between ATC and the ESI Parties, the License
Agreement, the Stock Options and the Lawsuits.

                3.             TERMS.

                                3.1           ATC agrees that within seven (7)
days following the date of last signature on this Agreement (the “Effective
Date”), ATC will pay the aggregate of One Hundred Fifty Thousand Dollars
($150,000) to the Gordon & Holmes Client Trust Account for the benefit of
eSound. Payment shall be made by ATC corporate check sent to Gordon & Holmes in
accordance with Section 11.3. For tax and other reporting purposes, ATC shall
treat such payment as having been made to eSound.

                                3.2           ATC further agrees that within
seven (7) days following the Effective Date, ATC will cause its transfer agent
to issue the aggregate of Seventeen Thousand Five Hundred (17,500) shares (the
“Shares”) of ATC common stock, $0.00001 par value (“Common Stock”), to be
divided as follows: 8,750 shares to Endsley and 8,750 shares to Paschall;
provided that each of Endsley and Paschall hereby instructs ATC to cause 3,500
shares of his shares (for a total of 7,000 shares) to be issued in the name of
Gordon & Holmes as compensation for legal fees incurred by the ESI Parties in
the defense and prosecution of the claims described in Section 2.4. The share
certificates to be issued by ATC shall therefore be in the following
denominations:

Endsley 5,250 shares     Paschall 5,250 shares     Gordon & Holmes 7,000 shares

                                ATC’s transfer agent shall be directed to
deliver such share certificates by certified mail to Gordon & Holmes as promptly
as practicable after issuance, but transfer agent records evidencing such
issuances shall be deemed to satisfy the delivery requirement in this
Section 3.2. All such shares shall be “restricted securities” as that term is
defined in Rule 144(a)(3) promulgated under the Securities Act of 1933, as
amended (the “Securities Act”), and shall bear an appropriate restrictive
legend.

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                                3.3           ATC further agrees that within
seven (7) days following the Effective Date, ATC will deliver to Gordon & Holmes
for the benefit of eSound two (2) HSS Generation III emitters, model number T220
(the “Emitters”). eSound will have two (2) business days after receipt to
confirm that the Emitters are in good working order. If either Emitter is not in
good working order, eSound shall notify ATC in writing and provide the
non-confirming Emitter with such correspondence. ATC shall replace such
non-conforming Emitter with a new Emitter within seven (7) days of receipt,
subject to the same two (2) business day acceptance period in favor of eSound.
Emitters not rejected within such two (2) business day period shall be deemed
accepted. EXCEPT AS SET FORTH ABOVE, THE EMITTERS ARE BEING DELIVERED ON AN “AS
IS, WHERE IS” BASIS, WITHOUT ANY REPRESENTATIONS OR WARRANTIES AS TO CONDITION,
OPERATION OR SUFFICIENCY WHATSOEVER. EXCEPT AS SET FORTH ABOVE, ATC HEREBY
EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES, WHETHER EXPRESS OR IMPLIED, WITH
RESPECT TO THE EMITTERS, INCLUDING ANY AND ALL WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE.

                                3.4           ATC further agrees that Endsley
and Paschall shall be entitled to receive a commission based on future sales of
HSS Products (as defined below) in certain Product Categories (as defined in
Exhibit B), for the period beginning April 1, 2005 and ending September 28,
2007, equal to an aggregate of 1% of Net Sales Value (defined below), divided
equally between Endsley and Paschall (i.e., 0.5% to Endsley and 0.5% to
Paschall), subject to a maximum of Five Hundred Thousand Dollars ($500,000) in
the aggregate (i.e., $250,000 to Endsley and $250,000 to Paschall), all as more
particularly described in this Section 3.4, including its sub-parts. The term
“HSS Products” shall mean products (including but not limited to Parametric
Speakers (defined below), and products incorporating power modulation devices
and related systems, devices, methods and processes to cause the generation of
desired acoustic frequencies by means of propagation from ultrasonic
frequencies), which products, if produced without an appropriate license or
assignment of patent, would infringe the protectable rights in the patents and
patent applications (to the extent patents were or will be granted upon such
applications) set forth on Exhibit A to the Original License Agreement (the
“Patent Rights”). “Parametric Speakers” are speakers or devices that indirectly
generate audible frequency tones from ultrasonic tones. Notwithstanding anything
to the contrary set forth above, the term “HSS Products” shall not include any
product or device based on ATC’s Long Range Acoustic Device (LRAD) platform and
designed for long range hailing and warning, whether or not such product
contains methods, features, designs or inventions that would infringe the Patent
Rights in the absence of an appropriate license or assignment of patent.

