**EXHIBIT4.3**

 

**AMENDED AND RESTATED EMPLOYMENT AGREEMENT**

 

dated as of October 1,2002 between David Gallagher, 311 Diamond Willow Point, Calgary, AB  T3Z 2Z5, phone 403 242 0826, fax 403 2429105 (“Executive”) and QSound Labs, Inc., 400 – 3115 12th Street NE,Calgary, AB T2E 7J2, phone 403 291 2492, fax 403 250 1521 (“QSound”).

 

Whereas QSound andExecutive entered into an employment agreement dated October 1, 1994, asamended on January 11, 1997, February 10, 1998, August 21, 1998 and February25, 2000 (collectively the “Original Employment Agreement”);

 

And whereas QSound andExecutive desire to amend and restate the Original Employment Agreement and inconnection therewith to incorporate the terms and provisions of the OriginalEmployment Agreement, as amended and restated, into one agreement, all ashereinafter provided;

 

In consideration of thepremises and the mutual covenants and agreements herein contained, QSound andExecutive agree as follows:

 

**1.00        Employment**

 

1.01           Position.  QSound hereby confirms the employment ofExecutive as QSound’s President and Chief Executive Officer and Executivehereby confirms his acceptance of the employment, all subject to the terms andconditions set forth in this Agreement.

 

1.02         Duties and Responsibilities.  During the Term (as defined below),Executive shall have such duties, responsibilities and authority as aregenerally consistent with the position of President and Chief ExecutiveOfficer. During the Term, Executive shall faithfully and diligently serveQSound, devote a majority of his working time and efforts to the business andaffairs of QSound, and act in the best interests of QSound.

 

1.03         Term.  Subject to earlier termination in accordance with Article 5.00hereof, the term of the employment of Executive shall continue in effect untilSeptember 30, 2004 (“Term”).

 

1.04         Employment Policies  Executive agrees to be bound by QSound employmentpolicies in effect from time to time, except to the extent that there is aconflict between any provision of the policies and any provision of thisAgreement, in which case the provision of this Agreement shall govern.

 

1.05         Place of Employment  Executive shall report to work at theCalgary, Alberta offices of QSound.  Executive agrees to travel as may be requiredto carry out his duties and responsibilities hereunder.

 

**2.00        Compensation**

 

2.01         Salary  Executive’s base annual salary is Two Hundred Thousand Dollars($200,000 U.S.) U.S., payable in accordance with QSound’s normal payrollpractices with such payroll deductions and withholdings as are required by law(“Base Salary”).

 

2.02         Stock Options   The Compensation Committee of the Board ofDirectors of QSound (“Compensation Committee”) may review stock options held byExecutive from time to time and may in its discretion grant additional stockoptions to Executive.

 

2.03         Other Compensation   Executive may participate in any bonus,pension or profit sharing plan as may be established form time to time by theCompensation Committee and for which Executive, as an officer of QSound,

 

----

 

is eligible.  Executive may alsoreceive discretionary bonuses from time to time if approved by the CompensationCommittee.

 

2.04         Other Benefits   Executive shall be entitled to the normalvacation, health insurance and other benefits offered from time to time toother senior executives of QSound.

 

2.05         Expenses   QSound shall reimburse Executive for allreasonable, direct, out-of-pocket expenses incurred by him for  business purposes in connection with hisemployment (including, without limitation, expenses for travel, entertainmentand home office incurred in conducting or promoting the business of QSound), inaccordance with QSound’s Employee Policies in effect from time to time.

 

**3.00        Confidentiality**

 

3.01         Confidentiality  Executive shall keep confidential and notuse or disclose QSound’s confidential information on the terms and conditionsof the Non-Disclosure Terms attached hereto as Exhibit A, which is incorporatedinto and forms part of this Agreement.

