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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
April 11, 2000
AMERICAN TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 0-24248 87-0361799
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(State or other jurisdiction of (Commission (I.R.S. Empl.
incorporation or organization) File Number) Ident. No.)
13114 Evening Creek Drive South, San Diego, California 92128
(Address of principal executive offices) (Zip Code)
(858) 679-2114
(Registrant's telephone number, including area code)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On April 11, 2000, American Technology Corporation, a Delaware corporation
("ATC") acquired all rights to certain loudspeaker technology owned by David
Graebener ("Graebener"), Stephen M. Williams ("Williams") and Hucon Limited, a
Washington corporation ("Hucon") including rights under a Technology License
Agreement between Hucon and Bohlender Graebener Corporation ("BG") effective
February 1, 2000 ("BG License"), and all patent rights, trade secrets, know-how,
trademarks, copyrights and all intellectual property relating to the loudspeaker
technology, the BG License, and related proprietary rights owned by Hucon,
Williams and Graebener. The technology acquisition was consummated on the terms
and conditions set forth in the Asset Purchase Agreement between ATC, Hucon,
Williams and Graebener dated April 11, 2000 (the "Purchase Agreement").
Under the terms of the Purchase Agreement, the purchase price paid by ATC for
the technology consisted of: (i) $50,000 previously paid to Hucon as an option
fee; (ii) $50,000 cash at the closing to Hucon; (iii) $100,000 previously paid
to BG; (iv) $100,000 cash to be paid to seller within seven days of closing; (v)
200,000 shares of ATC's restricted common stock payable at closing, and (vi)
200,000 shares of ATC's restricted common stock payable in the event certain
performance milestones relating to gross revenues received by ATC from the
loudspeaker technology purchased are achieved. The 200,000 shares of ATC to be
issued in accordance with the performance milestones described in the preceding
sentence shall be held in escrow by ATC to secure any monetary or financial
defaults or liabilities of either Hucon, Williams or Graebener in connection
with the BG License for which ATC has assumed the financial liabilities
hereunder. In the event of a default under the BG License of the obligations
they assumed under the Purchase Agreement by either Hucon, Williams or
Graebener, ATC could be liable for up to $240,000 in advance royalty payments by
August 1, 2000 for the initial two-year term of the BG License, and identical
annual minimum royalties thereafter. ATC has agreed to use its best efforts to
register the shares of its common stock issued in connection with the Purchase
Agreement and to file a registration statement within 60 days of the closing.
The technology purchased is currently in development and is not yet
commercializable nor has it generated any revenues. ATC plans to file patents
on the technology and develop a line of planar magnetic loudspeakers
incorporating the technology. There can be no assurance the technology will be
patentable, developed, sold commercially or accepted in the market, or that it
will generate revenue.
Williams and Graebener both executed Employment Agreements with ATC for three-
year terms subject to earlier termination. Their annual salaries are $180,000
and $110,000, respectively, including the grant of options to each to acquire
100,000 shares of common stock of ATC subject to certain vesting conditions.
The description of the transaction contained herein is qualified in its entirety
by reference to the Purchase Agreement and Employment Agreements of Williams and
Graebener filed with this Current Report, copies of which are attached hereto as
Exhibits 10.1, 10.2 and 10.3, respectively.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of businesses acquired.
The financial statements required by this item, if required, will be filed
by amendment to this Current Report on Form 8-K not later than 60 days after the
date that the initial report on this From 8-K must be filed.
(b) Pro forma financial information.
The pro forma financial information required by this item, if required,
will be filed by amendment to this Current Report on Form 8-K not later than 60
days after the date that the initial report on this Form 8-K must be filed.
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(c) Exhibits
10.1 Asset Purchase Agreement dated as of April 11, 2000 by and between
American Technology Corporation and Hucon Limited, David Graebener
and Stephen M. Williams. The schedules and exhibits referenced in the
Purchase Agreement have not been included because they contain
information that is otherwise discussed in the agreement; they will
be forwarded supplementally to the Commission upon request.
10.2 Employment Agreement effective as of February 15, 2000 by and between
American Technology Corporation and Stephen M. Williams.
10.3 Employment Agreement effective as of February 15, 2000 by and between
American Technology Corporation and David Graebener.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
AMERICAN TECHNOLOGY CORPORATION
Date: April 26, 2000 By: /s/ Renee Warden
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Renee Warden
Chief Accounting Officer, Treasurer and
Secretary
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EXHIBIT 10.1
AGREEMENT FOR THE
PURCHASE OF ASSETS
OF
HUCON LIMITED, DAVID GRAEBENER, AND
STEPHEN M. WILLIAMS
BY
AMERICAN TECHNOLOGY CORPORATION
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TABLE OF CONTENTS
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Page
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ARTICLE 1 PURCHASE AND SALE OF ASSETS................... 1
1.1 Transfer of Assets............................ 1
1.2 Liabilities................................... 2
1.3 Noncompete.................................... 2
1.4 Purchase Price................................ 2
1.5 Allocation of Consideration................... 3
ARTICLE 2 CLOSING....................................... 4
2.1 Closing....................................... 4
2.2 Conveyances at Closing........................ 4
2.3 Offset........................................ 5
2.4 Contracts..................................... 5
2.5 Possession.................................... 5
2.6 Liabilities and Costs......................... 5
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER...... 5
3.1 Organization of Seller........................ 5
3.2 Authorization................................. 5
3.3 Taxes......................................... 6
3.4 No Undisclosed Liabilities.................... 6
3.5 Assets........................................ 6
3.6 Trademarks, Etc............................... 6
3.7 Title to Purchased Assets, Etc................ 6
3.8 Contracts and Commitments..................... 7
3.9 Litigation, Proceedings and Applicable Law.... 7
3.10 Compliance with Law........................... 7
3.11 No Conflict or Violation...................... 7
3.12 Insurance..................................... 8
3.13 Consents and Approvals........................ 8
3.14 Licenses, Permits and Authorizations.......... 8
3.15 Purchase Entirely for Own Account............. 8
3.16 Investment Experience......................... 8
3.17 Restricted Securities......................... 8
3.18 Receipt of Information........................ 9
3.19 Disclosure.................................... 9
3.20 Survival of Representations and Warranties.... 9
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TABLE OF CONTENTS
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(Continued)
Page
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ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER....... 9
4.1 Organization of Buyer......................... 9
4.2 Authorization................................. 9
ARTICLE 5 ACTIONS BY SELLER AND BUYER PRIOR TO
THE CLOSING................................... 10
5.1 Maintenance of Assets......................... 10
5.2 Investigation by Buyer........................ 10
5.3 Consents and Best Efforts..................... 10
ARTICLE 6 CONDITIONS TO BUYER'S OBLIGATIONS............. 10
6.1 Representations, Warranties and Covenants..... 10
6.2 Consents...................................... 11
6.3 Material Changes.............................. 11
6.4 No Governmental Proceeding or Litigation...... 11
6.5 Certificates.................................. 11
ARTICLE 7 ACTIONS BY SELLER AND BUYER AFTER
THE CLOSING................................... 11
7.1 Books, Records and Employees.................. 11
7.2 Indemnification............................... 12
7.3 Further Assurances............................ 13
7.4 Bulk Sales.................................... 13
7.5 Taxes and Other Costs......................... 13
7.6 Noncompetition................................ 13
ARTICLE 8 MISCELLANEOUS................................. 13
8.1 Termination................................... 13
8.2 Survival of Representations and Warranties.... 14
8.3 Assignment.................................... 14
8.4 Notices....................................... 14
8.5 Choice of Law................................. 14
8.6 Entire Agreement; Amendments and Waivers...... 14
8.7 Multiple Counterparts......................... 15
8.8 Expenses...................................... 15
8.9 Invalidity.................................... 15
8.10 Headings...................................... 15
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EXHIBITS
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Exhibit A Term Sheet
Exhibit B Technology License Agreement
Exhibit C Sub License
Exhibit D List of Assets
Exhibit E Bill of Sale
Exhibit F Assignment of Intangible Assets by Hucon Limited, Stephen M.
Williams and David Graebener to American Technology Corporation
Exhibit F-1 Assignment of Intangible Assets by David Graebener to American
Technology Corporation
Exhibit G Certificate of Performance
Exhibit H Assignment and Consent of License by Hucon Limited to American
Technology Corporation
Exhibit I Assignment and Consent of License by Bohlender-Graebener
Corporation to American Technology Corporation
Exhibit J Trademark Assignment
SCHEDULES
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Schedule 3.4 Liabilities
Schedule 3.6 Trademarks, Etc.
Schedule 3.8 Contracts and Commitments
Schedule 3.12 Insurance Policies
Schedule 3.13 Consents and Approvals
Schedule 3.14 Licenses, Permits and Authorizations
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ASSET PURCHASE AGREEMENT
This agreement ("Agreement") is made as of April 11, 2000 at San Diego,
California by and between American Technology Corporation, a Delaware
corporation ("Buyer") Hucon Limited, a Washington corporation ("Hucon"), Stephen
M. Williams ("Williams") and David Graebener ("Graebener"). Hucon, Williams and
Graebener shall collectively be referred to herein as "Seller".
RECITALS
A. Hucon, Buyer, Williams and Graebener have entered into that certain
binding Term Sheet dated February 25, 2000 attached hereto as Exhibit A (the
"Term Sheet") with regard to certain technology developed by Graebener and held
or owned by Seller, all as described therein (the "Technology"), and Hucon and
Bohlender-Graebener Corporation ("BG") have entered into a Technology License
Agreement effective February 1, 2000, a copy of which is attached hereto as
Exhibit B (the "BG License").
B. Seller owns certain assets, proprietary rights and intellectual
property described in the Term Sheet, including all patent rights, trade
secrets, know how, trademarks, service marks, trade names and all intellectual
property rights to the Technology and to the BG License (collectively, the
"Proprietary Rights"), and the Seller wishes to transfer all of such assets and
rights to the Technology and the BG License to Buyer, and Buyer desires to
purchase such assets and rights.
C. The Technology, the Proprietary Rights, and the BG License shall all
collectively be referred to herein as the "Assets".