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                                                3.4.1       ATC shall pay to
Endsley and Paschall a commission (the “Commission”) equal to an aggregate of
One Percent (1%) of Net Sales Value (as defined below), divided equally between
Endsley and Paschall (i.e., 0.5% to Endsley and 0.5% to Paschall), for HSS
Products sold by the Company after April 1, 2005, for use in the Product
Categories (as defined in Exhibit B). For purposes of this Agreement, the term
Net Sales Value shall mean the invoice price or contract price charged by the
Company in connection with the sale of an HSS Product for use in the Product
Categories; provided that the invoice price shall be reduced by (i) any
allowances actually made and taken for returns; (ii) cash discounts, rebates and
promotional allowances actually allowed; (iii) sales, use, value-added and
similar taxes and duties and similar governmental assessments to the extent
included in the invoice or contract price; and (iv) transportation costs,
including packing, shipping, customs and insurance charges to the extend
included in the invoice or contract price. Net Sales Value shall not include
revenues from: (a) extended warranties not included in the standard invoice
price for a product; (b) installation, warranty service, maintenance or repair;
(c) royalties or license fees (except such licenses that are incidental to the
sale of HSS Products); or (d) consulting services. ATC’s internal use or
consumption of an HSS Product for purposes of research, development, testing,
promotion or demonstration shall not be deemed a sale. If one HSS Product is
exchanged for another HSS Product, the exchange shall be considered a sale of
the newly provided product but the invoice or contract price for the newly
provided product shall be the monetary differential paid by the customer. The
ESI Parties acknowledge that certain sales may at the Company’s discretion be
made through one or more third-party distributors, and in such case, Net Sales
Value shall be determined based upon the invoice price the Company charges to
its distributor, reduced pursuant to clauses (i) through (iv) above. For HSS
Products sold in combination with one or more other products for a single
invoice or contract price, Net Sales Value shall be calculated by multiplying
Net Sales Value of the combination product by the fraction A/(A+B) where A is
the sales price of the HSS Product in the combination when sold separately and B
is the total sales price of all other products in the combination when sold
separately. If the HSS Product or the other products included in the combination
are not sold separately, ATC shall allocate the total invoice or contract price
among the components in good faith, which allocation shall be binding on the
parties absent a showing of bad faith. For purposes of this Section 3.4.1, a
sale of an HSS Product shall be deemed made when the revenue from such sale is
recognized by ATC in accordance with generally accepted accounting principles.

                                                3.4.2       ATC shall retain all
records pertaining to Net Sales Value (i.e., sales and accounting records for
transactions) supporting calculation of Commission payments until a date not
earlier than September 28, 2008. Endsley and Paschall, through an independent
public accounting firm, shall have the right to jointly audit such records. The
costs of such audit will be paid entirely by Endsley and Paschall, unless the
audit shows an underpayment of more than the greater of (i) ten percent (10%) of
the total Commission due to Endsley and Paschall, combined, for the entire
period covered by the audit (which period shall commence no earlier than the
completion date of the last audit), or (ii) $2,500 (a “Qualifying
Underpayment”). In case of a Qualifying Underpayment, ATC shall pay the
reasonable cost of the audit at the same time it pays the Commissions due. Such
audit shall be commenced by written notice given by both Endsley and Paschall.
Endsley and Paschall shall not be entitled to more than one (1) joint audit per
twelve-month period unless a prior audit shall have disclosed a Qualifying
Underpayment, in which case, Endsley and Paschall shall thereafter be entitled
to two (2) joint audits during any twelve-month period (including the prior
audit showing the Qualifying Underpayment). ATC may require Endsley, Paschall
and such independent public accountants first to sign a confidentiality and/or a
non-disclosure agreement reasonably satisfactory to the Company in which they
agree not to use or disclose any confidential information of ATC, including
customer identities. The independent public accountants shall provide a written
report following each such audit, and shall provide a copy of such report to
ATC. Such report shall not be deemed conclusive as to the amount of Commissions
due. Disputes concerning the amount of Commissions due shall be handled in the
manner set forth in Section 3.4.9 below.

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                                                3.4.3       Notwithstanding any
other provision in this Section 3.4, no Commission shall accrue or be payable by
ATC with respect to sales deemed made after September 28, 2007 (determined in
accordance with the last sentence of Section 3.4.1).

                                                3.4.4       Notwithstanding any
provision in this Section 3.4 to the contrary, the maximum Commissions that
shall be payable to Endsley and Paschall will be Five Hundred Thousand Dollars
($500,000) in the aggregate (i.e., $250,000 to Endsley and $250,000 to
Paschall). Nothing in this Section 3.4 or elsewhere in this Agreement shall be
construed to grant to any of the ESI Parties any rights to Commissions in excess
of $500,000 in the aggregate.