 

**4.00        Change ofControl**

 

4.01         Definition For the purpose ofthis Agreement, “Control” shall mean direct or indirect ownership of 50% ormore of the outstanding voting securities of QSound with the right to vote forthe election of directors, or the possession, direct or indirect, of the power todirect or cause the direction of the management and policies of QSound.

 

4.02         Change of Control  In the event of a change of Control:

 

a) all unvested options then held by Executive shall immediately andautomatically vest and become exercisable; and

 

b) Executive may in hisdiscretion elect to not continue his employment, in which case Executive shallgive written notice of his election to the Board of Directors, and Executive’semployment shall terminate effective upon the giving of such written notice.

 

**5.00        Termination**

 

5.01         Termination by Executive

 

a) Executive mayterminate his employment by giving QSound no less that ninety (90) days priorwritten notice of termination (“Voluntary Termination”).

 

b) Executive may retireprior to reaching the age of 65 by giving QSound no less than one years’ priorwritten notice of retirement and commencing to receive pension payments fromExecutive’s pension plan (“Pension Plan”) upon retirement taking effect(“Retires”).

 

5.02         Termination “For Cause”  QSound may terminate Executive’s employmentwith immediate effect upon written notice to Executive in the event that any ofthe following events (each one of which constitutes “For Cause”) takes place:

 

a) Executive refuses tofollow a lawful order or a direction of the Board of Directors;

 

2

----

 

b) Executive, in thecourse of carrying out his duties under this Agreement, engages in willfulmisconduct, dishonesty or reckless disregard of his responsibilities;  or

 

c)  Executive is convicted of a felony or acriminal offence of similar gravity, or a crime of moral turpitude.

 

5.03         No Severance Payments  If the employment of Executive isterminated  by Executive as a VoluntaryTermination or by QSound “For Cause”, no payment in lieu of notice, and noother cash payments or other benefits shall be due, owing or payable toExecutive other than Base Salary earned by Executive before the date oftermination of employment.

 

5.04         Waiver   Executive hereby expressly waives any right,by implication or otherwise, which Executive might otherwise have or claim toreasonable notice upon termination of employment.

 

5.05         Termination Other than “For Cause”   QSound may terminate Executive’s employmentwith immediate effect for any reason other than “For Cause”, or for no reason,upon written notice to Executive at any time in the sole discretion of theBoard of Directors.

 

5.06         Deemed Termination Other than “ForCause”  QSound shall be deemed tohave terminated Executive’s employment other than “For Cause”, effective uponoccurance of any of the events set out in subsections a) to d) below,  if:

 

a) Executive is unable for a minimum period of  ninety (90) consecutive days to carry outhis duties due to disability or incapacity;

 

b) death of Executiveoccurs;

 

c) QSound does not renewthis Employment Agreement and Executive’s employment for at least one yearfollowing expiration of the Term; or

 

d)  Executive gives writtennotice that he elects to not continue his employment following a Change ofControl as set out in section 4.02 b) hereof.

 

5.07         Severance Payments   If the employment of Executive isterminated by QSound as set out in section 5.05 hereof or is deemed to beterminated by QSound as set out in section 5.06 hereof, QSound shall pay toExecutive a lump sum payment in an amount equal to the greater of Executive’sBase Salary, less normal payroll deductions and withholdings as are required bylaw pro-rated for: i) the unexpired Term; and ii) one year.

 

5.08         RetirementCompensation  a) If, prior to theExecutive reaching age 65,  theemployment of Executive is terminated by QSound as set out in section 5.05hereof or is deemed to be terminated by QSound as set out in section 5.06hereof, QSound shall pay into a Retirement Compensation Agreement (RCA)sufficient funds to enable Executive to receive the same pension, including aterminal contribution that would enhance his benefits so that there is noreduction for early retirement, indexing at full consumers price index and themaximum bridge payment to age 65, that Executive would have received had theemployment not been terminated and the Pension Plan continued to be funded byQSound until Executive attained age 65.

