Employment Agreement - Croft


    Exhibit
      10.46

    
EMPLOYMENT
      AGREEMENT

    


    THIS
      AGREEMENT is
      entered into effective as of the 28th day of February, 2000, between AMERICAN
      TECHNOLOGY
      CORPORATION, a Delaware publicly traded corporation (the "Company"), and James
      J. Croft III ("Employee").

    


    Employee,
      in consideration of the covenants and agreements hereinafter contained, agrees
      as follows with respect, to the employment of the Company of Employee and
      Employees future business activities.

    


    1. Employment:
      Term of Employment.
      The
      Company hereby employs Employee and Employee hereby accepts such employment
      upon
      the terms and conditions hereinafter set forth. Subject to the provisions for
      termination as hereinafter provided, Employee's term of employment by the
      Company shall be from the date of this agreement until September 30, 2004,
      and
      said employment shall continue after such date until either party shall deliver
      written notice to the other party hereto to the effect that the employment
      hereunder shall terminate thirty (30) days from the giving of such notice.
      This
      Agreement will supersede all prior written and oral employment agreements
      entered into by and between Company and Employee.

    


    2. Services
      to be Rendered by Employee.
      Employee
      shall be subject to the direction of the Board of Directors, a duly authorized
      committee thereof, or the Company's Chief Executive Officer and his duties
      shall
      be those generally vested in the office of Vice President of Research for the
      corporation and he shall have such other powers and duties as may be reasonably
      prescribed by the Board of Directors, a duty authorized committee thereof,
      or
      the Company's Chief Executive Officer and shall perform such duties as from
      time
      to time may be decided upon by the Board of Directors, a duly authorized
      committee thereof, or the Company's Chief Executive Officer, including but
      not
      limited to, speaking for and promoting the sale of the Company's product lines
      as public spokesman both in print and television ads.

    


    The
      Employee agrees that he will serve the Company faithfully and to the best of
      his
      abilities, devoting substantially all his time, energy and skill to the
      activities of the Company and the promotion of its interests. Employee shall
      not
      serve as an officer or director or similar capacity with any other entity except
      with the consent of the Company. The Company has agreed to accommodate
      Employee's position with Definitive Audio to the extent of an average of one
      day
      per month so long as the prime focus of Employee's time and activities are
      in
      support of the Company's objectives.

    


    3. Compensation.

    


    (a) For
      the
      services to be rendered by Employee during his employment by the Company, the
      Company shall pay Employee a Base Salary of One Hundred Ten Thousand Dollars
      ($110,000) per annum during the term of this agreement, prorated for any partial
      period and paid in conformity with the Company's normal payroll period.
      Employee's salary shall be reviewed by the Board of Directors from time to
      time
      in its discretion, and Employee will receive such salary increases, if any,
      as
      the Board of Directors in its sole discretion determines.

    


    (b) Employee
      shall be entitled to participate in any bonus pool or similar program
      established by the Board of Directors.

    


    (c) The
      Employee's place of employment shall be considered San Diego County, California
      (or other mutually agreed upon location).

    


    (d) Employee
      shall be entitled to participate in and receive benefits under the Company's
      executive benefits plans as in effect from time to time, including, medical
      insurance, sick leave, and vacation time, subject to and on a basis consistent
      with the terms, conditions and overall administration of such plans and Company
      policies.

    


    (e) The
      Company shall pay or reimburse Employee for all expenses normal reimbursed
      by
      the Company and reasonably incurred by him in furtherance of his duties
      hereunder and authorized by the Company, including without limitation, expenses
      for entertainment, traveling, meals, hotel accommodations and the like upon
      submission by him of vouchers or an itemized list thereof as the Board of
      Directors; may from time to time adopt and authorize, and as may be required
      in
      order to permit such payments as proper deductions to the Company under the
      Internal Revenue Code of 1986 and the rules and regulations adopted pursuant
      thereto now or hereafter in effect.

    


    (f) All
      amounts payable or which become payable under any provision of this Agreement
      will be subject to any deductions authorized in writing by Employee and any
      deductions and withholdings required by law.