                                                3.4.5       Commissions payable
to Endsley and Paschall under Section 3.4.1 shall be paid on a quarterly basis.
Commissions due for sales made during each calendar quarter shall be payable in
cash and shall be paid by ATC corporate check made out to the Gordon & Holmes
Client Trust Account and delivered to Gordon & Holmes (in accordance with
Section 11.3) within forty (40) days following the end of calendar quarter.

                                                3.4.6       The obligations in
this Section 3.4 shall be binding upon ATC and each person or entity who takes
by assignment, license or other means ATC’s rights to manufacture and sell HSS
Products within the Product Categories. For the avoidance of doubt, the
obligations in this Section 3.4 are not binding on persons or entities who
distribute HSS Products within the Product Categories, where such products are
manufactured by or for ATC, whether or not such distributors have exclusive
distribution rights and whether or not such distributors provide specifications
for the products so manufactured. Sales to such distributors will be deemed
sales by ATC as provided in Section 3.4.1.

                                                3.4.7       ATC shall have the
right but not the obligation to buy out its obligations pursuant to this
Section 3.4 at any time by paying to Endsley and Paschall an aggregate amount in
cash equal to Five Hundred Thousand ($500,000) minus all Commissions previously
paid pursuant to this Section 3.4, to be divided equally between Endsley and
Paschall. Such payment shall be made by ATC corporate check made out to the
Gordon & Holmes Client Trust Account and sent to Gordon & Holmes in accordance
with Section 11.3. Upon such a buy-out, all of ATC’s obligations and all of
Endsley’s and Paschall’s rights under Section 3.4, including its sub-parts
(including without limitation the audit rights set forth in Section 3.4.2) shall
immediately terminate. ATC’s election to buy-out the Commission obligation will
not impact the mutual general releases contained in this Agreement, or give any
party hereto the right to reinitiate litigation for the claims so released.

                                                3.4.8       The ESI Parties
shall not sell, market or promote HSS Products in the Product Categories, or
contact customers or potential customers of ATC with the intent to influence the
purchasing decisions of such customers or potential customers.

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                                                3.4.9       In the event ATC on
the one hand, or Endsley and Paschall on the other hand, believe that there has
been an error made in the determination of Commissions, it shall provide written
notice to the other(s) specifying the specific factual basis for its position,
including detail of the transactions or other issues giving rise to its belief.
Endsley and Paschall may give such notice only after completion of an audit
pursuant to Section 3.4.2, must include in any such written notice a copy of the
report of the independent public accountants, and must give such notice jointly.
In the event the parties agree that there has been an overpayment of Commissions
by ATC, ATC may at its election (i) offset future Commission payments by the
amount of the overpayment or (ii) collect the amount of the overpayment from
Endsley and Paschall, who shall be jointly and severally liable therefor, in
which case payment shall be made to ATC by check within ten (10) business days
of the determination of such overpayment. In the event the parties agree that
there has been an underpayment of Commissions by ATC, ATC shall pay the amount
of such underpayment (plus the reasonable audit fee upon a Qualifying
Underpayment, if applicable) to Endsley and Paschall within ten (10) business
days following the determination of such underpayment, in the manner provided by
Section 3.4.5 above. In the event that ATC and Endsley and Paschall are not able
to resolve through negotiation any dispute concerning the determination or
payment of Commissions, the dispute shall be submitted to arbitration pursuant
to Section 9 below, and any overpayment or underpayment determined by the
arbitrator shall be paid or offset in the manner set forth above.

                                3.5           ATC, Endsley, Paschall and Gordon
& Holmes shall, as of the Effective Date, enter into the Registration Rights
Agreement in the form attached hereto as Exhibit C (the “Registration Rights
Agreement”).

                                3.6           Each of the ESI Parties expressly
consents to the allocation of consideration set forth in Section 3 and its
sub-parts, and agrees, jointly and severally, to indemnify, defend and hold
harmless ATC and each of the ATC Released Parties (defined in Section 5.1 below)
from and against any and all claims, demands, causes of action, obligations,
damages, and liabilities, including reasonable attorneys fees and costs, arising
out of or relating to disputes between and among the ESI Parties as to the
allocation of consideration or to legal fees due and payable by the ESI Parties
to Gordon & Holmes.

                4.             INVESTMENT REPRESENTATIONS

                                Endsley, Paschall and Gordon & Holmes
(collectively, the “Investors”) severally represent as follows (Endsley,
Paschall and Gordon & Holmes to initial each one). Gordon & Holmes is making
these representations solely in its capacity as an intended transferee of 7,000
shares of Common Stock, as set forth in Section 3.2 above.

