<PAGE>

                                                                   Exhibit 10.50

                SETTLEMENT, WAIVER AND GENERAL RELEASE AGREEMENT

     This Settlement, Waiver and General Release Agreement ("Settlement
Agreement") is entered into this 29th day of December, 2000, by and among
Special Situations Fund III, L.P., Special Situations Cayman Fund, L.P. and
Special Situations Private Equity Fund, L.P. (collectively, the "Special
Situations Funds") and ATG Inc., a California corporation ("ATG").  All
capitalized terms used in this Settlement Agreement that are not otherwise
defined shall have the meanings given to them in the Purchase Agreement.

                                    RECITALS

     A.   Pursuant to Common Stock Purchase Agreements dated June 30, 2000 (the
"Purchase Agreements"), the Special Situations Funds acquired an aggregate of
2,000,000 shares of ATG common stock (the "Shares") for an aggregate purchase
price of $4,000,000.

     B.   The Special Situations Funds and ATG wish to settle their
disagreements about rights and remedies that the Special Situations Funds assert
they have under the Purchase Agreements, including but not limited to the
following:

          1.   The Special Situations Funds have asserted, and ATG disagrees,
that the Special Situations Funds have certain rights and remedies against ATG
under the Purchase Agreements, over and above their right to receive Additional
Shares as provided in Section  3(a) of the Purchase Agreements, because ATG
filed a Registration Statement with the Securities and Exchange Commission
("SEC") more than 45 days after the Initial Closing Date and because the
Registration Statement was not declared effective by the SEC within 120 days
after the Initial Closing Date and has not yet been declared effective.

          2.   The Special Situations Funds have also asserted, and ATG
disagrees,  that the Special Situations Funds would have the rights specified
under Section 2(b) of the Purchase Agreement more than ninety days after the
Final Closing Date.

     C.   Solely in the spirit of compromise and without admitting the
contentions of any of the parties against the other, and in order to avoid the
expenses and burdens of litigation, the parties desire to enter into this
Settlement Agreement in order to settle in full all claims, demands, and causes
of action which they have or may claim to have against each other in connection
with the Purchase Agreements.

     NOW, THEREFORE, the parties, in consideration of the mutual promises
contained in this Settlement Agreement, agree as follows:

                                   AGREEMENT

     1.   ATG hereby grants a one-time right to the Special Situations Funds to
have the price for their Shares reset (the "Reset Right") subject to the
following terms and conditions:
<PAGE>

          a.   In the event the average closing price for ATG's common stock
(the "Common Stock") for the thirty (30) trading days prior to November 1, 2001
(the "Reset Price") is below $2.00 per share, the Special Situations Funds may
exercise their Reset Right on all or any part of their original investment in
the Shares (the "Reset Shares") by giving written notice to ATG (the "Exercise
Notice") not later than 5:00 P.M. Pacific Time on November 15, 2001.  Such
written notice shall be deemed effective upon actual delivery to ATG by a
nationally recognized courier service.

          b.   Upon exercising the Reset Right, the Special Situations Funds
shall be entitled to receive from ATG that number of additional, newly issued
shares of Common Stock (the "New Shares") which is sufficient for the average
purchase price of the New Shares and Reset Shares, combined, to equal the Reset
Price; provided, however, that in no event will the Reset Price be lower than
the average closing price of the Common Stock for the fifteen (15) trading days
prior to December 27, 2000, and provided, further, that ATG shall not be
required to issue the New Shares to the Special Situations Funds if, within ten
(10) business days after receiving the Exercise Notice, ATG repurchases all of
the Reset Shares for $2.00 per share by tendering payment to the Special
Situations Funds, by check or wire transfer, in immediately available funds
against delivery of the certificates representing the Reset Shares.

          c.   The parties acknowledge that ATG is subject to rules of the
National Association of Securities Dealers, Inc. ("NASD") requiring ATG to
obtain shareholder approval prior to issuing shares of Common Stock in an amount
that is greater than 20% of ATG's outstanding shares of Common Stock.  The
parties hereby agree that if, in the opinion of ATG's counsel, the NASD rules
require that ATG obtain shareholder approval before issuing the New Shares, then
the obligation to issue the New Shares will be conditioned upon such shareholder
approval.  ATG agrees to use its best efforts to obtain such shareholder
approval, if required, not later than June 30, 2001 and to negotiate with the
Special Situations Funds a reasonable alternative to the issuance of the New
Shares if such shareholder approval is not obtained.