D. Seller desires to sell and assign, and Buyer desires to purchase
these Assets of Seller, upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties contained in this Agreement, including all other
documents incorporated by reference, the parties agree as follows:
ARTICLE 1
PURCHASE AND SALE OF ASSETS
1.1 Transfer of Assets. Upon the terms and subject to the conditions
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contained herein, on the Closing Date (hereafter defined), Seller will sell,
convey, transfer, assign and deliver to Buyer, and Buyer will acquire, effective
as of the Closing Date, the Assets of Seller, which shall include:
(a) the Technology, as described in the Term Sheet;
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(b) the Proprietary Rights, as described in the Term Sheet, and any
other tangible personal property related thereto, including planar magnetic
transducer technologies that do not use strip laminated non-etched diaphragms
developed by Graebener;
(c) Seller's rights under the BG License, including the sole source
contract with Graphic Packaging, all of which is attached hereto and made a part
hereof by this reference as Exhibit B;
(d) Any and all intellectual property, including any such
intellectual property owned by Graebener, or owned by Hucon, or owned by
Williams, whether individually or in any collective manner, related to the
Technology, the Proprietary Rights and the BG License, including but not limited
to patent rights, trade secrets, trade names, trademark rights, trademarks,
market research, contact lists, marketing materials, business plans, and all
other rights and assets described and listed in the Terms Sheet under the bullet
points under the heading Technology Description in the Term Sheet, and all other
trade names, supplies, materials, contracts, licenses, deposits, and rights to
claims to refunds and adjustments of any kind relating to the Assets, and other
intangible assets used or related to the Assets.
All of the above shall collectively be referred to hereafter as the "Assets."
1.2 Liabilities. Buyer shall not assume any liabilities of Seller, and
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Seller shall indemnify Buyer against any unassumed liabilities of Seller as
provided in Section 7.2. Buyer may enter into a subLicense with BG under the
License for the Premises with Seller in the form attached hereto as Exhibit C.
Without limiting the foregoing, Buyer shall not be responsible for any business,
property, occupation, withholding, or similar tax, or any taxes of any kind
relating to any period before the Closing Date, or for payments of amounts due
under any contract or License for equipment, on or before the Closing Date.
1.3 Noncompete. As an essential part of this sale, and to protect the
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value of the assets being purchased, Hucon agrees not to compete with Buyer in
the sound, acoustic or a related systems business on the terms described in
Section 7.6 of this Agreement.
1.4 Purchase Price.
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(a) Upon the terms and subject to the conditions contained herein,
the purchase price to be paid by Buyer to Seller for the sale, transfer,
assignment, conveyance and delivery of the Assets, and which Seller shall
allocate among themselves as they shall agree, except as provided in Sections
1.4(a) 5 and (b) herein, shall be an amount equal to:
1. $50,000 paid to Hucon as a cash option fee, which Buyer
has already paid;
2. $50,000 cash at Closing to Hucon;
3. $100,000 cash paid directly to BG on behalf of Seller,
as the initial $100,000 payment required under the BG License, which payment has
already been paid by Buyer to BG;
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4. $100,000 cash to be paid to Seller within seven (7) days
from the date of Closing;
5. Two Hundred Thousand (200,000) shares of Buyer's common
stock for which certificates representing such common stock shall be issued and
registered to the following parties in the following amounts: One Hundred
Thousand (100,000) shares of common stock to Williams and One Hundred Thousand
(100,000) shares of common stock to Graebener, which is due to Seller upon
Buyer's receipt of (i) the fully executed BG License, (ii) a consent to the
transfer of the BG License, fully executed by BG, in the form attached hereto as
Exhibit I, and (iii) two fully executed full and unrestricted Transfer and
Assignment to Buyer of all rights of Graebener and Hucon/Williams in the Assets;
and (iv) a fully executed and notarized Trademark Assignment in the form
attached hereto as Exhibit J, and
(b) Subject to the performance milestones described below, Two
Hundred Thousand (200,000) shares of Buyer's common stock, for which
certificates representing such common stock shall be issued and registered to
the following parties in the following amounts: One Hundred Thousand (100,000)
shares of common stock to Williams and One Hundred Thousand (100,000) shares of
common stock to Graebener, provided that any of such shares which have not been
earned on or before the fourth anniversary date of this Agreement shall no
longer be due or owing to Seller, and in addition, Seller agrees to assume the
financial liabilities of Buyer to Bohlender-Graebener Corporation assumed herein
under the Technology Transfer Agreement at Exhibit B herein by Buyer, and
provided further that Williams and Graebener shall agree to pledge to the
Company, which shall take possession of the certificates therefore and hold them
in escrow at the Company, such number of the Two Hundred Thousand (200,000)
shares of Buyer's common stock described herein as Buyer shall determine to
secure any monetary or financial defaults or liabilities of each of the Sellers
in connection with the Technology Transfer Agreement at Exhibit B in the event
of a default or failure to pay by any of the Sellers under the Technology
Transfer Agreement:
1. 50,000 shares shall be earned by Seller for each
$1,000,000 of gross revenues generated to Buyer from sales, licenses or other
proceeds generated from the Technology.
(c) On the Closing Date, Seller shall deliver all of the executed
documents and agreements required under this Agreement, and Buyer shall
deliver all payments due at the Closing.
1.5 Allocation of Consideration. The purchase price to be paid by Buyer
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pursuant to this Agreement shall be allocated to the assets purchased as
follows:
(a) for the Assets other than those listed below, all of the
consideration hereunder, less $20,000;
(b) for the noncompetition agreement, Buyer shall pay a total
consideration of $10,000; and
(c) for the trade name and other intangible assets, Buyer shall pay
a total consideration of $10,000;
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(d) Buyer and Seller agree that all transactions under this
Agreement shall be reported for federal and state tax purposes in accordance
with the allocations set out in this Section 1.5.
ARTICLE 2
CLOSING
2.1 Closing. The Closing of the transactions contemplated herein (the
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"Closing") shall be held at San Diego, California on April 11, 2000 (the
"Closing Date"), or on such other date as the parties mutually agree, at the
offices of Procopio, Cory, Hargreaves & Savitch LLP. (unless the parties hereto
otherwise agree).
2.2 Conveyances at Closing.
----------------------
(a) To effect the transfer of Assets referred to in Section 1.1
hereof, Seller will, on the Closing Date, deliver to Buyer:
(i) a bill of sale conveying in the aggregate all personal
property included in the Assets free and clear of all mortgages, liens, pledges,
encumbrances or claims, in the form of Exhibit E attached hereto;
(ii) assignments of all of the intangible property and
intellectual property included in the Assets, and any other contracts,
copyrights, trademarks, trade names, service marks, and applications for any of
the foregoing, substantially in the form of Exhibit F attached hereto;
(iii) all of the Seller's books, records and files relating to
the Assets;
(iv) the original subLicense (the "License") in the form as
attached hereto as Exhibit C;
(v) if requested by Buyer, an assignment and consent of
License, executed by Seller and Landlord, in the form attached hereto as Exhibit
H;
(vi) all documents necessary to transfer to Buyer the
fictitious business name "Great American Sound Company" and "The G.A.S.
Company"; and
(vii) all such other documents or instruments as shall be
reasonably requested by Buyer to vest in Buyer title in and to the Assets of the
Business in accordance with the provisions hereof.
(b) On and after the Closing Date, Buyer is irrevocably appointed
Seller's attorney-in-fact, without further notice to Seller, to collect all
accounts receivable arising from services performed and products sold relating
to the Assets on or after the Closing Date, to endorse Seller's name on such
receivables, and to take any other reasonable action to collect receivables
arising from the Assets as of the Closing Date.
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(c) All instruments executed and delivered to Buyer pursuant hereto
shall be in form and substance, and shall be executed in a manner, reasonably
satisfactory to Buyer.
2.3 Offset. On or after the Closing Date, Buyer shall have the right to
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offset against and deduct (i) first from the consideration for the Assets
described in Section 1.4(b), and then from any other consideration owed to
Seller (ii) second from any compensation due to Williams, and (iii) third from
any compensation due to Graebener, any amounts paid by, or to be paid by, Buyer
for the obligations of Seller not assumed by Buyer. In the event of offsets
under (ii) above, such offsets shall be deducted from the above amounts due to
Williams or Graebener under their employment agreements with Buyer, provided
such invoices or claims are first sent to Seller and Seller has had thirty (30)
days to pay such obligations. Such obligations shall include, but are not
limited to, any tax amounts owed by Seller arising from transactions on or
before the Closing Date, and from any losses arising from any breaches of
representations, warranties, indemnities or other provisions of this Agreement.
2.4 Contracts. Seller shall also take any action necessary to transfer to
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Buyer any contracts currently owned by Seller relating to the Assets.
2.5 Possession. Buyer shall take possession of the Assets on the Closing
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Date.
2.6 Liabilities and Costs. Seller shall pay all federal and state sales
---------------------
taxes and payroll taxes, including taxes owed to the Internal Revenue Service
and the state taxing agencies, through February 25, 2000, including any other
taxes which may adversely effect the transfer of the Assets from Seller to
Buyer. Personal property taxes, insurance, payroll taxes and other applicable
taxes are to be prorated to Closing Date, with Seller paying all such
obligations accruing prior to Closing Date and Buyer responsible for payment of
all obligations accruing after such Closing Date.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
Hucon, Williams and Graebener each hereby represent and warrant to Buyer:
3.1 Organization of Seller. Hucon is duly organized, validly existing and
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in good standing under the laws of the State of Washington and has full
corporate power and authority to conduct its business as it is presently being
conducted and to own and License the properties and Assets. The ownership of
none of the Assets requires any document, agreement, qualification, licensing or
approval which is not being transferred to Buyer under this Agreement.
3.2 Authorization. Seller has full power and authority to enter into this
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Agreement, to consummate the transactions contemplated hereby and to perform
their obligations hereunder. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby by Seller
have been duly authorized by all requisite corporate action on the part of
Hucon. This Agreement has been duly executed and delivered by Seller and is a
valid and binding obligation of Seller enforceable against it in accordance with
its terms.
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3.3 Taxes. Seller has duly and timely filed all federal, state and local
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tax reports and returns required to be filed by it in connection with the
Assets, and all taxes and levies of every kind, character or description, shown
by such reports or returns to be due and payable, or which were or are otherwise
due and payable, have been paid. No taxing authority has asserted any claim for
the assessment of any additional tax liability. Seller has duly withheld and, if
payable, paid all taxes which it is required to withhold from, and pay relating
to, salaries or compensation paid to employees of its business.