                                4.1           Each Investor confirms that it has
reviewed the information described in SEC Regulation D, Rule 502(b)(2)(ii)(B)
and (C), promulgated under the Securities Act, consisting of (i) ATC’s Form 10-K
for the fiscal year ended September 30, 2004 (as amended), (ii) ATC’s Form 10-Q
for the fiscal quarter ended December 31, 2004 (as amended), (iii) ATC’s Forms
8-K filed December 30, 2004, January 18, 2005 (as amended), January 31, 2005,
February 11, 2005, March 25, 2005 and April 1, 2005, and (iv) the description of
the Common Stock attached hereto as Exhibit A. The Investors acknowledge that
the consideration for issuance of the Shares is the consideration set forth in
this Agreement, and is deemed paid upon the Effective Date.

   /s/ GOE       /s/ DJP    /s/ Gordon & Holmes   Endsley Paschall Gordon &
Holmes  

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                                4.2           Each Investor, or its
representatives or advisors, have had the opportunity to ask questions of and
receive answers from the officers of ATC, or persons acting on their behalf,
concerning ATC, and all such questions have been answered to the full
satisfaction of each Investor or its representatives or advisors.

   /s/ GOE       /s/ DJP    /s/ Gordon & Holmes   Endsley Paschall Gordon &
Holmes  

                                4.3           The Investors were not presented
with or solicited by any leaflet, public promotional meeting, circular,
newspaper or magazine article, radio or television advertisement, or any other
form of advertising concerning an investment in ATC.

   /s/ GOE       /s/ DJP    /s/ Gordon & Holmes   Endsley Paschall Gordon &
Holmes  

                                4.4           Each Investor acknowledges that
neither the SEC nor any other state or federal agency has made any determination
as to the merits of an investment in the Shares, and that an investment in the
Shares involves a high degree of risk.

   /s/ GOE       /s/ DJP    /s/ Gordon & Holmes   Endsley Paschall Gordon &
Holmes  

                                4.5           Each Investor is acquiring the
Shares for investment and for its own accounts, and not with a view to any
distribution thereof.

   /s/ GOE       /s/ DJP    /s/ Gordon & Holmes   Endsley Paschall Gordon &
Holmes  

                                4.6           Each Investor understands that the
Shares have not been registered under the Securities Act in reliance on the
exemption provided in SEC Regulation D, Rule 506, promulgated under Section 4(2)
of the Securities Act, for securities sold in a private offering; and that the
Shares have not been registered under the “blue sky” laws of any state including
California. The Shares have not been qualified nor a permit obtained for
issuance of securities from the California Department of Corporations nor any
other agency of the State of California and are being sold pursuant to the
exemptions provided in Section 25102(f) of the California Corporations Code.
Each Investor further understands that the Company’s action in doing so is based
in part on the representations of the Investors made herein.

   /s/ GOE       /s/ DJP    /s/ Gordon & Holmes   Endsley Paschall Gordon &
Holmes  

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                                4.7           Each Investor understands that the
Shares must be held indefinitely unless subsequently registered under the Act
and qualified or registered under other applicable state laws or unless an
exemption from such qualification or registration is available. Each Investor
agrees that a notation of these restrictions shall be placed upon the Shares and
in the appropriate records of ATC. (The foregoing representation shall not limit
the Company’s obligations set forth in the Registration Rights Agreement.)

   /s/ GOE       /s/ DJP    /s/ Gordon & Holmes   Endsley Paschall Gordon &
Holmes  

                                4.8           Each Investor understands the
risks and other considerations related to an investment in the Shares. Each
Investor has such knowledge and experience in financial and business matters
that it (alone or with the aid of its investment advisors who are not
compensated by ATC or any affiliate of ATC, directly or indirectly) is capable
of evaluating the merits and risks of acquiring, and protecting its own
interests in connection with, the Shares.

   /s/ GOE       /s/ DJP    /s/ Gordon & Holmes   Endsley Paschall Gordon &
Holmes  

                                4.9           Each Investor (i) is able to bear
the economic risk of an investment in ATC, (ii) has the ability to hold the
Shares indefinitely, (iii) represents that its overall commitment to investments
which are not readily marketable (such as the Shares) is not disproportionate to
such Investor’s net worth, and (iv) has the financial ability to suffer a
complete loss of its investment in the Shares.