 

b)  If Executive Retires afterage 60 and prior to age 65, QSound shall pay into the Pension Plan sufficientfunds to enable Executive to receive the same pension, including a terminalcontribution that would enhance his benefits so that there is no reduction forearly retirement, indexing at full consumers price index and the maximum bridgepayment to age 65, that Executive would have received had Executive not retiredand Executive’s Pension Plan continued to be funded by QSound until Executiveattained age 65.  If Executive Retires priorto age 60, QSound and Executive agree to negotiate in good faith a terminalcontribution to the Pension Plan.

 

3

----

 

5.09         Effect ofTermination  Subject to section 5.10 hereof, termination of Executive’s employment shall include termination of thisAgreement.

 

5.10         Survival  Articles 3.00, 6.00, 7.00, 8.00, 10.00,13.00, 14.00 and 15.00 and sections 5.04, 5.07, 5.08 and 17.05 shall surviveexpiration or termination of this Agreement.

 

**6.00        Non-solicitation**

 

6.01         Non-Solicitation  Executive hereby agrees that he will not,during the period commencing on the date hereof and ending one year followingthe expiration of the Term or termination of Executive’s employment, be a partyto or abet any solicitation of customers, clients or suppliers of QSound or anyof its subsidiaries, to transfer business from QSound or any of itssubsidiaries to any other person, or seek in any way to persuade or entice anyemployee of QSound or any of its subsidiaries to leave that employment or to bea party to or abet any such action.

 

**7.00        Non-Competition**

 

7.01         Non-Competition Executive herebyagrees that he will not, during the period commencing on date of this Agreementand ending two years following the expiration of the Term or termination ofExecutive’s employment: i) be employed by or provide services to any person,corporation or other entity located or organized in Canada, the United States,Europe, Japan or Australia, which may be or is contemplating to be engaged inany business which is directly or indirectly competitive with the services,technologies or products in which QSound is or is contemplating to be engagedin (“Competitor”); or ii) own any equity interest greater than 5%  in or manage or participate in the managementof or be in any other way connected with a Competitor.

 

7.02         Terms Reasonable  Executive confirms that all restrictions inthis Article 7.00 are reasonable and valid and all defences to the strictenforcement thereof by QSound are hereby waived by Executive.

 

**8.00        Return ofMaterials**

 

8.01         Return of Materials  All files, forms, brochures, books,materials, written correspondence, memoranda, documents, manuals, computerdisks, software products and lists (including lists of customers, suppliers,products and prices) pertaining to the business of QSound or any of itssubsidiaries and associates that may come into the possession or control ofExecutive shall at all times remain the property of QSound or such subsidiaryor associate, as the case may be.  Ontermination of Executive’s employment for any reason, or upon expiration ofthis Agreement, Executive agrees to deliver promptly to QSound all suchproperty of QSound in the possession of Executive or directly or indirectlyunder the control of Executive. Executive agrees not to make for his personalor business use or that of any other party, reproductions or copies of any suchproperty or other property of QSound.

 

**9.00        Notices**

 

9.01         Notice  Any notice required to be given hereunder shall be in writing andshall be sent by personal delivery or, except during any period when postalservice in interrupted, by prepaid registered mail, or fax addressed as setforth above, or by email: to QSound at legal@qsound.com; or to Executive atdavid.gallagher@qsound.com (“other communication”).

 

9.02         Deemed Receipt  Notices shall be deemed received asfollows:  If given by registered mailnotice shall be deemed to have been received by the party to whom it wasaddressed on the date falling seven business days following the date upon whichit was sent, if personally delivered during normal business hours, when sodelivered, and if given by other communication on the day of transmission andconfirmation of transmittal unless

 

4

----

 

such day is not a business day in which case the next followingbusiness day.  QSound and Executive maychange the address designated from time to time, by notice in writing to theother party.