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

    (g) As
      compensation for consideration of extending Employee's Employment Agreement
      and
      granting an exclusive license to ATC for the Croft Invention known as "Three
      chamber, series tuned band-pass subwoofer" as defused, in the document "Croft
      Pre-October 1997 Proprietary Technologies"
      dated
      10/1/97, and as of this date commonly referred to as the Xtended Range Subwoofer
      in ATC, the Company agrees to pay a Premium Royalty in addition to that in
      the
      Royalty Agreement Addendum Plumber Three with Employee. Royalty Agreement for
      this Agreement shall mean the Addendum agreed to and signed by Employee
      for royalty
      payments for granting an exclusive license to ATC for
      the
      Croft
      Invention known as "Three chamber, series tuned band-pass subwoofer" within
      the
      terms of the Employee Intellectual Property Submissions for American Technology
      Corporation Policy ( Hereinafter referred to as the "Policy"). The Premium
      Royalty for this Agreement shall mean the amounts listed herein for incremental
      compensation. The schedule of these incremental amounts is: 3% incremental
      to
      the royalties in the Policy for the first two million dollars of income from
      the
      invention to ATC, 2% incremental to the royalties in the Policy for the second
      two million dollars of income from the invention to ATC, and 1% incremental
      to
      the royalties
      in the Policy for the third two million dollars of income from the invention
      ATC. These Premium Royalties shall vest as one incremental amount per complete
      year of service from the signing date of this Agreement. These royalties shall
      continue indefinitely and survive this Agreement if Employee fulfills the term
      and conditions of this Agreement and is not terminated for good cause. Should
      Employee voluntarily terminate employment or be terminated without cause, one
      fourth of the incremental potential earnings from the Premium Royalties shall
      be
      vested for each year of successfully completed service.

    


    (h)
      Employee also agrees to restructure his Addendum of January 12, 1999 and
      Addendum Number Two dated January 14,1999 for the exclusive license to ATC
      for
      the "Acoustic Transformer Based Woofer Systems" intellectual property and
      subsequent patent(s). Those Addenda are amended by this Agreement to the
      following terms:

    


    1) From
      the
      date of this agreement until March 25,2004, ATC maintains its exclusive license
      with no minimum payments.

    2) On
      March
      25,2004, the existing terms and minimums from the above mentioned 1999 Addenda
      will
      be
      reinstated.

    


    (i)
      Employee agrees to use Employee's best efforts to prepare and have filed patent
      documentation, in a timely and accurate manner, for "an electrostatic
      loudspeaker that uses higher resistance stators with contacts in the middle
      of
      stator or in a line source strip (two examples of many) such that areas further
      from the contact point are attenuated with fiequency; the impedance becomes
      more
      resistive in nature, frequency response is flattened, directivity is
      manipulated, and areas of highest resistive paths are delayed, further curving
      the wavefront" (currently commonly referred to within ATC as "variable
      resistive stator") including all embodiments known to Employee as well as any
      and all future improvements which likewise will be prepared and filed for
      patent(s) in a timely and accurate manner. Employee also agrees to assign the
      patent(s) exclusively to ATC. ATC agrees that should the Company at some future
      time determine not to use the technology in its licensed technologies or to
      generate revenues through licensing of this specific technology with or without
      combination with other ATC technologies, ATC will great an exclusive license
      to
      Employee for Employee's use in commerce for a royalty fee
      to
      ATC of
      2% of Employee's Royalty earnings from sublicensing or Employee's revenues
      for
      products sold directly to market from the technology and or patent(s) related
      to
      said technology. Company agrees to use reasonable efforts to obtain additional
      stock options from the shareholders for the 1997 Stock Option Plan at the 2000
      Annual Meeting and upon successfully obtaining same to grant to Employee 25,000
      Stock Options as consideration for work performed on this technology. Said
      Stock
      Options are to vest 50% after one year of voluntary service and 50% after the
      second year of voluntary service. Said options would not continue to vest if
      Employee is terminated for cause.

