**SEPARATION
      AGREEMENT**




I,
      Michael A. Russell ("Employee," "me" or "I"), understand that I ceased to be
      an
      officer of American Technology Corporation (the "Company") on December 16,
      2005
      (the "Termination Date"). I will remain an employee of the Company from the
      Termination Date through January 3, 2006 (the "Separation Date"). The Company
      has agreed that in exchange for my covenants in this Agreement, including my
      execution of the Release attached as Exhibit C, and the promises, releases,
      and
      covenants herein, the Company will pay me severance in the amount of $46,250
      (Forty Six Thousand and Two Hundred and Fifty Dollars and No Cents) payable
      in
      accordance with the Company's regular payroll practices at the rate of my base
      compensation in effect immediately prior to the Separation Date, until such
      cash
      benefit has been paid in full, and will be subject to standard withholdings
      and
      deductions. Notwithstanding the foregoing, all amounts which are or will be
      unpaid as of March 15, 2006, will be paid on or before that date, subject to
      standard withholding and deductions. The Company will also pay on my behalf
      the
      premiums for continuing health benefits under COBRA, until the earlier to occur
      of my being eligible for health care coverage through my next employer, or
      March
      31, 2006. The benefits described in the preceding two sentences are referred
      to
      in this Agreement as the "Severance Benefits." I understand that I am not
      entitled to the Severance Benefits unless and until I sign the Release in the
      form attached hereto as Exhibit C (the "Release") **within
      21 days after the Separation Date,** and the
      revocation period has expired without being exercised. I further understand
      that
      I am not entitled to the Severance Benefits unless I remain an employee of
      the
      Company continuously from the Termination Date through the Separation Date.
      I
      understand and agree that in addition to these Severance Benefits, the Company
      will pay me all of my accrued salary and vacation, to which I am entitled by
      law.




I
      acknowledge my continuing obligations under my American Technology Corporation
      Proprietary Information and Inventions Agreement for Employees (attached as
      Exhibit A). Pursuant to the American Technology Corporation Proprietary
      Information and Inventions Agreement for Employees, I understand that among
      other things, I must not use or disclose any confidential or proprietary
      information of the Company and I must immediately return all Company property
      and documents (including all embodiments of proprietary information) and all
      copies thereof in my possession or control. I acknowledge that I have acquired
      no rights by license or otherwise in any ["Confidential Information"] as such
      term is defined in the American Technology Corporation Proprietary Information
      and Inventions Agreement for Employees. I also acknowledge the Mutual Agreement
      to Arbitrate (attached as Exhibit B) between myself and the Company dated June
      19, 2004, and agree to that Mutual Agreement to Arbitrate's validity and
      application to any disputes arising under this Agreement. I also agree that
      any
      arbitration regarding this Agreement shall take place in San Diego County,
      California.




I
      agree
      not to make any statement or take any action which would damage the reputation
      or promotion of the Company or its products.












If
      either
      I or the Company commences an action against the other party to enforce any
      of
      the terms hereof or in the Release or because of the breach by such other party
      of any of the terms hereof or in the Release, the prevailing party shall be
      entitled, in addition to any other relief granted, to all actual out-of-pocket
      costs and expenses incurred by such prevailing party in connection with such
      action and the enforcement and collection of any judgment rendered therein,
      including, without limitation, all reasonable attorneys' fees, consultant fees
      and expert witness fees, and a right to such costs and expenses shall be deemed
      to have accrued upon the commencement of such action and shall be enforceable
      whether or not such action is prosecuted to judgment.




This
      Agreement, including Exhibits A, B and C hereto, constitutes the complete,
      final
      and exclusive embodiment of the entire agreement between the Company and me
      with
      regard to the subject matter hereof. I am not relying on any promise or
      representation by the Company that is not expressly stated herein. This
      Agreement may only be modified by a writing signed by both me and a duly
      authorized officer of the Company.