 

**10.00      Enforceability**

 

10.01       Enforceability  Executive hereby confirms and agrees thatthe covenants and restrictions pertaining to Executive contained in thisAgreement, including, without limitation, those contained in sections 6.01 and7.01 hereof and Exhibit A hereto, are reasonable and valid and hereby furtheracknowledges and agrees that QSound would suffer irreparable injury in theevent of any breach by Executive of his obligations under any such covenant orrestriction.  Accordingly, Executivehereby acknowledges and agrees that damages would be an inadequate remedy atlaw in connection with any such breach and that QSound shall therefore beentitled in lieu of any action for damages, temporary and permanent injunctiverelief enjoining and restraining Executive from any such breach.

 

**11.00      NoAssignment**

 

11.01       No Assignment by Executive  Executive may not assign, pledge or encumberExecutive’s interest in this Agreement nor assign any of the rights or dutiesof Executive under this Agreement without the prior written consent of QSound.

 

**12.00      Successors**

 

12.01       Successors  This Agreement shall be binding and on andenure to the benefit of the successors and assigns of QSound and the heirs,executors, personal legal representatives and permitted assigns of Executive.

 

**13.00      Arbitration**

 

13.01       Arbitration  QSound and Executive agree that any disputeregarding the interpretation or enforcement of this Agreement shall be decidedby confidential, final and binding arbitration conducted in Calgary, Alberta bya member of the Alberta Arbitration and Mediation Society, who has been agreedto by QSound and Executive, provided that if the parties cannot agree upon onearbitrator, then each party shall choose one arbitrator and those arbitratorsshall choose a third arbitrator.  Anyarbitration hereunder shall be conducted in accordance with then existing rulesof Alberta Arbitration and Mediation Society.

 

**14.00      GoverningLaw**

 

14.01       Governing Law  This Agreement shall be governed by andconstrued in accordance with the laws of the Province of Alberta.  Any disputes or other matters relating tothis Agreement which cannot be resolved by arbitration as set out in section13.01 hereof shall be subject to the exclusive jurisdiction of the courts ofthe Province of Alberta.

 

**15.00      Severability**

 

15.01       Severability  If any provision of this Agreement shall beheld by any arbitrator or court of competent jurisdiction to be invalid orunenforceable, in whole or in part, such invalidity or unenforceability shallnot affect the validity or enforceability of the remaining provisions, or partthereof, of this Agreement and such remaining provisions, or part thereof,shall remain enforceable and binding.

 

5

----

 

**16.00      IndependentLegal Advice**

 

16.01       Independent Legal Advice  Executive acknowledges that he has beenadvised to obtain and that he has obtained or has been afforded the opportunityto obtain legal counsel with respect to this Agreement and that he understandthe nature and consequences of this Agreement.

 

**17.00      Miscellaneous**

 

17.01       Waiver  No waiver of any breach of any provision of this Agreement shallbe effective or binding unless made in writing and signed by the partypurporting to give the same and, unless otherwise provided in the writtenwaiver, shall be limited to the specific breach waived.

 

17.02       Entire Agreement  This Agreement (including Exhibit A hereto)is the  entire agreement and supersedesand incorporates all other agreements between the parties, whether oral orwritten,  including but not limited tothe Original Employment Agreement, in connection with the subject matterhereof.. This Agreement shall not be subject to change or modification exceptby the execution of another agreement in writing subscribed to by the partieshereto.

 

17.03       Further Assurances  Each party agrees to execute all documentsand perform all acts and do all such things as may be necessary or desirable in order to give effect to thetransactions contemplated hereunder.

 

17.04       Counterpart  This Agreement may be executed incounterparts, each of which shall be deemed an original, but all of whichtogether shall constitute one and the same original.

 

17.05       Limitation of Liability  Executive acknowledges and agrees thatQSound shall not be liable for any misrepresentations (including negligentmisrepresentations) which may be made (whether directly or by implication) toExecutive by QSound, its officers, employees or agents, either prior to orfollowing the date of this Agreement, including but not limited tomisrepresentations regarding the nature and/or existence of the employment opportunityoffered and/or Executive’s employment with QSound.