    


    4. Indemnification.

    


    (a) If,
      after
      the date of the commencement of the Employment Period, the Employee is made
      a
      parry or is threatened to be made a party to any action, suit or proceeding,
      whether civil, criminal, administrative or investigative (a "Proceeding"),
      by
      reason of the fact that he is or was an officer of the Company or is or was
      serving at the request of the Company as a director, officer, member, employee
      or agent of another corporation or partnership, joint venture, trust or other
      enterprise, including service with respect to employee benefit plans, whether
      or
      not the basis of such Proceeding is an alleged act or failure to act in an
      official capacity as a director, officer, member, employee or agent, he shall
      be
      indemnified and held harmless by the Company to the fullest extent authorized
      by
      Delaware law, as the same exists or may hereafter be amended, against all
      expense, liability and loss (including, without limitation, attorneys' fees,
      judgments, fines and amounts paid or to be paid in settlement) reasonably
      incurred or suffered by the Employee in connection therewith, including, without
      limitation, payment of expenses incurred in defending a Proceeding prior to
      the
      final disposition of such Proceeding (subject to receipt of an undertaking
      by
      the Employee to repay such amount if it shall ultimately be determined that
      the
      Employee is not entitled to be indemnified by the Company under Delaware taw),
      and such indemnification shall continue as to the Employee even if he has ceased
      to be an officer, member, employee or agent of the Company or other enterprise
      and shall inure to the benefit of his heirs, executors and
      administrators.

    


    (b) The
      right
      of indemnification and the payment of expenses incurred in defending a
      Proceeding in advance of its final disposition conferred in this Section 4
      shall
      not be exclusive of any other right that the Employee may have or hereafter
      may
      acquire under any statute, provision of the Certificate of incorporation or
      Bylaws of the Company, agreement, vote of shareholders or disinterested
      directors or otherwise.

     

    
 

    
      
        
        

      

      
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    5. Termination
      of Employment.

    


    (a)
      The
      Company shall have the right at its option to terminate the employment of
      Employee hereunder by giving written notice thereto to the Employee in the
      event
      of any of the following:

     

    (1) The
      Company may terminate this Agreement at any time with good cause, as determined
      by the Board of Directors of the Company, or a duly authorized committee
      thereof, acting in good faith and upon reasonable grounds, whereupon all
      compensation to Executive shall cease as of the effective date of termination.
      As used in this paragraph or elsewhere in this Agreement, the term "good cause"
      shall
      mean
      (i)
      dishonesty by Executive detrimental to the best interests of the Company, (ii)
      continuing inattention to or neglect of the duties to be performed by Employee,
      (iii) willful
      disloyalty
      of Employee to Company, (iv)
      the
      death
      or disability of Employee, (v) conviction by a court of competent jurisdiction
      of Employee in any fraud, or (vi) the imparting of any material confidential
      information by Employee in violation of this Agreement.

    


    (2) if
      the
      Company gives Employee thirty days advance written notice of termination of
      employment.

    


    (3)
      If
      this agreement is terminated by the Company pursuant to Paragraph 5(a)(2)
      hereof, then Employee shall be entitled to severance payments equal to six
      (6)
      months of his then monthly Base Salary and any bonus on an as if perfected
      basis
      payable in one lump sum within thirty (30)
      days
after
      such effective termination of Employee's employment by the Company irrespective
      of the remaining term of this agreement.

    


    (b)
      The
      Employee shall have the right at his sole option to terminate employment
      hereunder at any time upon thirty (30)
      days
written
      notice.

    


    6. Soliciting
      Customers or vendors. The
      Employee agrees that he will not for a period of one (1) year immediately
      following the termination of his employment with the Company, either directly
      or
      indirectly make known to any competing person, firm. or corporation the names
      or
      addresses of any of the customers or vendors of the Company or any other
      information pertaining to them that is not in the public domain.