I
      accept
      and agree to the terms and conditions stated above:







December
                23, 2005
            
            
            /s/
                Michael RussellDate
            
            
            Michael
                A. RussellDecember
              23, 2005
            
            
            **AMERICAN
                TECHNOLOGY CORPORATION**Date





By:
            /s/
              John R. ZavoliTitle:
            President
              and Chief Operating Officer andInterim
              Chief Financial
              Officer










**EXHIBIT
      C**




**Release**




In
      exchange for the consideration provided to me by the Separation Agreement dated
      December 23, 2005 (the "Separation Agreement") that I am not otherwise entitled
      to receive, I hereby unconditionally and completely release the Company and
      its
      directors, officers, employees, shareholders, partners, agents, attorneys,
      predecessors, successors, parent and subsidiary entities, insurers, affiliates,
      and assigns from any and all claims, liabilities and obligations, both known
      and
      unknown, that arise out of or are in any way related to events, acts, conduct,
      or omissions occurring prior to the Separation Date (as defined in the
      Separation Agreement). This general release includes, but is not limited to:
      (1)
      all claims arising out of or in any way related to my employment with the
      Company or the termination of that employment; (2) all claims related to my
      compensation or benefits from the Company, including salary, bonuses,
      commissions, vacation pay, expense reimbursements, severance pay, fringe
      benefits, stock, stock options, or any other ownership interests in the Company;
      (3) all claims for breach of contract, wrongful termination, and breach of
      the implied covenant of good faith and fair dealing; (4) all tort claims,
      including claims for fraud, defamation, emotional distress, and discharge in
      violation of public policy; and (5) all federal, state, and local statutory
      claims, including claims for discrimination, harassment, retaliation, attorneys’
fees, or other claims arising under the federal Civil Rights Act of 1964 (as
      amended), the federal Americans with Disabilities Act of 1990, the federal
      Age
      Discrimination in Employment Act of 1967 (as amended) (“ADEA”), and the
      California Fair Employment and Housing Act (as amended) and other analogous
      state and local laws or regulations.




In
      giving
      this release, which includes claims which may be unknown to me at present,
      I
      hereby acknowledge that I have read and understand Section 1542 of the Civil
      Code of the State of California which 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.**




I
      hereby
      expressly waive and relinquish all rights and benefits under Section 1542 and
      any law or legal principle of similar effect in any jurisdiction with respect
      to
      claims released hereby.




I
      acknowledge that I am knowingly and voluntarily waiving and releasing any rights
      I may have under the federal Age Discrimination in Employment Act of 1967,
      as
      amended ("ADEA"). I also acknowledge that the consideration given for the waiver
      in the above paragraph is in addition to anything of value to which I was
      already entitled. I have been advised by this writing, as required by the ADEA
      that: (a) my waiver and release do not apply to any claims that may arise after
      my executing of this Release; (b) I should consult with an attorney prior to
      executing this Release; (c) I have twenty-one (21) days within which to consider
      this Release (although I may choose to voluntarily execute this Release
      earlier); and (d) as set forth in the following paragraph, I have seven (7)
      calendar days following the execution of this Release to revoke the Release,
      in
      which case I will not be entitled to the Severance Benefits set forth in the
      Separation Agreement.






C-1


Within
      three (3) calendar days of signing and dating this Release, I agree to deliver
      the executed original of this Release to Norma Berry, American Technology
      Corporation, 13114 Evening Creek Drive South, San Diego, CA 92128. However,
      I
      and the Company acknowledge and agree that I may revoke this Release for up
      to
      seven (7) calendar days following my execution of this Release and it shall
      not
      become effective or enforceable until the revocation period has expired. I
      and
      the Company further acknowledge and agree that such revocation must be in
      writing addressed to and received by David B. Chidlaw not later than midnight
      on
      the 7 th day
      following execution of this Release by me. Should I revoke this Release under
      this paragraph, this Release shall not be effective or enforceable and I will
      not receive the Severance Benefits set forth in the Separation
      Agreement.




I
      accept
      and agree to the terms and conditions stated above:









December
                23, 2005
            
            /s/
                Michael RussellDate
            
            
            Michael
                A. Russell







C-2