 

 

IN WITNESS WHEREOF theparties have executed this Agreement as of the day and year first abovewritten.

 

 
|              |            |   |   |
|-------------------|-----------------|--------|--------|
| QSound Labs, Inc. |            |   |
|              |            |   |
|              |            |   |   |
| per:              |            |   |   |
|              |            |   |   |
|              |            |   |   |
|              |            |   |
|              | David Gallagher |   |   |
|              |            |   |   |
|              |            |   |
|              | Witness         |   |   |
|                   |                 |        |        |  |

 

6

----

 

Exhibit A

 

##### Non-Disclosure Terms

 

 

1.             In this Exhibit A the following words and phrases shallhave the following meanings unless the context otherwise requires:

 

a)             “ConfidentialInformation” refers to any and all information, including but not limited todescriptions, designs, plans, specifications, schematics, compilations,programs, methods, techniques, formulas, processes, information, intellectualproperty, trade secrets, or concepts relating to technologies or products of,or the business, affairs, marketing or technical plans of, QSound and ofQSound’s customers, affiliates, associates, partners or subsidiaries, butConfidential Information shall not include Non-Proprietary Information.

 

b)            “Non-Proprietary Information” refers to information whichExecutive proves:

 

i)              iswithin the public domain at the date of its disclosure to the Executive orwhich thereafter enters the public domain through no fault of the Executive(but only after it becomes part of the public domain);

 

ii)             isalready known to the Executive at the time of its disclosure to the Executiveand is not subject to confidential restrictions, as can be proven bycontemporaneous documentation;

 

iii)            followingits disclosure to the Executive, is received by the Executive withoutobligation of confidence from a third party who was lawfully in possession ofsuch information free of any obligation of confidence;

 

iv)           hasbeen approved for release by written authorization of QSound; or

 

v)            hasbeen disclosed by court order or as otherwise required by law (includingwithout limitation to the extent that disclosure may be required underapplicable securities laws), provided that Executive has notified QSoundimmediately upon learning of the possibility of any such court order or legalrequirement and has given QSound a reasonable opportunity (and co-operated withQSound) to contest or limit the scope of such required disclosure (includingapplication for a protective order).

 

Information shall not be deemed known to Executive orpublicly known for purposes of the above exceptions (A) merely because it isembraced by more general information in the prior possession of Executive orothers, or (B) merely because it is expressed in public material in generalterms not specifically the same as Confidential Information.

 

2.             This Agreementapplies to Confidential Information which is disclosed to Executive at any timeduring which Executive is providing services to QSound.

 

3.             Executiveacknowledges that the Confidential Information is a special, unique, valuableasset of QSound or third parties to whom QSound has an obligation of confidenceand Executive agrees that:

 

a) Executive shall keep in confidence all ConfidentialInformation;

 

7

----

 

b) Executive shall not use any of the ConfidentialInformation except as necessary for carrying out his employment (“Purpose”) andshall not make, have made, or permit to be made any copies of the ConfidentialInformation except those copies which are necessary for use of the ConfidentialInformation for the Purpose; and

 

c) Executive shall not make any disclosure of theConfidential Information (including copies thereof, or methods or conceptsutilized therein) to any person or entity other than employees, affiliates orconsultants of the Executive to whom such disclosure is necessary for use ofthe Confidential Information for the Purpose and then only with the consent ofthe QSound.

 

4.             All ConfidentialInformation and any copies thereof, shall be promptly returned to QSound uponrequest, or destroyed at QSound’s option.

 

5.             Nothing containedin this Agreement shall be construed as granting or conferring any rights bylicense or otherwise, expressly or impliedly, under the ConfidentialInformation or any part or portion thereof.

 

6.             In the event of abreach by the Executive of any provision of this Agreement QSound shall, inaddition to any other remedy available to it in respect of such breach, beentitled to injunctive relief which restrains the Executive from committing orcontinuing such breach.

 

8

----