3.4 No Undisclosed Liabilities. There are no liabilities, obligations or
--------------------------
commitments of any nature (absolute, accrued, contingent or otherwise) (herein
"Liabilities") relating to the Assets, except Liabilities which have been
disclosed in Schedule 3.4 attached hereto.
3.5 Assets. To the best of their knowledge, (i) the Technology has
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significant future value and no third party has any rights to the Technology or
rights to use, make or sell products based on the Technology, (ii) the rights of
Acoustic Technologies, Inc. and Dai Ichi do not interfere with or adversely
affect the rights of Buyer to the Technology or the Proprietary Rights, (iii)
the payment of the amounts set forth in the letter to Graphic Packaging to BG
dated February 11, 2000 shall provide Buyer with exclusive rights of BG under
the Co-Operation Agreement with Graphic Packaging (formerly with Fort James
Corporation), and that the Co-Operation Agreement with Fort James Corporation is
the only agreement governing the supply of the film diaphragm from Graphic
Packaging to BG, (iv) the supplier of the diaphragm is on a sole source basis
and such supplier cannot produce such material for use by others for the same
use, (v) the technology covered by the agreement with Acoustic Technologies,
Inc. covers technology other than the Technology and Proprietary Rights being
transferred by this Agreement, and (vi) the technology that is licensed by BG to
Dai Ichi and Acoustic Technologies, Inc. is mature and held in the public
domain. Exhibit D contains a list of all of the Assets. The Seller is in
possession and operating control of all of the Assets.
3.6 Trademarks, Etc. Schedule 3.6 hereto contains a list including all of
---------------
Seller's trademarks, trade names, service marks and registered copyrights, and
applications therefor, including the name "The Great American Sound Company" and
"The GAS Company", which are or have been used in connection with the Assets.
Except as set forth on Schedule 3.6 hereto, Seller owns all items set forth on
Schedule 3.6 hereto, and such items are not subject to any licenses, liens,
mortgages, pledges, encumbrances, claims, restrictions or charges of any kind.
Except as set forth on Schedule 3.6 hereto, Seller has not been charged, nor to
its best knowledge is it threatened to be charged, with infringement of, nor to
its best knowledge has infringed, any unexpired patent, trademark, trademark
registration, trade name, service mark, copyright, copyright registration or,
other proprietary right of any party relating to or in connection with the
Assets. To the best of their knowledge, Seller and Graebener owns or has the
right to use without royalty or other charge, all know-how, processes, methods
and designs relating to the Assets. The consummation of the transactions
contemplated hereby will not alter or impair any of such rights.
3.7 Title to Purchased Assets, Etc. Seller has good and marketable title
------------------------------
to all of the Assets described in this Agreement and listed on the attached
Exhibits. None of the Assets is or will be subject to any mortgage, deed of
trust, pledge, lien, security interest, encumbrance, claim, charge or material
adverse interest of any kind or character of any other person or entity.
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3.8 Contracts and Commitments. Schedule 3.8 sets forth every written or
-------------------------
oral commitment, contract or agreement, including but not limited to any
license, License, permit, authorization or franchise, involving any obligation
or liability relating to the Assets. Commitments, contracts and agreements set
forth on Schedule 3.8 hereto are in full force and effect and have not been
modified or amended in any material respect. Neither Seller, Williams or
Graebener is (and to the best knowledge of Seller no other party is) in breach
or violation of, or default under, and there is no valid basis for a claim of
breach or violation of, or default under, any material agreement, instrument,
indenture, deed of trust, commitment, contract or other obligation of any type
to which Seller, Williams or Graebener is a party (or is bound) which relates to
the Assets or to which any of the Assets is subject, and no event has occurred
which constitutes or, with the lapse of time or the giving of notice, or both,
would constitute such a breach, violation or default by Seller, Williams or
Graebener thereunder. Schedule 3.8 hereto also contains a list and brief
description of all warranties and other commitments or obligations with respect
to the return of, or service relating to, products manufactured or sold by
Seller and relating to the Assets. Complete and correct copies of all contracts,
commitments, agreements and Licenses set forth on Schedule 3.8 hereto have been
delivered to Buyer.
3.9 Litigation, Proceedings and Applicable Law. There are no material
------------------------------------------
actions, suits or proceedings pending or threatened, against or affecting any of
the Assets or the consummation of the transactions contemplated hereby, at law
or in equity or before or by any governmental authority or instrumentality or
before any arbitrator of any kind, and there is no valid basis for any such
action, proceeding or investigation. Buyer is assuming no liability with respect
to any such action, suit or proceeding arising out of transactions, acts or
omissions occurring prior to the Closing Date. No such action, suit or
proceeding will have a material adverse effect on the Assets or the condition
(financial or otherwise), business, operations, properties, assets, prospects,
technology or relations with customers, suppliers, distributors or employees of
Buyer as a result of the purchase of the Assets. There are no product liability,
warranty or similar claims, actions, litigation or other proceedings relating to
the Assets or products manufactured or sold, or services rendered, by the Seller
relating to the Assets which involve any claim for injunctive relief (whether
temporary or permanent) and which have arisen within three (3) years prior to
the date hereof.
3.10 Compliance with Law. Seller is in compliance, in all material
-------------------
respects, with all applicable statutes, rules, regulations, ordinances, codes,
orders, licenses, franchises, permits, authorizations and concessions, as such
apply to the Assets, including but not limited to, the intellectual property,
computer software and programs, and other intangible property, any applicable
state or federal patent, trademark, copyright, or other similar right or
filings. The Seller has received no notification alleging any violation of any
of the foregoing within the last three years or with respect to which adequate
corrective action has not been taken.
3.11 No Conflict or Violation. Neither the execution and delivery of this
------------------------
Agreement nor the consummation of the transactions contemplated hereby will
result in (i) a violation of or a conflict with any provision of the Articles of
Incorporation or Bylaws of Seller, (ii) a breach or default under any term or
provision of any contract, agreement, License, commitment, license, franchise,
permit, authorization or concession to which Seller is a party or by which the
Assets are bound, or an event which with notice, lapse of time, or both, would
result in any such breach or default, except for commitments, contracts or
agreements identified on Schedule 3.8 hereto
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and noted thereon as requiring the consent of a third party, (iii) a violation
by Seller of any statute, rule, regulation, ordinance, code, order, judgment,
writ, injunction, decree or award, or an event which with notice, lapse of time
or both would result in any such violation, or (iv) an imposition of any lien,
mortgage, pledge, easement, encumbrance, claim, restriction or charge on the
business of Seller or on any of the Assets, or an event which with notice, lapse
of time or both would result in any such imposition.
3.12 Insurance. Schedule 3.12 hereto contains a copy of each insurance
---------
policy maintained by Seller in connection with the Assets, if any, and a list of
individual claims in excess of One Thousand Dollars ($1,000), and similar claims
in excess, in the aggregate, of Five Thousand Dollars ($5,000) during any 12-
month period, made against the Assets within three (3) years prior to the date
hereof, under any insurance policies.
3.13 Consents and Approvals. Except as set forth on Schedule 3.13 hereto,
----------------------
no consent, approval or authorization of, or declaration or filing of
registration with, any governmental or regulatory authority, or any other person
or entity, is required to be made or obtained by Seller in connection with the
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby.
3.14 Licenses, Permits and Authorizations. Schedule 3.14 hereto contains a
------------------------------------
list of all approvals, authorizations, consents, licenses, franchises, orders
and other permits of, and filings with, any governmental authority, whether
foreign, federal, state or local, which are required for the ownership of the
Assets. All such approvals, authorizations, consents, licenses, orders and
permits are in full force and effect.
3.15 Purchase Entirely for Own Account. All of the common stock to be
---------------------------------
acquired by Seller ("the Securities") is being acquired for investment for each
of Hucon's, Williams' and Graebener's own accounts and not with a view to the
distribution of any part thereof. The Seller has no present intention of
selling, granting any participation in, or otherwise distributing the Securities
in a manner contrary to the Securities Act of 1933 ("Securities Act") or any
other applicable federal or state securities laws.
3.16 Investment Experience. Seller acknowledges that the Securities are a
---------------------
speculative risk and that Seller is able to fend for itself in the transactions
contemplated by this Agreement, can bear the economic risk of its investment
(including possible complete and total loss of such investment) for an
indefinite period of time, and has such knowledge and experience in financial or
business matters that it is capable of evaluating the merits and risks of the
acquisition of the Securities in connection with this Agreement. Hucon
represents it has not been organized for the purpose of acquiring the
Securities. Seller understands that while Buyer has agreed to use its best
efforts to register the common stock of Buyer in accordance with the Term Sheet,
the Securities have not been registered under the Securities Act, or under the
securities laws of any jurisdiction, by reason of reliance upon certain
exemptions, and that the reliance of the Buyer on such exemptions is predicated
upon the accuracy of Seller's representations and warranties contained in this
Agreement.
3.17 Restricted Securities. The Seller understands that the Securities are
---------------------
characterized as "restricted securities" under the federal securities laws since
they are being acquired from
8
<PAGE>
Buyer in a transaction not involving a public offering and that, under such laws
and applicable regulations, such securities may be transferred or resold without
registration under the Securities Act only in certain limited circumstances. In
this connection, the Seller represents that it is familiar with Securities and
Exchange Commission ("SEC") Rule 144, as presently in effect, and understands
the resale limitations imposed thereby and by the Securities Act and that a
standard legend will be placed on the certificates evidencing the Securities.
3.18 Receipt of Information. Seller has received all the information it
----------------------
considers necessary or appropriate for deciding whether to acquire the
Securities of Buyer pursuant to this Agreement. Hucon, Williams and Graebener
further represent that they have each had an opportunity to ask questions and
receive answers from the Buyer regarding the Securities of Buyer and the
business, properties, prospects and financial condition of the Buyer, have read
and reviewed the Buyer's Form 10-K Annual Report for the fiscal year ending
September 30, 1999, the Form 10-K/A Annual Report for the same period, and the
Form 10-Q for the quarter ended December 31, 1999 and all such other reports as
filed with the SEC as Seller has deemed necessary or desirable, and have had an
opportunity to obtain additional information (to the extent the Buyer possessed
such information or could acquire it without unreasonable effort or expense)
necessary to verify the accuracy of any information furnished to it or to which
it had access.