   /s/ GOE       /s/ DJP    /s/ Gordon & Holmes   Endsley Paschall Gordon &
Holmes  

                5.             MUTUAL GENERAL RELEASES. For good and valuable
consideration, the receipt and sufficed of which are hereby acknowledged by the
parties, the parties promise, agree, and release and discharge as follows:

                                5.1           Except for rights or claims
created by this Agreement and the Registration Rights Agreement, the ESI Parties
hereby release, remise, and forever discharge ATC, including past, present and
future parents, subsidiaries, affiliates, predecessors, successors, assigns,
directors, officers, agents, servants, employees, administrators, insurers,
accountants, and attorneys (the “ATC Released Parties”), from any and all
claims, demands, causes of action, obligations, damages, and liabilities
existing prior to the Effective Date, whether known or unknown, asserted in,
arising out of, connected with or incidental to the License Agreement, the Stock
Options, the Lawsuits, or any other matter whatsoever including, without
limitation on the generality of the foregoing, any and all claims, demands,
causes of action, obligations, damages and liabilities which the ESI Parties
could have asserted against ATC or any ATC Released Party relating to the
subject matter of the Lawsuits.

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                                5.2           Except as to its rights under the
Confidentiality Agreement dated March 18, 2005, and except for such rights or
claims as may be created by this Agreement and the Registration Rights
Agreement, ATC hereby releases, remises, and forever discharges the ESI Parties,
including the ESI Parties’ past and present parents, subsidiaries, affiliates,
predecessors, successors, assigns, directors, officers, agents, servants,
employees, administrators, insurers, accountants, and attorneys (the “ESI
Released Parties”), from any and all claims, demands, causes of action,
obligations, damages, and liabilities existing prior to the effective date
hereof, whether known or unknown, asserted in, arising out of, connected with or
incidental to the License Agreement, the Stock Options, the Lawsuits, or any
other matter whatsoever including, without limitation on the generality of the
foregoing, any and all claims, counterclaims, demands, causes of action,
obligations, damages and liabilities which ATC could have asserted against the
ESI Parties or the ESI Released Parties relating to the subject matter of the
Lawsuits.

                                5.3           ATC and the ESI Parties
specifically waive the benefit of the provisions of Section 1542 of the Civil
Code of the State of California and any similar laws of other jurisdictions, to
the extent applicable. Section 1542 reads as follows:

                A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR
DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH
THE DEBTOR.

                                5.4           The provisions, waivers and
releases set forth in this Section 5 are binding upon each of ATC and the ESI
Parties and their respective agents, employees, attorneys, representatives,
officers, directors, general partners, limited partners, joint venturers,
affiliates, assigns, heirs, successors in interest and shareholders.

                                5.5           The provisions, waivers and
releases of this Section 5 shall inure to the benefit of each of ATC’s and the
ESI Parties’ agents, attorneys, employees, representatives, officers, directors,
divisions, subsidiaries, affiliates, assigns, heirs, successors in interest and
shareholders.

                                5.6           The provisions of this Section 5
shall survive the termination of this Agreement, and full performance of all the
terms of this Agreement.

                                5.7           In entering into this Agreement
and the waivers provided for in this Section 5, each of ATC and the ESI Parties
assumes the risk of any misrepresentation, concealment or mistake. If either ATC
or the ESI Parties should subsequently discover that any fact relied upon by it
in entering into this Agreement was untrue, or that any fact was concealed from
it or that its understanding of the facts or of the law was incorrect, ATC or
the ESI Parties shall not be entitled to any relief in connection therewith,
including any alleged right or claim to set aside or rescind this Agreement.
This Agreement is intended to be and is final and binding upon the parties
hereto, regardless of any claims of misrepresentation, promise made without the
intention of performing, concealment of fact, mistake of fact or law, or any
other circumstances whatsoever.

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                                5.8           Without limiting the generality of
any provision of this Section 5, each of ATC and the ESI Parties agree and
acknowledge that the License Agreement was terminated on May 23, 2003, and the
Stock Options ceased to be exercisable on October 5, 2002, and no party thereto
had any rights or obligations under such agreements, following such respective
dates.

                                5.9           Except as required in a subpoena
issued to an ESI Party by a court of competent jurisdiction or an order or
judgment binding on an ESI Party, each of the ESI Parties agrees not to
participate in or assist in any manner any person or entity in any claim or
cause of action such person or entity might threaten or bring against ATC which
in any way derives from any rights the ESI Parties formerly enjoyed under the
License Agreement, including without limitation any claims or causes of action
by licensees, sublicensees, assignees, finders or brokers of the ESI Parties, or
other persons with contracting relationships with the ESI Parties.

                6.             REPRESENTATIONS AND WARRANTIES. Each of the
parties to this Agreement represents, warrants, and agrees as to itself as
follows:

                                6.1           Each of ATC and the ESI Parties
have received independent legal advice from legal counsel with respect to the
advisability of making the settlement provided for herein, with respect to the
advisability of executing this Agreement, and with respect to the releases,
waivers, and all other matters contained herein.