    


    7. Trade
      Secrets of the Company. The
      Employee prior to and during the term of employment under this Agreement has
      had
      and will have access to and become acquainted with various trade secrets,
      consisting of devices, secret inventions, processes, and compilations of
      information, records, and specifications which are owned by
      the
      Company,
      and which are regularly used or to be used in the operation of the business
      of
      the Company. The Employee shall not disclose any of the aforesaid trade secrets,
      directly or indirectly, or use them in any way, either during the term of this
      agreement or for a period of 36 months thereafter, except as required in the
      course of his employment at ATC. All files, records, documents, drawings,
      specifications, equipment, and similar items relating to the business of the
      Company, whether prepared by the Employee or otherwise coming into his
      possession, shall remain the exclusive property of the Company and shall act
      be
      removed under any circumstances from the promises of the Company where the
      work
      is being carried on without prior written consent of the Company or consistent
      with the Company's normal business practices.

    


    8. Inventions
      and Patents.


    (a) Employee
      has provided the Company with a list of audio properties developed by Employee
      prior to employment. The Company shall separately negotiate for license(s),
      in
      accordance with the Employee Intellectual Property Submissions for American
      Technology Corporation General Policy, for any of these listed properties should
      the Company desire to use them in any of its product programs. Other inventions
      shall be assumed to fall under the provisions of this Section 8.

    


    (b) The
      Employee agrees that as to any inventions made by him during the term of his
      employment, solely or jointly with others, which are made with the equipment,
      supplies, facilities or trade secret information of the Company, or which relate
      at the time of the conception or reduction to practice of the invention to
      the
      business of the Company or the Company's actual or demonstrably anticipated
      research and development, or which result from any work performed by the
      Employee for the Company, shall belong to the Company and the Employee promises
      to assign such inventions to the Company. The Employee also agrees that the
      Company shall have the right to keep such inventions as trade secrets, if the
      Company chooses. The Employee agrees to assigns to the Company the Executive's
      rights in
      any
      other inventions where the Company is required to grant those rights to the
      United States government or say agency thereof. In order to permit the Company
      to claim rights to which it may be entitled, the Employee agrees to disclose
      to
      the Company in confidence all inventions which the Employee makes arising out
      of
      the Employee's employment and all patent application filed by the Employee
      within one year after the termination of his employment.

    


    (c) The
      Employee shall assist the Company in obtaining patents on all inventions,
      designs, improvements, and discoveries patentable by the Company in the United
      States and in all foreign countries, and shall execute all documents and do
      all
      things necessary to obtain letters patent, to vest the Company with full and
      extensive title thereto, and to protect the same against infringement by
      others.

    


    
      
        
        

      

      
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    9. Severability.
      Each
      paragraph and subparagraph of this Agreement shall be construed and considered
      separate and severable from the validity and enforceability of any other
      provision contained in this Agreement.

    


    10. Assignment.
      The
      rights of the Company (but not its obligations) under this Agreement may,
      without the consent of the Employee, be assigned by the Company to any parent,
      subsidiary, or successor of the Company; provided that such parent, subsidiary
      or successor acknowledges in writing that it is also bound by the terms and
      obligations of this Agreement. Except as provided in the preceding sentence,
      the
      Company may not assign all or any of its rights, duties or obligations hereunder
      without prior written consent of Employee. The Employee may not assign all
      or
      any of his rights, duties or obligations hereunder without the prior written
      consent of the Company.

     

    11. Notices.
      All
      notices, requests, demands and other communications shall be in writing and
      shall be defined to have been duly given if delivered or if mailed by registered
      mail, postage prepaid:


    (a)
      If to
      Employee, addressed to him at the following address as may be changed in writing
      from time to time: 

    James
      Croft

    _______________________

    _______________________

    


    (b)
      If to
      the Company, addressed to: 

    American
      Technology Corporation 

    13114
      Evening Creek Dr. South

    
      San
        Diego, California 92128

    

     

    or
      to
      such other address as any party hereto may request by notice given as aforesaid
      to the other parties hereto.

    


    12. Title
      and Headings.
      Titles
      and headings to paragraphs hereof are for purposes of references only and shall
      in no way limit, defuse or otherwise
      affect the provisions hereof.