3.19 Disclosure. No representation or warranty of Seller contained in this
----------
Agreement, and no statement contained in any certificate, schedule, list or
other writing furnished to Buyer pursuant hereto, contains any untrue statement
of a material fact or omits to state a material fact necessary in order to make
the statements contained herein or therein not misleading. There is no fact
known to Seller which is not disclosed therein or in the Exhibits hereto which
materially and adversely affects the Assets.
3.20 Survival of Representations and Warranties. All covenants,
------------------------------------------
representations and warranties shall survive the consummation of the
transactions contemplated hereunder and the termination of and disbursement of
common stock hereunder.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller as follows:
4.1 Organization of Buyer. Buyer is duly organized, validly existing and
---------------------
in good standing under the laws of the State of Delaware.
4.2 Authorization. Buyer has full corporate power and authority to enter
-------------
into this Agreement, to consummate the transactions contemplated hereby and to
perform its obligations hereunder. This Agreement has been duly executed and
delivered by Buyer and is a valid and binding obligation of Buyer enforceable
against it in accordance with its terms.
9
<PAGE>
ARTICLE 5
ACTIONS BY SELLER AND BUYER
PRIOR TO THE CLOSING
Seller and Buyer covenant as follows for the period from the date hereof
through the Closing Date:
5.1 Maintenance of Assets. Seller shall diligently preserve the Assets in
---------------------
the ordinary course and in the manner heretofore conducted and shall use its
best efforts to maintain the relationships and contacts with suppliers,
customers, potential customers and others having business relations regarding
the Assets. Without limiting the generality of the foregoing, Seller shall (i)
maintain the Assets in their current state of repair, (ii) in the event of
casualty loss to any of such assets, to the extent permitted under applicable
contracts or Licenses, and with Buyer's consent, transfer the insurance
proceeds, or the rights thereto, to Buyer at the Closing.
5.2 Investigation by Buyer. Seller shall allow Buyer, at its own expense,
----------------------
during regular business hours, prior to the Closing Date, through Buyer's
employees, agents and representatives, to make such investigation of the
business, properties, plants, books and records relating to the Assets, and
similar information, and to conduct such examination (including an examination
of the audit work papers of any independent accountant) of the condition
(financial or otherwise) of the Assets as Buyer deems necessary or advisable to
familiarize itself with such Assets, and to verify the representations and
warranties of Seller hereunder, and the purchase of the Assets shall be subject
to Buyer's approval of all of the above.
5.3 Consents and Best Efforts. Seller shall obtain all consents,
-------------------------
approvals and agreements of, and to give all notices and make all filings with,
any third parties, including governmental authorities, necessary to authorize,
approve or permit the full and complete sale, conveyance, assignment, or
transfer of all of the Assets. In addition, subject to the terms and conditions
herein provided, each of the parties hereto covenants and agrees to use its best
efforts to take, or cause to be taken, all action or do, or cause to be done,
all things necessary, proper or advisable under applicable laws and regulations
to consummate and make effective the transactions contemplated hereby.
ARTICLE 6
CONDITIONS TO BUYER'S OBLIGATIONS
The obligations of Buyer to consummate the transactions provided for hereby
are subject, in the discretion of Buyer, to the satisfaction, on or prior to the
Closing Date, of each of the following conditions:
6.1 Representations, Warranties and Covenants. All representations and
-----------------------------------------
warranties of Hucon, Williams and Graebener contained in this Agreement shall be
true and correct in all material respects at and as of the Closing Date as if
such representations and warranties were made at and as of the Closing Date,
Seller shall have performed all agreements and covenants required hereby to be
performed by them prior to or at the Closing Date. On the Closing Date,
10
<PAGE>
there shall be delivered to Buyer a certificate (dated as of the Closing Date
and signed by Graebener and the President of Hucon to the foregoing effect,
substantially in the form of the certificate set forth in Exhibit G hereto.
6.2 Consents. All consents, approvals and waivers from third parties and
--------
governmental authorities and other parties, necessary to permit Seller to
transfer the Assets to Buyer as contemplated hereby, or necessary to permit
Buyer to fully own and use the Assets, shall have been obtained.
6.3 Material Changes. Since the date hereof, there shall not have been
----------------
any material adverse change in the condition (financial or otherwise) of the
Assets, liabilities, reserves, business, properties, operations, technology,
employee relations, customer, supplier or distributor relations, or prospects of
the Assets. For the purposes of this Agreement, a "material adverse change"
shall include, without limitation, any development or discovery of any material
contingent or other liability not described in the Schedules to this Agreement,
which might materially adversely affect the business, properties, assets,
operations, technology, prospects or relations with customers, suppliers, or
distributors relating to the Assets.
6.4 No Governmental Proceeding or Litigation. No suit, action,
----------------------------------------
investigation, inquiry or other proceeding by any governmental authority or
other person or legal or administrative proceeding shall have been instituted or
threatened which questions the validity or legality of the transactions
contemplated hereby and which could reasonably be expected materially and
adversely to affect the right or ability of Buyer to own, operate or possess
after the closing, or the value after the Closing, of the Assets being acquired
by Buyer hereunder or which could reasonably be expected to result in any
material liability of Buyer.
6.5 Certificates. Seller shall furnish Buyer with such certificates of
------------
Seller's officers and others to evidence compliance with the conditions set
forth in this Article 6 as may be reasonably requested by Buyer.
ARTICLE 7
ACTIONS BY SELLER AND BUYER AFTER THE CLOSING
7.1 Books, Records and Employees. Seller and Buyer agree that so long as
----------------------------
any books, records and files retained by Seller relating to the Assets, or the
books, records and files delivered to Buyer hereunder, to the extent that they
pertain to the Assets prior to the Closing Date, remain in existence and
available, each party (at its expense) shall have the right to inspect and to
make copies of the same at any time during business hours for any proper
purpose. Neither of the parties hereto will destroy, without first having
offered to deliver to the other party, any of such books, records and files for
a period of seven (7) years. Each party agrees that it will cooperate with and
make available to the other party, during normal business hours, all books,
records, information and employees (without substantial disruption of
employment) necessary and useful in connection with any tax inquiry, audit,
investigation or dispute, any litigation or investigation or any other matter
requiring any such books, records, information or employees for any reasonable
business purpose. The party requesting any such books, records, information or
employees shall bear all of the out-of-pocket costs and expenses (including
11
<PAGE>
without limitation, attorneys' fees, but excluding reimbursement for the
salaries and employee benefits) reasonably incurred in connection with providing
such books, records, information or employees.
7.2 Indemnification.
---------------
(a) By Hucon, Williams and Graebener. Hucon, Williams and
--------------------------------
Graebener, jointly and severally, shall indemnify, save and hold harmless Buyer
and its and their respective employees, representatives, officers, directors and
agents from and against any and all costs, losses (including, without
limitation, diminution in value), liabilities, damages, lawsuits, deficiencies,
claims and expenses (whether or not arising out of third-party claims),
including without limitation, interest, penalties, reasonable attorneys' fees
and all amounts paid in investigation, defense or settlement of any of the
foregoing, incurred in connection with or arising out of or resulting from or
incident to: (i) any breach of any agreement, covenant or warranty, or the
inaccuracy of any representation, made by Seller or any of them in or pursuant
to this Agreement, or (ii) any liability, obligation or commitment of any nature
(absolute, accrued, contingent or otherwise) of Seller or relating to the Assets
and not specifically assumed by Buyer pursuant to this Agreement.
(b) Defense of Claims. If any lawsuit or enforcement action is
-----------------
filed against any party entitled to the benefit of indemnity hereunder, written
notice thereof shall be given to indemnifying party as promptly as practicable
(and in any event within fifteen (15) days after the service of the citation or
summons); provided that the failure of any indemnified party to give timely
notice shall not affect rights to indemnification hereunder except to the extent
that the indemnifying party demonstrates actual damage caused by such failure.
After such notice, if the indemnifying party shall acknowledge in writing to
such indemnified party that such indemnifying party shall be obligated under the
terms of its indemnity hereunder in connection with such lawsuit or action, then
the indemnifying party shall be entitled, if it so elects, to take control of
the defense and investigation of such lawsuit or action and to employ and engage
attorneys of its own choice to handle and defend the same, at the indemnifying
party's cost, risk and expense; and such indemnified party shall cooperate in
all reasonable respects, at its cost, risk and expense, with the indemnifying
party and such attorneys in the investigation, trial and defense of such lawsuit
or action and any appeal arising therefrom; provided, however, that indemnified
party may, at its own cost, participate in such investigation, trial and defense
of such lawsuit or action and any appeal arising therefrom.
(c) Product and Warranty Liability. The provisions of this Section
------------------------------
7.2 shall cover, without limitation, all obligations and liabilities of
whatsoever kind, nature or description relating, directly or indirectly, to
product or warranty liability, litigation or claims against the Buyer in
connection with, arising out of, or relating to products sold or services
performed prior to the Closing Date.
(d) Brokers and Finders. Pursuant to the provisions of this Section
-------------------
7.2 Seller shall indemnify, hold harmless and defend Buyer from the payment of
any and all broker's and finder's expenses, commissions, fees or other forms of
other forms of compensation which may be due or payable from or by Seller, or
may have been earned by any third party acting on behalf
12
<PAGE>
of Seller in connection with the negotiation and execution hereof and the
consummation of the transactions contemplated hereby.
7.3 Further Assurances.
------------------
(a) On and after the Closing Date, Seller and Buyer will take all
appropriate action and execute any documents, instruments or conveyances of any
kind which may be reasonably necessary or advisable to carry out any of the
provisions hereof, including without limitation, putting Buyer in possession and
operating control of the Assets.
7.4 Bulk Sales. Buyer and Seller hereby waive compliance with Division 6
----------
of the California commercial code, of the bulk transfer contemplated by this
Agreement.
7.5 Taxes and Other Costs. Seller shall pay when due all foreign,
---------------------
federal, state or local taxes measured by or with respect to the income or gross
receipts of the Seller prior to the Closing Date or resulting from the sale to
Buyer of the Assets. Personal property taxes relating to the Assets shall be
prorated between Seller and Buyer as of the Closing Date (with Seller being
responsible for such items for all periods ending on or before the Closing Date
and Buyer being responsible for such items thereafter), and Seller and Buyer
each agree to pay its respective share of such items when due. Buyer shall not
be liable or responsible for any business, property, occupation, withholding or
similar tax, or any taxes of any kind related to any period before the Closing
Date, and Seller agrees to pay such charges on or before the Closing Date.