                                6.2           Each of ATC and the ESI Parties or
responsible officer thereof has read this Agreement and understands the contents
hereof. Each of the officers executing this Agreement on behalf of their
respective corporations or partnerships is empowered to do so and thereby binds
his or her respective corporation or partnership.

                                6.3           Each of ATC and the ESI Parties
have not heretofore assigned, transferred, or granted, or purported to assign,
transfer, or grant, any of the claims, demands, causes of action, obligations,
damages, and liabilities disposed of by this Agreement.

                                6.4           Each of ATC and the ESI Parties
will execute all such further and additional documents as shall be reasonable,
convenient, necessary or desirable to carry out the provisions of this
Agreement.

                7.            DISMISSAL. ATC and the ESI Parties shall dismiss
their respective claims in the Lawsuits with prejudice. A jointly executed
stipulation for dismissal shall be filed in the form attached hereto as
Exhibit D. ATC and the ESI Parties agree that such dismissal shall be signed by
counsel of record for all parties concurrently with the execution of this
Agreement, but shall be held in trust by Gordon & Holmes until such time as the
deliverables provided for in Sections 3.1, 3.2 and 3.3 are deemed received by
Gordon & Holmes in accordance with such Sections. Within five court days
thereafter, Gordon & Holmes shall cause the fully executed dismissal with
prejudice to be filed with the court in the Lawsuits, and after receiving
conformed copies of same, shall provide all counsel for all parties hereto with
copies thereof.

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                8.             CONFIDENTIALITY. ATC and the ESI Parties shall
maintain as confidential all terms of this Agreement, and shall not disclose any
such information to any third party, except as is necessary to obtain court
approval of the dismissal of the Lawsuits, as is required by lawful court order
or where disclosure to a third party is necessary because their duties justify a
need to know such information and then only after such third parties have agreed
to be bound by a confidentiality and/or a non-disclosure agreement and clearly
understand their obligations to protect the confidentiality of this Agreement.
Notwithstanding the foregoing, ATC shall be permitted to disclose the entry into
this Agreement and such material terms thereof, to the extent required by the
Securities Act, the Securities Exchange Act of 1934, as amended, the rules and
regulations promulgated under both such acts, and the rules of the Nasdaq Stock
Market, in each case as determined in good faith by ATC, its principal executive
and financial officers who are required to certify the accuracy and completeness
of reports filed with the Securities and Exchange Commission, ATC’s attorneys or
ATC’s independent registered public accounting firm. Such disclosure may include
the filing of this Agreement as an exhibit to filings made with the Securities
and Exchange Commission. ATC intends to file within four (4) business days after
the Effective Date a Form 8-K and/or a press release announcing this settlement.
ATC agrees to provide to the ESI Parties an advance copy of such Form 8-K or
press release, no less than twenty-four (24) hours prior to its issuance and/or
filing.

                9.             STREAMLINED ARBITRATION.

                                9.1           Each and every dispute, claim or
controversy arising out of or relating to this Agreement, including without
limitation the payment of Commissions, or the breach, termination, enforcement,
interpretation or validity of this Agreement, including the determination of the
scope or applicability of this Agreement to arbitrate, shall be determined by
arbitration in San Diego County, California, before one (1) arbitrator. The
arbitration shall be administered by JAMS, in accordance with the following
procedures: (i) a party desiring arbitration shall give written notice to the
other part(ies) and to JAMS; (ii) the parties shall agree on an arbitrator from
the JAMS San Diego, California panel within five (5) business days after such
notice, and if they cannot agree within that time, an arbitrator shall be
selected by JAMS; (iii) there shall be no discovery permitted and no experts
designated (provided that a representative from the independent accounting firm
which performed an audit pursuant to Section 3.4.2 may testify in person); and
(iv) subject to the foregoing limitations, the arbitrator, once appointed, shall
use all reasonable effort to conduct the arbitration and render an award on the
matters subject to arbitration as quickly as is reasonably possible, and in that
regard, to the extent the arbitrator considers such a procedure fair and
adequate, (x) each Party shall provide a written report of its position to the
arbitrator(s) and to the other part(ies) within five (5) business days after the
arbitrator’s initial consultation with the parties or their counsel, (y) the
arbitrator will select a date for a hearing, which, if reasonably possible,
shall be within fifteen (15) days after submission of the reports, and (z) the
arbitrator shall render his or her award quickly and need not provide findings
or support for the award. The arbitrator shall have no authority to award any
amounts for incidental, special, consequential or punitive damages, or amounts
attributable to lost profits or lost savings. To the extent not in conflict with
the above procedures, the dispute shall be administered in accordance with the
JAMS Streamlined Arbitration Rules & Procedures as revised February 19, 2005.
Judgment on the Award may be entered in any court having jurisdiction. This
clause shall not preclude the parties from seeking provisional remedies in aid
of arbitration from a court of appropriate jurisdiction, but shall preclude the
parties from seeking in any court any damages not available in arbitration.

