Document:

Unassociated Document

    

      EXHIBIT
        10.13

       

      AMERICAN
        TECHNOLOGY CORPORATION

      

      SUMMARY
        SHEET

      OF

      DIRECTOR
        AND EXECUTIVE OFFICER COMPENSATION

       

      

      Compensation
        of Directors

       

      Until
        June 2005, our non-employee directors did not receive cash fees as compensation
        for their services. In June 2005, we began compensating our non-employee
        directors in the amount of $1,000 per month, paid quarterly in arrears. Each
        of
        our non-employee directors serving between January 1 and May 31, 2005, was
        paid
        a one-time fee of $5,000 in recognition of service during that period. Our
        directors are also reimbursed for the expenses of attending directors’ or
        committee meetings. Our directors have received in the past, and may receive
        in
        the future, stock option grants. In June 2005, we granted each of our
        non-employee directors an option exercisable for 50,000 shares of common
        stock
        with an exercise price equal to the closing price of the common stock on
        the
        date of grant and expiring five years after the date of grant. These options
        vest quarterly over five years, subject to continued service and other
        conditions.

       

      Compensation
        of Executive Officers

      

      The
        executive officers of the Company serve at the discretion of the Board of
        Directors. From time to time, the Compensation Committee of the Board of
        Directors reviews and determines the salaries that are paid to the Company's
        executive officers. The following table sets forth the annual salary rates
        for
        the Company’s current executive officers as of the date of this report on Form
        10-Q:

      

      
        	
                Elwood
                  G. Norris, Chairman

              	
                $200,000

              
	
                Kalani
                  Jones, President and Chief Operating Officer

              	
                $220,000

              
	
                Michael
                  A. Russell, Chief Financial Officer and Secretary

              	
                $185,000

              
	
                Bruce
                  Gray, Vice President of the Commercial Products Group

              	
                $200,000

              

      

       

      Employment
        Arrangements with Current Executive Officers

       

      The
        following discussion summarizes the employment arrangements between us and
        our
        current executive officers as of the date of this report on Form
        10-Q:

       

      Mr.
        Elwood G. Norris -
        Effective September 1, 1997, we entered into a three year employment contract
        with Mr. Norris, for his services as Chief Technology Officer. The three-year
        term expired on August 31, 2000, but the agreement remains in effect until
        one
        party gives thirty days advance notice of termination to the other. Mr. Norris
        now serves as Chairman under the term of this agreement. The agreement, as
        amended by the Compensation Committee, provides for a base salary of $16,667
        per
        month. The agreement provides that Mr. Norris will participate in bonus,
        benefit
        and other incentives at the discretion of the Board of Directors. Mr. Norris
        has
        agreed not to disclose trade secrets and has agreed to assign certain inventions
        to us during employment. We are also obligated to pay Mr. Norris certain
        royalties. See "Certain Relationships and Related Transactions" in our Form
        10-K/A filed March 18, 2005.

       

      Mr.
        Kalani Jones -
        We
        entered into a letter agreement dated as of August 28, 2003, as amended on
        October 20, 2003, under which Mr. Jones was employed as our Senior Vice
        President of Operations. Mr. Jones has since been promoted to President and
        Chief Operating Officer. The letter agreement provides for an annual base
        salary
        of $140,000, and an annual performance bonus of up to 30% of base salary
        to be
        determined by the Compensation Committee and the Board of Directors. Mr.
        Jones'
        base salary was $200,000 per year at September 30, 2004.  

       

      
 

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      On
        January 27, 2005, our Compensation Committee increased Mr. Jones’ current annual
        base salary to $220,000.  For fiscal 2005, the Compensation
        Committee
        determined that Mr. Jones' bonus should be based upon a target bonus of 50%
        of
        base salary given his increased responsibilities as President and Chief
        Operating Officer. We expect future bonus determinations for Mr. Jones
        to
        be made based upon a target bonus of 50% of base salary. Mr. Jones'
        employment is terminable at-will by us or by Mr. Jones for any reason, with
        or
        without notice.

       

      Mr.
        Michael Russell
        - We
        entered into a letter agreement dated June 15, 2004, under which Mr. Russell
        was
        employed as our Chief Financial Officer. Mr. Russell has also been appointed
        as
        our Secretary. The letter agreement provides for an annual base salary of
        $185,000, and an annual performance bonus of up to 25% of base salary to
        be
        determined by the Compensation Committee and the Board of Directors. Mr.
        Russell's employment is terminable at-will by us or by Mr. Russell for any
        reason, with or without notice.

       

      Mr.
        Bruce Gray -We
        entered into a letter agreement with Mr. Bruce Gray, under which Mr. Gray
        was
        employed as our Vice President of the Commercial Products Group effective
        March
        21, 2005. The letter agreement provides for an annual base salary of $200,000,
        and an annual sales bonus of up to $100,000, payable on a quarterly basis,
        based
        on attaining quarterly and annual goals to be established. Mr. Gray's employment
        is terminable at-will by us or by Mr. Gray for any reason, with or without
        notice.

      

      Executive
        officers in charge of revenue producing business segments also participate
        in a
        broad-based commission arrangement. Under our existing commission arrangement,
        commissions are awarded for each of our business segments based on achievement
        of operating plan revenue within the segment, with commissions increasing
        in
        percentage if operating plan is exceeded. Executive officers in charge of
        each
        business unit recommend an allocation of such commissions amongst sales
        personnel and themselves, which recommendation is reviewed and approved by
        the
        Chairman and the President. All commissions payable to executive officers
        are
        then reviewed and approved by the Compensation Committee.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.

-1-

                                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.

-2-

                                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.

-3-

                                                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.

-4-

                                                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.

-5-

                                                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	 

-6-

                                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	 

-7-

                                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.

-8-

                                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.

-9-

                                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.

-10-

                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. 

-11-

                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]

-12-

                                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

-13-

	 	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	 

-14-

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. 

-15-

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

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00088-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00088-of-00352.parquet"}]]