     2.   Waiver.  In consideration of the Reset Right, each of the Special
Situations Funds hereby waives all rights under the Purchase Agreements that
relate in any way to ATG's failure to file the Registration Statement and have
it declared effective in a timely manner, including but not limited to all
rights to receive Additional Shares pursuant to Section 3(a) of the Purchase
Agreements and all rights to rescission and indemnification under Section 3(i)
of the Purchase Agreements.  Each of the Special Situations Funds also waives
all rights under Section 2(b) of the Purchase Agreements.

     3.   General Release.  In further consideration of the Reset Right, each of
the Special Situations Funds, on behalf of their respective predecessors,
successors, assignors and assignees, past and present, hereby fully releases and
discharges ATG, its directors, officers, agents, representatives, attorneys and
employees, past and present, and its predecessors, successors, assignors and
assignees from all claims, actions and causes of action, of any kind or nature
whatsoever, in law, equity, or otherwise, whether fixed or

                                       2
<PAGE>

contingent, whether now known or unknown, whether suspected or unsuspected,
which now exist, which existed before the date of this Settlement Agreement, or
which may exist after the date of this Settlement Agreement, relating in any way
to the provisions of the Purchase Agreements which are referenced in Section 2
above.

     4.   ATG agrees to continue to work toward getting the Registration
Statement effective.  If the Registration Statement is not effective by March
31, 2001, the rights of the Special Situations Funds to receive Additional
Shares as provided in Section 3(a) of the Purchase Agreements (which are waived
in Section 2 of this Settlement Agreement) will automatically be reinstated.

     5.   The Special Situations Funds hereby represent and warrant that, except
as provided in this Settlement Agreement, they have not sold, transferred or
assigned any rights or remedies under the Purchase Agreements.

     6.   With respect to this Settlement Agreement, the Special Situations
Funds waive and relinquish, to the fullest extent that the law permits, the
provisions, rights, and benefits of California Civil Code (S) 1542 and other
statutes or common law principles of similar effect.  The Special Situations
Funds acknowledge that they are familiar with, and/or have been advised by their
respective legal counsel of, the provisions of California Civil Code (S) 1542,
which provides 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.

     7.   The release set forth above does not release any claims for any breach
of this Settlement Agreement or any claims with respect to the Purchase
Agreements that do not specifically pertain to the subjects of this Settlement
Agreement.

     8.   Each party acknowledges and agrees that it gave careful thought to
this Settlement Agreement, had the opportunity to review this Settlement
Agreement independently with legal counsel of its choice, and/or had the
requisite experience and sophistication to understand, interpret, and agree to
the particular language of the provisions in this Settlement Agreement.  In the
event of an ambiguity in, or dispute regarding the interpretation of, this
Settlement Agreement, the parties agree that no one will resolve any ambiguity
in, or dispute regarding interpretation of, this Settlement Agreement by any
rule providing for interpretation against the party who causes the uncertainty
to exist or against the draftsman.

     9.   The parties agree that this Settlement Agreement sets forth the entire
agreement between the parties relating to the subject matter of this Settlement
Agreement.  The parties agree that this Settlement Agreement supersedes any and
all prior or contemporaneous agreements or understandings between them.

                                       3
<PAGE>

     10.  The parties may not waive any provision of this Settlement Agreement
except by a written agreement which all of the parties have signed; a waiver of
any provision of this Settlement Agreement will not constitute a waiver of any
other provision.  The parties may modify or amend this Settlement Agreement only
by a written agreement that all the parties have signed.

     11.  The parties may execute this Settlement Agreement in one or more
counterparts, each of which constitutes an original, and all of which constitute
one and the same Settlement Agreement.


     IN WITNESS WHEREOF, the undersigned have executed this Settlement Agreement
as of the above date.

"ATG"                                  "SPECIAL SITUATIONS FUNDS"
ATG INC., A CALIFORNIA CORPORATION     SPECIAL SITUATIONS FUND III, L.P.


_____________________________________  ____________________________________
By: _________________________________  By: ________________________________
Its: ________________________________  Its: _______________________________



                                       SPECIAL SITUATIONS CAYMAN
                                       FUND, L.P.


                                       ____________________________________
                                       By: ________________________________
                                       Its: _______________________________



                                       SPECIAL SITUATIONS PRIVATE
                                       EQUITY FUND, L.P.


                                       By: ________________________________
                                       Its: _______________________________

                                       4