                                9.2           The fees and expenses of the
arbitration shall be divided equally by the ESI Parties on the one hand and ATC
on the other hand. Except as set forth above, each party shall bear its own
expenses in the arbitration and for any provisional remedies in aid of
arbitration, and the arbitrator shall not in its award or otherwise, allocate
all or part of the costs of the arbitration, including the fees of the
arbitrator and the reasonable attorneys’ fees of the prevailing party, to any
party other than the party originally bearing such costs.

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                10.          SETTLEMENT. This Agreement affects the settlement
of claims which are denied and contested, and nothing contained herein shall be
construed as an admission by any party hereto of any liability of any kind to
any other party. Each of the parties hereto denies any liability in connection
with any and all claims.

                11.          MISCELLANEOUS.

                               11.1        Governing Law. This Agreement shall
be deemed to have been executed and delivered within the State of California,
and the rights and obligations of the parties hereto shall be construed and
enforced in accordance with, and governed by, the laws of the State of
California, without regard to its choice of law provisions, and any applicable
laws of the United States.

                               11.2        Successors and Assigns. This
Agreement (other than the provisions of Section 3.4, which are subject to
Section 3.4.6 in lieu of this Section 11.2) is binding upon and shall inure to
the benefit of the parties hereto, and their respective agents, employees,
representatives, officers, directors, divisions, parents, subsidiaries,
affiliates, assigns, heirs, successors in interest, predecessors in interest,
partners and shareholders.

                               11.3        Notices. Unless otherwise provided,
any notice required or permitted under this Agreement shall be given in writing
and shall be deemed effectively given upon personal delivery to the party to be
notified, upon transmission by facsimile at the facsimile number indicated for
such party on the signature page hereof, with confirmation of receipt, or upon
deposit with the United States Post Office, by registered or certified mail,
postage prepaid and addressed to the party to be notified at the address
indicated for such party on the signature page hereof. Any party may change its
address or facsimile number by ten (10) days’ advance written notice to the
other parties given in accordance herewith.

                               11.4        Counterparts. This Agreement may be
executed in counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.

                               11.5        Titles and Subtitles. The titles and
subtitles used in this Agreement are used for convenience only and are not to be
considered in construing or interpreting this Agreement.

[Signature Pages Follow]

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                                IN WITNESS WHEREOF, the parties have executed
this Agreement as of the last date set forth below.

THE COMPANY: THE ESI PARTIES:     American Technology Corporation, a
Delaware corporation eSoundIdeas, Inc,
a California Corporation     By:/s/ Bruce A.
Gray                                           By:  /s/ Greg O.
Endlsey                                                 Name: Bruce A.
Gray                                           Name: Greg O. Endsley Title: Vice
President, Government Group         
Title: President                                                               
Address: 13114 Evening Creek Dr. So.              Address: 25022 Footpath Ln.
                                         San Diego,
CA 92128                                          Laguna Niguel,
CA 92677                                           
                                                                              
                                                                                         
Date: April 26, 2005         By:  /s/ Douglas J.
Paschell                                              Name: Douglas J. Paschell
 
Title: Secretary                                                                
  Address: 5 Las Posadas                                                   
Rancho Santa Margarita, CA 92688                                
                                                                                         
  Date: April 27 , 2005       SoundIdeas, a California General
Partnership       By:  /s/ Greg O.
Endlsey                                                  Name: Greg O. Endsley  
Title: President                                                                
Address: 25022 Footpath Ln.                                           Laguna
Niguel, CA 92677                                                 By: /s/ Douglas
J. Paschell.                                              Name: Douglas J.
Paschell  
Title: Co-Founder                                                           
Address: 5 Las Posadas                                                   Rancho
Santa Margarita, CA 92688                               
                                                                                         
  Date: April 27, 2005

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  Greg O. Endsley, an Individual       /s/ Greg O.
Endlsey                                                    Greg O. Endsley  
Address: 25022 Footpath Ln.                                    Laguna Niguel,
CA 92677                                        
                                                                                 
 
                                                                                 