7.6 Noncompetition. Seller agrees that it shall not at any time within
--------------
the three (3) year period immediately following the Closing Date, directly or
indirectly, engage in, or have any interest in any person, firm, corporation or
business (whether as an employee, officer, director, agent, creditor,
consultant, or otherwise) that engages in (i) a business involving the direct or
indirect use of the "Assets" as defined herein and which Buyer is acquiring;
(ii) a business involving parametric speakers; or (iii) a business involving
electrostatic speakers, within the United States, Japan and Taiwan, or which is
otherwise the same as, similar to, or competitive with any activity now engaged
in by Seller.
ARTICLE 8
MISCELLANEOUS
8.1 Termination. If any condition precedent to Buyer's obligations
-----------
hereunder not satisfied and such condition is not waived by Buyer at or prior to
the Closing Date, Buyer may terminate this Agreement at its option by notice to
Seller. In the event of the termination of this Agreement, all cash or other
payments made to Seller or to BG on Seller's behalf shall be returned to Buyer,
and neither party shall have any further liability hereunder of any nature
whatsoever to the other party, including any liability for damages, unless
either party is in default under its obligations hereunder, in which event the
party in default shall be liable to the other party for such default. In the
event that a condition precedent to its obligations is not satisfied, nothing
contained herein shall be deemed to require any party to terminate this
Agreement, rather than to waive such condition precedent and proceed with the
Closing.
13
<PAGE>
8.2 Survival of Representations and Warranties. All of the
------------------------------------------
representations and warranties contained in this Agreement and in any
Certificate delivered pursuant hereto shall survive the Closing.
8.3 Assignment. Neither this Agreement nor any of the rights or
----------
obligations hereunder may be assigned by Seller without the prior written
consent of Buyer, or by Buyer without the prior written consent of Seller,
provided that Buyer may assign such rights and obligations so long as such
assignee agrees in writing to be bound by the applicable terms and conditions of
this Agreement and Buyer remains liable for its obligations to Seller hereunder.
8.4 Notices. Unless otherwise provided herein, any notice, request,
-------
instruction or other document to be given hereunder by either party to the other
shall be in writing and delivered personally or mailed by certified mail,
postage prepaid, return receipt requested (such mailed notice to be effective on
the date such receipt is acknowledged), as follows:
If to Seller: Hucon Limited
1218 Third Avenue, Ste. 1313
Seattle Washington 98101
Attn: Stephen M. Williams, President
If to Buyer: American Technology Corporation
13113 Evening Creek Drive South
San Diego, California 92128
Attn: Cornelius J. Brosnan, President
With a copy to: Michael J. Kinkelaar, Esq.
Procopio, Cory, Hargreaves and Savitch LLP
530 B Street, Suite 2100
San Diego, California 92101
or to such other place and with such other copies as either party may designate
as to itself by written notice to the others.
8.5 Choice of Law. This Agreement shall be construed, interpreted and the
-------------
rights of the parties determined in accordance with the laws of the State of
California and the exclusive venue for any proceedings, suits or claims
hereunder shall be San Diego, California. Each party has consulted with, or has
had the opportunity to consult with, such party's legal counsel prior to signing
this Agreement.
8.6 Entire Agreement; Amendments and Waivers. This Agreement, together
----------------------------------------
with all exhibits and schedules hereto, constitutes the entire Agreement among
the parties pertaining to the subject matter hereof and supersedes all prior
agreements, understandings, negotiations and discussions, whether oral or
written, of the parties. No supplement, modification or waiver of this Agreement
shall be binding unless executed in writing by the party to be bound thereby. No
waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver
14
<PAGE>
of any other provision hereof (whether or not similar), nor shall such waiver
constitute a continuing waiver unless otherwise expressly provided.
8.7 Multiple Counterparts. This Agreement may be executed in one or more
---------------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8.8 Expenses. Except as set forth below, each party hereto shall pay its
--------
own expenses incident to this Agreement and to action taken in preparation for
carrying this Agreement into effect.
8.9 Invalidity. In the event that any one or more of the provisions
----------
contained in this Agreement or in any other instrument referred to herein,
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision of this Agreement or any other such instrument.
8.10 Headings. The headings of the Articles and Sections herein are
--------
inserted for convenience of reference only and are not intended to be a part of
or to affect the meaning or interpretation of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on their respective behalf by their respective officers, thereunto
duly authorized, in multiple originals, all as of the day and year first above
written.
SELLER
Hucon Limited
By: /s/ Stephen M. Williams
-------------------------
Stephen M. Williams
/s/ Stephen M. Williams
-------------------------
Stephen M. Williams
/s/ David Graebener
-------------------------
David Graebener
BUYER
American Technology Corporation
By: /s/ Cornelius J. Brosnan
-------------------------
Cornelius J. Brosnan
15
<PAGE>
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
by and between
AMERICAN TECHNOLOGY CORPORATION
and
STEPHEN M. WILLIAMS
Effective February 15, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1 Employment......................................... 2
2 Loyal and Conscientious Performance; Noncompetition 3
3 Term of Employment................................. 3
4 Compensation....................................... 3
5 Termination........................................ 5
6 Death or Disability During Term of Employment...... 8
7 Proprietary and Confidential Information........... 9
8 Assignment and Binding Effect...................... 14
9 Notices............................................ 15
10 Choice of Law...................................... 15
11 Integration........................................ 16
12 Waiver............................................. 16
13 Severability....................................... 16
14 Interpretation; Construction....................... 16
15 Attorneys' Fees.................................... 16
16 Counterparts....................................... 17
17 Representations and Warranties..................... 17
18 Arbitration........................................ 17
</TABLE>
i
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
effective as of February 15, 2000 by and between American Technology
Corporation, a Delaware corporation (the "Company") and Stephen M. Williams
("EMPLOYEE"). The Company and EMPLOYEE are hereinafter collectively referred to
as the "Parties," and individually referred to as each or any "Party."
RECITALS:
A. WHEREAS, the Company is engaged in the design, development and
commercialization of sound, acoustics and other technologies, and the sales and
marketing of consumer electronic products and related areas (the "Business of
the Company"); and
B. WHEREAS, the Company desires assurance of the association and services
of EMPLOYEE in order to retain EMPLOYEE's experience, skills, abilities,
background and knowledge, and is willing to engage EMPLOYEE's services on the
terms and conditions set forth in this Agreement; and
C. WHEREAS, EMPLOYEE desires to be in the employ of the Company, and is
willing to accept such employment on the terms and conditions set forth in this
Agreement.
AGREEMENT:
In consideration of the foregoing premises and the mutual covenants herein
contained, and for other good and valuable consideration, the Parties, intending
to be legally bound, agree as follows:
<PAGE>
1 Employment.
----------
1.1 The Company hereby employs EMPLOYEE, and EMPLOYEE hereby accepts
employment by the Company, upon the terms and conditions set forth in this
Agreement for the period beginning on the date hereof and ending as provided in
Paragraph 3 hereof (the "Employment Period").
1.2 During the Employment Period, EMPLOYEE shall serve as Division
President and shall have the normal duties, responsibilities and authority of
such office, unless otherwise determined from time to time by the Company's
Chief Executive Officer or Board of Directors. EMPLOYEE shall do and perform
all services, acts or things necessary or advisable to carry out the job duties
assigned by the Company, provided, however, that at all times during his
employment EMPLOYEE shall be subject to the direction and policies from time to
time established by the Chief Executive Officer or the Board of Directors of the
Company.
1.3 Within thirty (30) days of execution of this Agreement, EMPLOYEE shall
submit an annual budget for his division, including a month-to-month breakdown,
for review and approval by the Chief Executive Officer of the Company. Upon
approval, the budget as amended in accordance with the provisions herein, shall
determine the expenditures for and the spending authority of EMPLOYEE for his
division for the periods stated. The budget may be revised from time to time as
determined by the Chief Executive Officer. Any unbudgeted expense in excess of
$500, and any budgeted expense in excess of $2,500, either individually or in
the aggregate, in any thirty (30) day period for any single entity or purpose
must be pre-approved by the Chief Executive Officer of the Company.
2
<PAGE>
2 Loyal and Conscientious Performance; Noncompetition.
---------------------------------------------------
2.1 During his employment by the Company, EMPLOYEE shall devote his full
energies, interest, abilities and productive time to the proper and efficient
performance of this Agreement and shall not, without the prior written consent
of the Chief Executive Officer or the Board of Directors of the Company,
directly or indirectly, render services of a business, professional or
commercial nature to any other person or entity, whether for compensation or
otherwise, or engage in any business activities competitive with or adverse to
the Company's business or welfare, whether alone, as a partner, or as a
shareholder, officer or director of any other corporation, or as a trustee,
fiduciary or in a similar representative capacity.
3 Term of Employment.
------------------
3.1 Subject to earlier termination as provided in this Agreement, EMPLOYEE
shall be employed pursuant to the terms of this Agreement for a three (3) year
term beginning on February 15, 2000 and expiring at midnight on February 14,
2003.
4 Compensation.
------------
4.1 Beginning with the Effective Date of this Agreement, Company shall pay
EMPLOYEE a salary (the "Base Salary") of One Hundred Eighty Thousand Dollars
($180,000.00) per year, payable in accordance with the Company's normal payroll
practices for employees. Such salary shall be prorated for any partial
employment on the basis of a 30-day calendar month.
4.2 EMPLOYEE's compensation may be changed from time to time by mutual
agreement of EMPLOYEE and the Board of Directors of the Company. Any such
agreement shall be evidenced by a written amendment of this Agreement, which,
among other things, shall
3
<PAGE>
specify with particularity any change in EMPLOYEE's compensation and the date or
dates when each such change shall become effective.
4.3 Immediately upon the execution of this Agreement by the parties,
EMPLOYEE shall be awarded an additional equity compensation package regarding
common voting shares of the Company according to the terms and conditions
described in Exhibit A to this Agreement.