    


    13. Governing
      Law.
      This
      Agreement is being executed and delivered and is intended to be performed in
      the
      State of California,
      ands all
      be governed by and construed in accordance with the laws of the State of
      California.

    


    14. Counterparts.
      This
      Agreement may be executed simultaneously in two or more counterparts, each
      of
      which shall be deemed
      an
      original, but all of which together shall constitute one and the same
      instrument. It shall not be necessary in making
      proof of
      this Agreement to produce or account for more than one original
      counterpart.

    


    15. Cumulative
      Rights.
      Each and
      all of the various rights, powers and remedies of the Company and Employee
      in
      this Agreement
      shall be considered as cumulative, with and in addition to any other rights,
      powers or remedies of the Company or
      the
      Employee and no one of them as exclusive of the others or as exclusive of any
      other rights, powers and remedies allowed by law. The exercise or partial
      exercise of any right, power or remedy shall neither constitute the election
      thereof nor the waiver of
      any
      other right, power or remedy. Sections 4, 6, 7 and 8 hereof shall continue
      in
      full force and effect notwithstanding
      the
      Employee's termination of employment and the termination of this
      Agreement.

    


    16. Remedies.
      The
      Employee and the Company both acknowledge that each may have no adequate remedy
      at law if either violates any of the terms contained in Sections 6, 7 and 8.
      In
      such event, either party shall have the right, in addition to any other
      rights it may have, to obtain relief to restrain any breach hereof or otherwise
      to specifically enforce any of the provisions
      hereof.

    


    17. Waiver of
      Breach.
      The
      waiver by one party to this Agreement of a breach of any provision of this
      Agreement by the other
      party
      shall not operate or be construed as a waiver of any subsequent breach by the
      said party .

    


    18. Entire
      Agreement.
      This
      Agreement contains the entire agreement of the parties hereto and may be
      modified or amended only by a written instrument executed by parties
      hereto. Effective on the date hereof, any prior employment agreements between
      the Company and the Employee shall terminate.

    


    19. Attorney's
      Fees.
      In the
      event that either party must institute legal action to compel the other to
      comply with the terms of this Agreement, the prevailing parry shall be entitled
      to reasonable attorneys' fees and costs.

    


    20. Good
      Faith.
      Each of
      the parties hereto agrees that he or it shall act in good faith in all actions
      taken under this Agreement. 

    


    
      
        
        

      

      
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    IN
      WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
      date
      first above written.

    


    
      	
              /s/
                Cornelius J. Brosnan

            	 	
              February
                28, 2000

            
	
              American
                Technology Corporation

            	 	 
	
              Cornelius
                J. Brosnan, Chairman, President and CEO

            	 	 
	 	 	 
	 	 	 
	
              /s/
                James J. Croft III

            	 	
              February
                28, 2000

            
	
              James
                J. Croft III, Employee

            	 	 


    

    



    
      
        
        

      

      
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    Addendum
      to

    American
      Technology Corporation

    Employee
      Intellectual Property Policy

    For

    


    James
      J. Croft

    


    This
      addendum to the Employee Intellectual Property Policy of American Technology
      Corporation (ATC) is made this 12th day of January, 1999 by and between ATC
      and
      James J. Croft (Croft) and constitutes modifications to the Policy regarding
      certain Croft Intellectual Property.

     

    
      
        	
                1.

              	
                Croft
                  hereby agrees to grant an exclusive license to ATC for the Croft
                  Invention
                  known as "Acoustic Transformer Based Woofer Systems", hereinafter
                  defined,
                  under the terms and conditions set forth in this
                  addendum.

              
	
                2.

              	
                ATC
                  agrees to provide reasonable financial support for the development
                  of the
                  system product and expenses for obtaining patent(s) for the
                  system.

              
	
                3.

              	
                Croft
                  agrees to use his best efforts to finalize the patent documentation
                  as
                  quickly as
                  possible.

              
	
                4.

              	
                For
                  products sold utilizing the Croft Invention prior to final action
                  by the
                  U. S. Patent
                  and Trademark Office (PTO) on the application, Croft shall receive
                  the
                  applicable income, as per the Policy. Should the PTO deny a
                  patent
                  on the Croft Invention
                  Claims, then these payments shall cease.