  Date: April  26, 2005       Douglas J. Paschall, an Individual       /s/
Douglas J. Paschell                                               Douglas J.
Paschall   Address: 5 Las Posadas                                            
Rancho Santa Margarita, CA 92688                         Date: April  27, 2005  
      APPROVED AS TO FORM:       GORDON & HOLMES LLP (and agreed as to Sections
3.2, 3.5, 4 and its sub-parts, and 7) SHEPPARD MULLIN RICHTER & HAMPTON LLP    
  By:      /s/ John D. Tishler                                          John D.
Tishler By:        /s/ Frederic C. Gordon                             
  Counsel for American Technology   Counsel for eSoundIdeas, Inc,
  Corporation   SoundIdeas, Greg O. Endsley and   12544 High Bluff Drive, Suite
300   Douglas J. Paschall
  San Diego, CA 92130-3051   223 W. Date Street
  Date: April  26, 2005   San Diego, California 92101-3571
    Date: April   26 , 2005       PROCOPIO, CORY, HARGREAVES & SAVITCH LLP      
    By: /s/ Paul A. Tyrell                                        Paul A. Tyrell
    Counsel for American Technology
Corporation     530 B Street, 21st Floor     San Diego, CA 92101     Date: April
 26, 2005  

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EXHIBIT A

DESCRIPTION OF COMMON STOCK

The following summary of ATC’s common stock does not purport to be complete and
is subject in all respects to applicable Delaware law and to the provisions of
ATC’s Certificate of Incorporation as amended, and its Restated Bylaws, copies
of which have been filed with the SEC and are available upon request from ATC.

The authorized common stock consists of 50,000,000 shares of common stock, par
value $0.00001 per share. As of April 15, 2005, 21,317,239 shares of common
stock were issued and outstanding. All outstanding shares of common stock are
fully paid and non-assessable.

Holders of the common stock are entitled to receive such dividends as may be
declared from time to time by ATC’s board of directors out of funds legally
available therefor, after payment of dividends required to be paid on
outstanding preferred stock, if any.

Holders of the common stock are entitled to one vote per share on all matters to
be voted upon by ATC’s stockholders, including the election of directors. The
Certificate of Incorporation does not provide for cumulative voting in the
election of directors; however, under some circumstances, cumulative voting may
be required under provisions of the California Corporations Code. The issuance
of any shares of preferred stock in the future may result in dilution of voting
power.

In the event of the liquidation, dissolution or winding up of ATC, holders of
the common stock are entitled to share ratably in all assets remaining after
payment of liabilities, subject to prior distribution rights of preferred stock
then outstanding.

The common stock has no preemptive, conversion or redemption rights.

The transfer agent and registrar for ATC’s common stock is Interwest Transfer
Company, Salt Lake City, Utah.

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EXHIBIT B

PRODUCT CATEGORIES

The “Product Categories” include the following:

1.             HSS Products specifically targeted for use in North America in
the Point of Sale/Purchase, Kiosk, and Display markets, which markets are
defined to be those applications where the HSS Products are intended to be
installed or used in North America at a point of sale or purchase or at a kiosk
or display located in a retail sales establishment or environment, with the
carried audio content directed to advertising, informing and/or promoting the
sale of goods and services at the location of the installation, including
without limitation in-store networks operated by, or in-store networks
substantially similar to those operated by, Premiere Retail Networks (PRN). Some
examples of retail sales establishments and environments include without
limitation:

• Shopping Malls   • Stand Alone Retail Stores   • Power Retail Centers   •
Convenience Stores   • Grocery Stores   • Theme Parks   • Fast Food &
Restaurants, including Drive-Thrus   • Gas Stations

2.             HSS Products specifically targeted for use in North America in
the Event, Trade Show and Exhibit markets, which markets are defined to be those
applications where the HSS products are intended to be installed or used in
North America in museums or at commercial, promotional or networking events.

Notwithstanding anything to the contrary contained in paragraph 1 or 2 above,
the Product Categories shall not include those applications where HSS Products
are to be installed or used primarily for informational, utilitarian,
educational, artistic or entertainment purposes, such as public address or
general announcing systems (e.g., paging systems or informational announcements
such as store closings or registers opening), background or foreground music
(e.g., Muzak, dance floors, concert halls), television programming primarily for
the entertainment of viewers (regardless of whether the regular programming
includes commercials), two-way communication systems other than those to
facilitate a point of purchase sale (e.g., intercom systems for communication
among employees), or long range hailing and warning, in all cases regardless of
location of installation or identity of the customer. The foregoing list of
applications not included in the Product Categories is intended to clarify the
scope of the Product Categories, and is not intended to be and shall not be
construed as an exhaustive list of applications that are not within the Product
Categories. Applications which are not within the Product Categories are not
subject to Commissions.

EXHIBIT B

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