4.4 In addition to the Base Salary payable to EMPLOYEE hereunder, the
EMPLOYEE shall be entitled to the following benefits during the Employment
Period:
4.4.1 All benefits to which the senior management of the Company are
entitled, as determined by the Company's Board of Directors, on terms comparable
thereto, including but not limited to, participation in any and all pension and
profit sharing plans, bonus and incentive payment programs, group life insurance
policies and plans, medical and health policies and plans, and the like, which
may be maintained by the Company for the benefit of its executives.
4.4.2 Three (3) weeks vacation per year, which shall accrue annually
beginning with the effective date of this Agreement. If the EMPLOYEE does not
utilize the entire three weeks of annual vacation in a given year, he may carry
over such weeks into the following calendar year, provided that such accrual
shall not exceed the maximum accrual permitted under current Company policy.
4.4.3 EMPLOYEE shall be based in Seattle, Washington until the Board
of Directors and EMPLOYEE mutually agree that the relocation of EMPLOYEE to San
Diego, California is necessary. At such time as EMPLOYEE does relocate to San
Diego, the Company shall reimburse to EMPLOYEE for his moving expenses to San
Diego in an amount up to Twenty Thousand Dollars ($20,000.00) of such moving
expenses, provided EMPLOYEE provides to the Company appropriate documentation
supporting such expenses.
4
<PAGE>
4.5 The Company shall reimburse EMPLOYEE for all reasonable out-of-pocket
expenses incurred by him in the course of performing his duties under this
Agreement, which are consistent with the Company's policies in effect from time
to time with respect to travel, entertainment and other business expenses,
subject to the Company's requirements with respect to reporting and
documentation of such expenses.
4.6 All of EMPLOYEE's compensation shall be subject to customary federal
and state withholding taxes and any other employment taxes as are commonly
required to be collected or withheld by the Company.
5 Termination.
-----------
5.1 The Company may terminate this Agreement for Cause (as defined herein)
by delivery of written notice to EMPLOYEE specifying the cause or causes relied
upon for such termination. If EMPLOYEE's employment under this Agreement is
terminated by the Company for Cause before the last day of any calendar month,
EMPLOYEE shall be entitled to receive as compensation for such calendar month,
only the Base Salary set forth in Section 4.1 prorated to the date of
termination on the basis of a 30-day calendar month and all accrued and
unreimbursed business expenses incurred by Williams on or before such date.
Grounds for the Company to terminate this Agreement for "Cause" shall include
the occurrence of any of the following events:
5.1.1 EMPLOYEE's willful misconduct or gross negligence in the
performance of his duties hereunder;
5.1.2 EMPLOYEE's willful failure or refusal to perform in the usual
manner at the usual time those duties which he regularly and routinely performs
in connection with the business of the Company or such other duties reasonably
related to the capacity in which he is
5
<PAGE>
employed hereunder which may be assigned to him by the Board of Directors of the
Company, if such failure or refusal has not been substantially cured to the
satisfaction of the Board of Directors within thirty (30) days after written
notice of such failure or refusal has been given by the Company to EMPLOYEE.
5.1.3 EMPLOYEE's performance of any action when specifically
instructed not to do so by the Chief Executive Officer of the Company unless
specifically requested by the Board of Directors;
5.1.4 EMPLOYEE's engaging or in any manner participating in any
activity which is directly competitive with or intentionally injurious to the
Company or which violates any provision of Section 7;
5.1.5 EMPLOYEE's commission of any fraud against the Company or use
or appropriation for his personal use or benefit of any funds or properties of
the Company not authorized by the Board of Directors to be so used or
appropriated; or
5.1.6 EMPLOYEE's conviction of any crime involving moral turpitude.
Any notice of termination given pursuant to this Section 5.1 shall effect
termination as of the date specified in such notice or, in the event no such
date is specified, on the last day of the month in which such notice is
delivered.
5.2 The Company may voluntarily terminate this Agreement without Cause by
giving not less than thirty (30) days written notice to EMPLOYEE, provided,
however, in no event shall such termination without Cause be earlier than six
(6) months from the effective date of this Agreement. Any such notice shall
specify the exact date of termination (the "Termination Date"). If EMPLOYEE's
employment under this Agreement is terminated by the Company without Cause (as
defined herein), EMPLOYEE shall be entitled to receive (i) his Base Salary
6
<PAGE>
and other then current benefits for six (6) months, at the rate existing at the
date of termination, and (ii) fifty percent (50%) of the stock options which are
not vested on the Termination Date as such stock options are described on
Exhibit A hereof, and said fifty percent (50%) of the unvested options shall
vest on the Termination Date. All such Base Salary payments shall be paid over
time in accordance with the Company's general payroll practices, as and when
such Base Salary would have been paid had EMPLOYEE's employment not terminated.
5.3 EMPLOYEE may voluntarily terminate this Agreement upon no less than
sixty (60) days written notice of such termination submitted to the Board of
Directors, and in such event EMPLOYEE shall be entitled to receive all amounts
due to him through the date of termination, provided that EMPLOYEE shall not be
entitled to terminate this Agreement unless and until the Technology and other
assets described in the Technology Transfer Term Sheet dated February 25, 2000
(the "Term Sheet") are fully, completely and properly transferred to the Company
to the satisfaction of the Chief Executive Officer or the Board of Directors.
5.4 This Employment Agreement is a personal services contract whereby the
Company is engaging the exclusive services of EMPLOYEE. By entering into this
Agreement, the Company is relying on EMPLOYEE's performing his services for the
Company throughout the entire term of this Agreement.
5.5 This Agreement shall terminate without notice upon the date of
EMPLOYEE's death or the date when EMPLOYEE becomes "completely disabled" as that
term is defined in Section 6.1.
5.6 In the event of EMPLOYEE's death, all rights of EMPLOYEE to
compensation hereunder shall automatically terminate immediately upon his death,
except that EMPLOYEE's heirs, personal representatives or estate shall be
entitled to any unpaid portion of his salary and
7
<PAGE>
accrued benefits earned up to the date of his death, and may exercise within six
months of the date of death, all vested options to acquire the common stock of
the Company granted to EMPLOYEE hereunder unless a longer term is provided for
in the Company's Incentive Stock Option Plan.
5.7 In the event EMPLOYEE is disabled, EMPLOYEE shall be entitled to
receive such disability benefits as would apply to other senior executives in
the Company, subject to the terms and conditions of any such Company disability
program.
5.8 If this Agreement is terminated pursuant to Sections 5.1 or 5.2, or
EMPLOYEE gives the notice described in Section 5.3, the Chief Executive Officer
or the Board of Directors of the Company may, in his or its sole discretion,
relieve EMPLOYEE of his duties under this Agreement and assign EMPLOYEE other
duties and responsibilities to be performed until the termination becomes
effective.
6 Death or Disability During Term of Employment.
---------------------------------------------
6.1 The term "completely disabled" as used in this Agreement shall mean
the inability of EMPLOYEE to perform his duties under this Agreement because he
has become permanently disabled within the meaning of any policy of disability
income insurance covering employees of the Company then in force. In the event
the Company has no policy of disability income insurance covering employees of
the Company in force when EMPLOYEE becomes disabled, the term "completely
disabled" shall mean the inability of EMPLOYEE to perform his normal and
customary duties under this Agreement for a total of six (6) consecutive months
by reason of any incapacity, physical or mental, which the Board of Directors of
the Company, based upon medical advice or an opinion provided by a licensed
physician acceptable to the Board of Directors of the Company, determines to
have incapacitated EMPLOYEE from satisfactorily
8
<PAGE>
performing all of his usual services for the Company during the foreseeable
future. The action of the Board of Directors of the Company shall be final and
binding and the date such action is taken shall be the date of such complete
disability for purposes of this Agreement, and upon such date this Agreement
shall become null and void and of no further force and effect, provided that
EMPLOYEE may exercise within six months of the date of termination under this
Section 6, all vested options to acquire the common stock of the Company granted
to EMPLOYEE hereunder, provided that EMPLOYEE acknowledges that such options may
then be considered nonqualified options and not incentive stock options pursuant
to federal law unless a longer term is provided for in the Company's Incentive
Stock Option Plan.
7 Proprietary and Confidential Information.
----------------------------------------
7.1 EMPLOYEE, during the term of this Agreement, will have access to and
become acquainted with various information of substantial value to the Company,
including trade secrets, which is not old and generally not known in the
industry, and which gives the Company an advantage over its competitors who do
not know or use it, including, but not limited to, formulas, patterns, devices,
software, patents, patent applications, software applications or algorithms,
secret inventions, processes, techniques, designs, drawings, developments,
equipment, prototypes, sales and customer information, customer and prospect
lists, and business and financial information relating to the business,
products, practices, and techniques of the Company (collectively, the
"Confidential Information"). EMPLOYEE agrees to regard and preserve as
confidential such Confidential Information obtained by EMPLOYEE from whatever
source and will not, either during EMPLOYEE's employment or thereafter, publish
or disclose any part of such Confidential Information in any manner at any time,
or use such Confidential Information except on behalf of the Company, without
the prior written consent of the Company.
9
<PAGE>
Further, both during EMPLOYEE's employment and thereafter, EMPLOYEE will refrain
from any acts or omissions that would reduce the value of such Confidential
Information to the Company. All files, records, documents, drawings,
specifications, equipment, computer disks and software, and other electronic
media or similar items relating to the business of the Company, whether prepared
by the EMPLOYEE or otherwise coming into EMPLOYEE's possession, shall remain the
exclusive property of the Company.
7.2 Nonsolicitation. In order to protect the Confidential Information of
the Company and avoid injury to the Company, EMPLOYEE represents and warrants
and agrees that, for the longer of one year following the termination of
EMPLOYEE's employment with the Company, or so long as EMPLOYEE is receiving any
payments under Section 5.2. from Company:
(a) EMPLOYEE will not directly or indirectly solicit the customers or
demonstrably prospective customers of the Company to purchase products or
services which are competitive with those of the Company;
(b) EMPLOYEE will not directly or indirectly solicit or in any manner
encourage employees of the Company to leave its employ; and
(c) EMPLOYEE will not accept employment from or with any company which
is directly competitive with the Business of the Company.
Any breach by EMPLOYEE of this Section shall cause the immediate
termination of all of Company's obligation to pay EMPLOYEE any amounts
hereunder.