              
	
                5.

              	
                ATC.
                  agrees to start payments to Croft on August 1, 1999 in the amount
                  of $900
                  per month. On February 1, 2000, these payments shall increase to
                  $1,800
                  per month. Thereafter, Croft shall receive the greater of the amounts
                  of
                  monthly payments above or the commission earned of royalties paid
                  to ATC
                  by third party sublicensees, or from sales of products made by
                  ATC. These
                  monthly amounts paid to Croft shall be based on the amount received
                  by ATC
                  in quarterly lump sum payments by sublicensees averaged to determine
                  a
                  monthly royalty amount. In the event the royalty amount due to
                  Croft
                  should fall below $1800 per month and ATC should decide to pay
                  Croft less
                  than $1800 per month, but equal to or greater than $900 per month
                  then the
                  license granted by Croft shall be non-exclusive. In the further
                  event that
                  ATC decides not to pay Croft at least $900 per month, then the
                  license
                  grant is revoked and ATC shall have no rights in the
                  invention.

              
	
                6.

              	
                ATC
                  agrees that Section III.B of the ATC Employee Intellectual Property
                  Policy
                  shall not apply to Croft.

              
	
                7.

              	
                ATC
                  agrees to use reasonable efforts to market and/or sell the Croft
                  Invention
                  products, consistent with the best interests of the
                  company.

              
	
                8.

              	
                "Acoustic
                  Transformer Based Woofer System" is defined as a woofer driver
                  coupled
                  with a small coupling chamber to a two different sized back to
                  back
                  connected cone passive radiator such that the output is transformed
                  up by
                  the size of the largest cone and the ratio of the active woofer
                  cone to
                  the difference ratio of the passive cones or to the smaller of
                  the passive
                  cones. This can be used to create a
                  scaled or vented or multi-chamber vented bandpass system and/or
                  used to
                  drive
                  a
                  dipole sub woofer system. It may also have a vent in the auxiliary
                  chamber
                  driven by the difference cone passive
                  radiator.

              


      

    

     

    
       

      
        	 	
                James
                  J. Croft

              	 	
                American
                  Technology Corporation

              
	 	 	 	 	 


      

      


      
        	
                 

              	
                By:
                  /s/ James J. Croft

              	 	
                By:
                  /s/
                  Con Brosnan

              
	 	 	 	 	 
	
                Name:
                  James J. Croft

              	 	
                Name:
                  Con Brosnan

              
	 	 	 	
                Title:
                  President and CEO

              


      

      


      



      
        
          
          

        

        
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      Addendum
        Number Two

      to

      American
        Technology Corporation

      Employee
        Intellectual Property Policy

      For

      


      James
        J. Croft

      


      This
        Addendum Number Two to the American Technology Corporation Employee Intellectual
        Property Policy is made this 14th
        day of
        January, 1999 by and between American
        Technology Corporation (ATC) and James J. Croft (Croft) and
        constitutes
        modifications to the Policy regarding certain Croft Intellectual
        Property.

      


      
        	
                1.

              	
                This Addendum
                  Number Two incorporates
                  and restates the original Addendum
                  to
                  the Policy dated January 12, 1999 (Original Addendum).

              
	
                2.

              	
                The
                  duties, obligations and benefits, which are set forth in the Original
                  Addendum which flow to Croft shall also flow to Croft's heirs.
                  In a
                  similar manner, duties, obligations and benefits which are set
                  forth in
                  the Original Addendum which flow to ATC shall also flow to ATC's
                  successors.