7.3 Disclosure of Inventions. EMPLOYEE agrees that he will promptly
disclose in writing to the officials designated by the Company to receive such
disclosures, complete information concerning each and every invention,
discovery, improvement, device, design, apparatus, practice, process, method or
product, whether EMPLOYEE considers them patentable
10
<PAGE>
or not, made, developed, perfected, devised, conceived or first reduced to
practice by EMPLOYEE, either solely or in collaboration with others, during the
period of EMPLOYEE's employment by the Company, and up to and including a period
of one (1) year after termination of EMPLOYEE's employment, whether or not
during regular working hours, relating either directly to the business,
products, practices or techniques of the Company, or to the Company's actual or
demonstrably anticipated research or development, or resulting from any work
performed by EMPLOYEE for the Company (collectively, "Inventions").
7.4 Assignment of Inventions. EMPLOYEE agrees that any and all Inventions
made, developed, perfected, devised, conceived or reduced to practice by him
during the period of his employment by the Company, and any other Inventions
made, developed, perfected, devised, conceived or reduced to practice by
EMPLOYEE during said period of one (1) year after termination of his employment,
relating either directly to the business, products, practices or techniques of
the Company or the Company's actual or demonstrably anticipated research or
development, or resulting from any work performed by EMPLOYEE for the Company,
are the sole property of the Company, and EMPLOYEE hereby assigns and agrees to
assign to the Company, its successors and assigns, any and all of his right,
title and interest in and to any and all Inventions, and any patent
applications or Letters Patent thereon.
7.5 List of Inventions. As a matter of record, EMPLOYEE will, within 30
days of the execution of this Agreement, provide to Company, to be attached as
Exhibit B to this Agreement, a complete list of all inventions or improvements
relevant to the Business of the Company which have been made or conceived or
first reduced to practice by him alone or jointly with others prior to his
engagement by the Company which he desires to remove from the operation of this
11
<PAGE>
Agreement, and he represents that such list is complete. If no list is attached
or the list is blank, it means that he has no inventions or improvements to
list.
7.6 Right to Use or Publish. Nothing in this Agreement shall limit or be
construed to limit EMPLOYEE's right to use or publish information which: (a) was
in the public domain before his employment commenced; (b) was known to EMPLOYEE
to be free from any claim of other third parties before EMPLOYEE's employment;
(c) was developed or acquired independently of the Company; or (d) becomes
public knowledge without breach by him of any obligations of confidence to the
Company.
7.7 Further Cooperation. EMPLOYEE will, at any time during his employment
or thereafter, upon request and without further compensation therefor, but at no
expense to EMPLOYEE, do all lawful acts, including the execution of papers and
oaths and the giving of testimony, that in the opinion of the Company, its
successors and assigns, may be necessary or desirable for obtaining, sustaining,
reissuing or enforcing Letters Patent or copyrights in the United States and
throughout the world for any and all of said Inventions, and for perfecting,
recording and maintaining the title of the Company, its successors and assigns,
to the Inventions and to any patent or copyright applications made and any
Letters Patent or copyrights granted for the Inventions in the United States and
throughout the world.
7.8 Keeping of Records. EMPLOYEE will keep complete, accurate and
authentic accounts, notes, data and records of any and all of the Inventions in
the manner and form requested by the Company. Such accounts, notes, data and
records, including all copies thereof, shall be the property of the Company,
and, upon its request, EMPLOYEE will promptly surrender same to the Company, or
if not previously surrendered, EMPLOYEE will promptly surrender same to the
Company at the conclusion of his employment.
12
<PAGE>
7.9 Surrender of Materials. EMPLOYEE agrees that he will also surrender
to the Company, at its request, or at the conclusion of his employment, all
accounts, notes, data, sketches, drawings and other documents and records, and
all material and physical items of any kind, including all reproductions and
copies thereof, which relate in any way to the business, products, practices or
techniques of the Company or contain Confidential Information, whether or not
created by him, or which come into his possession by reason of his employment
with the Company, and EMPLOYEE agrees further that all of the foregoing are the
property of the Company.
7.10 Prohibition of Misappropriation from Others. EMPLOYEE represents and
warrants and agrees that he will not disclose to the Company, use, or induce the
Company to use, any invention or confidential information belonging to any third
party.
7.11 Imposed Obligations. EMPLOYEE understands that the Company may enter
into agreements or arrangements that may be subject to laws and regulations
which impose obligations, restrictions and limitations on it with respect to
Inventions and patents which may be acquired by it or which may be conceived or
developed by employees, consultants or other agents rendering services to it.
EMPLOYEE agrees that he shall be bound by all such obligations, restrictions and
limitations applicable to any Invention conceived or developed by him during the
period of his employment, and EMPLOYEE shall take any and all further action
which may be required to discharge such obligations and to comply with such
restrictions and limitations.
7.12 Preservation of Property. EMPLOYEE will exercise reasonable care,
consistent with good business judgment, to preserve in good working order,
subject to reasonable wear and tear from authorized usage, and to prevent loss
of, any equipment, instruments or accessories of
13
<PAGE>
the Company in his custody for the purpose of making demonstrations,
implementing trials, carrying out development work, or otherwise conducting the
business of the Company. Upon request, EMPLOYEE will promptly surrender the same
to the Company at the conclusion of his employment, or if not surrendered,
EMPLOYEE will account to the Company to its reasonable satisfaction as to the
present location of all such instruments or accessories and the business purpose
for their placement at such location. At the conclusion of EMPLOYEE's employment
with the Company, he agrees to return such instruments or accessories to the
Company or to account for same to the Company's reasonable satisfaction.
7.13 No Inconsistent Agreements. EMPLOYEE represents and warrants that he
has no agreement with any other party that would preclude his compliance with
any obligations under this Agreement.
7.14 Indemnity. EMPLOYEE agrees to indemnify and hold Company harmless
from and against any and all loss, liability or expense arising from or related
to any breach of this Section 7 or the representations and warranties made by
EMPLOYEE hereunder. Any material breach of this Section 7 or any representation
and warranty of EMPLOYEE hereunder shall permit the Company to purchase from
EMPLOYEE any or all of the Contingent Stock (as defined in the Term Sheet) from
EMPLOYEE at the price paid by EMPLOYEE for such stock..
8 Assignment and Binding Effect.
-----------------------------
8.1 This Agreement shall be binding upon and inure to the benefit of
EMPLOYEE and EMPLOYEE's heirs, executors, administrators, estate, beneficiaries,
and legal representatives. Neither this Agreement nor any rights or obligations
under this Agreement shall be assignable by either party without the prior
express written consent of the other party. This
14
<PAGE>
Agreement shall be binding upon and inure to the benefit of the Company and its
successors, assigns and legal representatives.
9 Notices.
-------
9.1 All notices or demands of any kind required or permitted to be given
by the Company or EMPLOYEE under this Agreement shall be given in writing and
shall be personally delivered (and receipted for) or mailed by certified mail,
return receipt requested, postage prepaid, addressed as follows:
If to the Company: American Technology Corporation
13114 Evening Creek Drive South
San Diego, California 92128
Attention: Board of Directors
with a copy to: Michael J. Kinkelaar, Esq.
Procopio, Cory, Hargreaves & Savitch LLP
530 B Street, Suite 2100
San Diego, California 92101
If to EMPLOYEE: Stephen M. Williams
c/o Stratton Ballew
1313 Seattle Tower
1218 Third Avenue
Seattle, Washington 98101
Any such written notice shall be deemed received when personally delivered, or
three (3) days after its deposit in the United States mail as specified above.
Either Party may change its address for notices by giving notice to the other
Party in the manner specified in this section.
10 Choice of Law.
-------------
10.1 This Agreement is made in San Diego, California. This Agreement
shall be construed and interpreted in accordance with the laws of the State of
California. Each of the parties hereto agree to the exclusive jurisdiction of
the state and federal courts located in the State of California for any and all
actions between the parties. Any controversy or claim arising
15
<PAGE>
out of or relating to this Agreement or the breach thereof, whether involving
remedies at law or in equity, shall be adjudicated in San Diego County,
California.
11 Integration.
-----------
11.1 This Agreement contains the entire agreement of the parties relating
to the subject matter of this Agreement, and supersedes all prior oral and
written employment agreements or arrangements between the Parties. This
Agreement cannot be amended or modified except by a written agreement signed by
EMPLOYEE and the Company.
12 Waiver.
------
12.1 No term, covenant or condition of this Agreement or any breach
thereof shall be deemed waived, except with the written consent of the Party
against whom the waiver is claimed, and any waiver of any such term, covenant,
condition or breach shall not be deemed to be a waiver of any preceding or
succeeding breach of the same or any other term, covenant, condition or breach.
No failure or exercise, delay in exercising, or single or partial exercise of
any right, power or remedy by either party hereto shall constitute a waiver
thereof or shall preclude any other or further exercise of the same or any other
right, power or remedy.
13 Severability.
------------
13.1 The unenforceability, invalidity or illegality of any provision of
this Agreement shall not render any other provision of this Agreement
unenforceable, invalid or illegal.
14 Interpretation; Construction.
----------------------------
14.1 The headings set forth in this Agreement are for convenience only and
shall not be used in interpreting this Agreement.
15 Attorneys' Fees. In any controversy or claim arising out of or relating to
---------------
this Agreement or the breach thereof, which results in legal action, proceeding
or arbitration, the prevailing party
16
<PAGE>
in such action, as determined by the court or arbitrator, shall be entitled to
recover reasonable attorneys' fees and costs incurred in such action.
16 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which when so executed and delivered shall together
constitute an original hereof.
17 Representations and Warranties.
------------------------------
17.1 EMPLOYEE represents and warrants that he is not restricted or
prohibited, contractually or otherwise, from entering into and performing each
of the terms and covenants contained in this Agreement, and that his execution
and performance of this Agreement will not violate or breach any other agreement
between EMPLOYEE and any other person or entity.
18 Arbitration.
-----------
18.1 Any controversy or claim arising out or relating to this Agreement,
or the breach hereof, or arising out of or relating to the rights, duties or
obligations of the Company or of EMPLOYEE shall be settled by arbitration
conducted in San Diego County, California in accordance with, and by an
arbitrator appointed pursuant to, the rules of the American Arbitration
Association in effect at the time, and the judgment upon the award rendered
pursuant thereto may be entered in any court having jurisdiction, and all rights
or remedies of the Company and of the EMPLOYEE to the contrary are hereby
expressly waived. Prior arbitration pursuant to the provisions of this Section,
and an award pursuant thereto, shall be a condition precedent to the bringing of
any action, suit or proceeding by EMPLOYEE for any form of relief against the
Company or any of its shareholders, directors or officers subject to this
Agreement.