              


      

       

       

      
        


        
          	 	
                  James
                    J. Croft

                	 	
                  American
                    Technology Corporation

                
	 	 	 	 	 


        

        


        
          	
                   

                	
                  By:
                    /s/ James J. Croft

                	 	
                  By:
                    /s/
                    Con Brosnan

                
	 	 	 	 	 
	
                  Name:
                    James J. Croft

                	 	
                  Name:
                    Con Brosnan

                
	 	 	 	
                  Title:
                    President and CEO

                


        

        




      


      
        
          
          

        

        
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Addendum
        Number Three to

      American
        Technology Corporation

      Employee
        Intellectual Property Policy

      For

      


      James
        J. Croft III

      


      This
        addendum to the Employee Intellectual Property Policy of American Technology
        Corporation
        (ATC), which by this reference is incorporated
        herein, is made this 28th day
        of
        February, 2000 by and between ATC and James J. Croft III (Croft) and constitutes
        modifications to the Policy regarding certain Croft Intellectual
        Property.

      


      
        	
                1.

              	
                Croft
                  hereby agrees to grant an exclusive license to ATC for the Croft
                  Invention
                  known as 'Three chamber, series tuned band-pass subwoofer"[ Three
                  Chamber
                  Subwoofer]
                  , hereinafter defined, under the terms and conditions set forth
                  in
                  this
                  addendum.

              
	
                2.

              	
                ATC agrees
                  to provide reasonable financial
                  support for
                  the development of the
                  system product and expenses for obtaining patent(s) for the
                  system.

              
	
                3.

              	
                Croft
                  agrees to use his best efforts to finalize the patent documentation
                  as
                  quickly
                  as
                  possible.

              
	
                4.

              	
                For
                  products sold utilizing the Croft Invention prior to final action
                  by the
                  U. S. Patent and Trademark Office (PTO) on the application, Croft
                  shall
                  receive the ap-plicable income, as explained below. Should the
                  PTO deny a
                  patent on the Croft Invention
                  Claims, then
                  these payments shall cease. Should ATC have
                  to cease
                  and desist
                  the use of the Three Chamber Subwoofer during a patent infringement
                  suit
                  or action the payments under all terms herein shall be suspended
                  for the
                  duration of the suit
                  or
                  action but ATC
                  shall not
                  thereby revoke its rights herein.

              
	
                5.

              	
                The
                  applicable income sections of the Employee Intellectual Property
                  Policy
                  of
                  ATC are set forth as follows:

              
	 	
                ·

              	
                The
                  percentages earned by the New Employee will be:

              
	 	
                ·

              	
                In
                  the case of royalty payments to American Technology Corporation
                  based
                  solely on the former Intellectual Property of the New Employee,
                  the New
                  Employee shall receive 5% of the royalties pertaining to the Employee's
                  former patents) or copyright(s). In the
                  case
                  where there are multiple former patents or copy-rights of the New
                  Employee
                  combined in a single royalty, the compensation to the New Employee
                  will be
                  5% of the royalty paid to American Technology Corporation for that
                  combination of Intellectual Property.

              
	 	
                ·

              	
                In
                  the case of
                  an individual
                  product, component, or software program sold by American Technology
                  Corporation the
                  New Employee
                  shall receive 2% of the net
                  selling price. Net selling price is herein defined as American
                  Technology
                  Corporation's selling price minus all terms and conditions of sales
                  [cash
                  discounts, advertising, returns and
                  allowances].

              


      

      



      
        
          
          

        

        
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                ·

              	
                In
                  the case where the New Employee's former Intellectual Property
                  is a
                  component part of a set of components American Technology Corporation
                  sells, the ratio of
                  the cost
                  basis of
                  the Employee's
                  Intellectual Property to
                  the total value
                  of the set
                  of components
                  will be
                  used
                  to determine
                  the percentage of
                  total value that the Employee's
                  Intellectual Property represents of the net selling price upon
                  which the
                  Employees 2% compensation
                  will be calculated..
                  Net selling price is herein
                  defined as American Technology
                  Corporation's selling price minus all terms and
                  conditions of sales [cash discounts, advertising, returns and
                  allowances).

              
	
                6.

              	
                Croft
                  agrees that when the Three Chamber Subwoofer is a part of a system
                  or set
                  of components that is earning royalties for American Technology
                  Corporation, his 5% royalty will be calculated based on one half
                  the total
                  royalty earned by ATC from the system.

              
	
                7.

              	
                Croft
                  agrees to suspend all obligations by both parties under the Addendum
                  dated
                  January
                  12, 1999
                  regarding the
                  Croft Invention
                  known as "Acoustic Transformer
                  Based
                  Woofer Systems" until March 25, 2004.

              
	
                8.

              	
                ATC
                  agrees to start payments for the Three Chamber Subwoofer to Croft
                  on
                  October 1, 2000 in the amount of $1600 per month paid on a quarterly
                  basis. There-after, Croft shall receive the greater of the amounts
                  of
                  monthly payments above or the commission earned of royalties paid
                  to ATC
                  by third party licensees, or from sales of products made by ATC.
                  These
                  monthly amounts paid to Croft shall be based on the amount received
                  by ATC
                  in quarterly lump sum payments by licensees averaged to determine
                  a
                  monthly royalty amount.

              
	
                9.

              	
                Croft
                  agrees to credit the payments made to him by ATC under the Addendum
                  dated
                  January 12, 1999 to the payment obligations under this Addendum
                  Three. The
                  amount of this credit is $5,400. Therefore, applying this credit
                  to the
                  monthly minimum
                  payment of
                  $1600, for the Three
                  Chamber Subwoofer (as described
                  in
                  Employee's Employment Agreement of February 28, 2000) the credit
                  amount
                  shall be exhausted in January, 2001. It is understood and agreed
                  by the
                  parties to this
                  Addendum Three that, since the payment amount
                  to Croft is the
                  greater of the
                  monthly payment or the amount due under the Policy, this credit
                  may be
                  exhausted earlier than January, 2001.

              
	
                10.

              	
                Croft represents
                  and warrants he
                  has sole
                  title to this invention,
                  has the right to assign
                  it to ATC, that it is free and clear of all encumbrances and that
                  no
                  rights to
                  this invention rest with any of his prior employers.

              
	
                11.

              	
                ATC
                  agrees to use reasonable efforts to market and/or sell the Croft
                  Invention
                  products, consistent with the best interests of the
                  company.

              
	
                12.

              	
                "Three
                  chamber, series tuned band-pass subwoofer" [Three Chamber
                  Subwoofer]
                  is
                  defined and described by Croft as a 3 chamber woofer system that
                  has the
                  woofer(s) mounted between chamber 1 and 2 and a vent going between
                  chamber
                  1 and 2, this being the vent with the lowest frequency tuning.
                  Another
                  vent is between chambers 2 and 3 that has the highest tuning and
                  one more
                  vent from chamber three to outside the cabinet and this vent being
                  tuned
                  to a middle frequency between the other two vents. A similar design
                  with
                  the lowest frequency vent removed is also possible. These designs
                  have
                  very small cone excursion for power out and also roll-off at a
                  steep rate
                  which allows them to be used to a higher frequency in a mono bass
                  system
                  without audible location detection. Rear, sealed chamber could
                  also be
                  replaced w/ an acoustic pipe. Also a 3 chamber system with a vent
                  to the
                  outside world from each chamber and with two woofers feeding
                  forward into a common chamber tuned to the lowest frequency and
                  rear
                  waves
                  of each feeding separately into their own chambers which are vented
                  at
                  two
                  frequencies.

              


      

      



      
        
          
          

        

        
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                13.

              	
                The
                  duties, obligations and benefits, which are set forth in this Addendum,
                  which flow to Croft shall also flow to Croft's heirs. In a similar
                  manner,
                  duties, obligations and benefits which are set forth in this Addendum
                  which flow to ATC shall also flow to ATC's successors and
                  assigns.

              


      

      


       

      
        


        
          	 	
                  James
                    J. Croft        2/28/00

                	 	
                  American
                    Technology Corporation

                
	 	 	 	 	 


        

        


        
          	
                   

                	
                  By:
                    /s/ James J. Croft

                	 	
                  By:
                    /s/
                    Con Brosnan        2/28/00

                
	 	 	 	 	 
	
                  Name:
                    James J. Croft

                	 	
                  Name:
                    Con Brosnan

                
	 	 	 	
                  Title:
                    President and CEO

                


        

         

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