17
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date
first above written.
THE COMPANY:
American Technology Corporation,
a Delaware Corporation
By: /s/ CORNELIUS J. BROSNAN
_______________________________
Cornelius J. Brosnan
Chief Executive Officer
EMPLOYEE:
/s/ STEPHEN M. WILLIAMS
____________________________________
Stephen M. Williams
98 Union St. #607
____________________________________
Seattle, Wash 98101
____________________________________
[address]
###-##-####
________________________
Employee Social Security No.
18
<PAGE>
Exhibit A
Effective immediately upon signing this Agreement, EMPLOYEE shall be
awarded incentive stock options to purchase 100,000 shares of Common voting
shares in the Company.
The exercise price of all said options shall be $8.125 per share, that
price being the "strike price" of such options as of the close of business on
February 25, 2000.
The above-mentioned options shall vest on the earlier of (i) quarterly over
three (3) years, with the first 8333 option shares vesting May 15, 2000, and the
balance vesting in equal amounts of 8333 option shares beginning on the 15th day
of August, November, February and May of each year during the term of this
Agreement, until February 14, 2003, on which day the balance of any unvested
option shares shall vest, or (ii) in the event of a significant license, trade
or sales agreement for the technology purchased from Hucon Limited.
The options described above shall be set forth in a definitive stock option
agreement between EMPLOYEE and the Company which shall include all of the above
terms and other usual and customary provisions as deemed necessary by counsel to
the Company.
Initials:
CB The Company SM Stephen M. Williams
- ------ ------
A-1
<PAGE>
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
by and between
AMERICAN TECHNOLOGY CORPORATION
and
DAVID GRAEBENER
Effective February 15, 2000
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
1 Employment......................................................... 2
2 Loyal And Conscientious Performance; Noncompetition................ 3
3 Term Of Employment................................................. 3
4 Compensation....................................................... 3
5 Termination........................................................ 5
6 Death Or Disability During Term Of Employment...................... 8
7 Proprietary And Confidential Information........................... 9
8 Assignment And Binding Effect...................................... 14
9 Notices............................................................ 15
10 Choice Of Law...................................................... 15
11 Integration........................................................ 16
12 Waiver............................................................. 16
13 Severability....................................................... 16
14 Interpretation; Construction....................................... 16
15 Attorneys' Fees.................................................... 16
16 Counterparts....................................................... 17
17 Representations And Warranties..................................... 17
18 Arbitration........................................................ 17
i
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
effective as of February 15, 2000 by and between American Technology
Corporation, a Delaware corporation (the "Company") and David Graebener
("EMPLOYEE"). The Company and EMPLOYEE are hereinafter collectively referred to
as the "Parties," and individually referred to as each or any "Party."
RECITALS:
A. WHEREAS, the Company is engaged in the design, development and
commercialization of sound, acoustics and other technologies, and the sales and
marketing of consumer electronic products and related areas (the "Business of
the Company"); and
B. WHEREAS, the Company desires assurance of the association and services
of EMPLOYEE in order to retain EMPLOYEE'S experience, skills, abilities,
background and knowledge, and is willing to engage EMPLOYEE'S services on the
terms and conditions set forth in this Agreement; and
C. WHEREAS, EMPLOYEE desires to be in the employ of the Company, and is
willing to accept such employment on the terms and conditions set forth in this
Agreement.
AGREEMENT:
In consideration of the foregoing premises and the mutual covenants herein
contained, and for other good and valuable consideration, the Parties, intending
to be legally bound, agree as follows:
1
<PAGE>
1 Employment.
-----------
1.1 The Company hereby employs EMPLOYEE, and EMPLOYEE hereby accepts
employment by the Company, upon the terms and conditions set forth in this
Agreement for the period beginning on the date hereof and ending as provided in
Paragraph 3 hereof (the "Employment Period").
1.2 During the Employment Period, EMPLOYEE shall serve as a Director of
Research and Development, shall report to Tom Tulowitzki, Senior Vice-President
of Research and Development, and shall have the normal duties, responsibilities
and authority of such office, unless otherwise determined from time to time by
the Company's Chief Executive Officer or Board of Directors. EMPLOYEE shall do
and perform all services, acts or things necessary or advisable to carry out the
job duties assigned by the Company, provided, however, that at all times during
his employment EMPLOYEE shall be subject to the direction and policies from time
to time established by the Chief Executive Officer or the Board of Directors of
the Company.
1.3 Within fourteen (14) days of execution of this Agreement EMPLOYEE
shall submit a budget for the balance of the calendar year for his division,
including a month-to-month breakdown for review and approval by the Senior Vice-
President of Research and Development of the Company. Upon approval, the budget
as amended in accordance with the provisions herein, shall determine the
expenditures for and the spending authority of EMPLOYEE for his division for the
periods stated. The budget may be revised from time to time as determined by the
Senior Vice-President of Research and Development. Any unbudgeted expense in
excess of five hundred dollars ($500) and budgeted expense in excess of two
thousand dollars ($2,000); either individually or in the aggregate, in any
thirty (30) day period for any single entity or
2
<PAGE>
purpose must be pre-approved by the Senior Vice-President of Research and
Development of the Company.
2 Loyal And Conscientious Performance; Noncompetition.
---------------------------------------------------
2.1 During his employment by the Company, EMPLOYEE shall devote his full
energies, interest, abilities and productive time to the proper and efficient
performance of this Agreement and shall not, without the prior written consent
of the Chief Executive Officer or the Board of Directors of the Company,
directly or indirectly, render services of a business, professional or
commercial nature to any other person or entity, whether for compensation or
otherwise, or engage in any business activities competitive with or adverse to
the Company's business or welfare, whether alone, as a partner, or as a
shareholder, officer or director of any other corporation, or as a trustee,
fiduciary or in a similar representative capacity, provided, however, that
EMPLOYEE shall be permitted to complete certain duties for Bohlender Graebner
within the 30 day period ending on March 25, 2000.
3 Term Of Employment.
------------------
3.1 Subject to earlier termination as provided in this Agreement,
EMPLOYEE shall be employed pursuant to the terms of this Agreement for a three
(3) year term beginning on February 15, 2000 and expiring at midnight on
February 14, 2003.
4 Compensation.
------------
4.1 Beginning with the Effective Date of this Agreement, Company shall
pay EMPLOYEE a salary (the "Base Salary") of One Hundred Ten Thousand Dollars
($110,000.00) per year, payable in accordance with the Company's normal payroll
practices for employees. Such salary shall be prorated for any partial
employment on the basis of a 30-day calendar month.
3
<PAGE>
4.2 EMPLOYEE'S compensation may be changed from time to time by mutual
agreement of EMPLOYEE and the Board of Directors of the Company. Any such
agreement shall be evidenced by a written amendment of this Agreement, which,
among other things, shall specify with particularity any change in EMPLOYEE'S
compensation and the date or dates when each such change shall become effective.
4.3 Immediately upon the execution of this Agreement by the parties,
EMPLOYEE shall be awarded an additional equity compensation package regarding
common voting shares of the Company according to the terms and conditions
described in Exhibit A to this Agreement.
4.4 In addition to the Base Salary payable to EMPLOYEE hereunder, the
EMPLOYEE shall be entitled to the following benefits during the Employment
Period:
4.4.1 All benefits to which the senior management of the Company
are entitled, as determined by the Company's Board of Directors, on terms
comparable thereto, including but not limited to, participation in any and all
pension and profit sharing plans, bonus and incentive payment programs, group
life insurance policies and plans, medical and health policies and plans, and
the like, which may be maintained by the Company for the benefit of its
executives.
4.4.2 Two (2) weeks vacation per year, which shall accrue annually
beginning with the effective date of this Agreement. If the EMPLOYEE does not
utilize the entire two weeks of annual vacation in a given year, he may carry
over such weeks into the following calendar year, provided that such accrual
shall not exceed the maximum accrual permitted under current Company policy.
4.4.3 EMPLOYEE shall be based in Nevada upon the effective date of
this Agreement and agrees to use his best efforts to relocate to San Diego,
California by the end of August, 2000. At such time as EMPLOYEE does relocate to
San Diego, the Company
4
<PAGE>
shall reimburse to EMPLOYEE for his moving expenses to San Diego an amount up to
Twenty Thousand Dollars ($20,000) of such moving expenses, provided EMPLOYEE
provides to the Company appropriate documentation supporting such expenses.
4.5 The Company shall reimburse EMPLOYEE for all reasonable out-of-pocket
expenses incurred by him in the course of performing his duties under this
Agreement, which are consistent with the Company's policies in effect from time
to time with respect to travel, entertainment and other business expenses,
subject to the Company's requirements with respect to reporting and
documentation of such expenses, provided that any expense in excess of $500
(excluding ordinary travel expenses incurred pursuant to Company policies and
practices) must be pre-approved by the Chief Executive Officer of the Company.
4.6 All of EMPLOYEE'S compensation shall be subject to customary federal
and state withholding taxes and any other employment taxes as are commonly
required to be collected or withheld by the Company.
5 Termination.
-----------
5.1 The Company may terminate this Agreement for Cause (as defined
herein) by delivery of written notice to EMPLOYEE specifying the cause or causes
relied upon for such termination. If EMPLOYEE'S employment under this Agreement
is terminated by the Company for Cause before the last day of any calendar
month, EMPLOYEE shall be entitled to receive as compensation for such calendar
month, only the Base Salary set forth in Section 4.1 prorated to the date of
termination on the basis of a 30-day calendar month and all accrued and
unreimbursed business expenses incurred by EMPLOYEE on or before such date.
Grounds for the Company to terminate this Agreement for "Cause" shall include
the occurrence of any of the following events:
5
<PAGE>
5.1.1 EMPLOYEE'S willful misconduct or gross negligence in the
performance of his duties hereunder;
5.1.2 EMPLOYEE'S willful failure or refusal to perform in the
usual manner at the usual time those duties which he regularly and routinely
performs in connection with the business of the Company or such other duties
reasonably related to the capacity in which he is employed hereunder which may
be assigned to him by the Board of Directors of the Company, if such failure or
refusal has not been substantially cured to the satisfaction of the Board of
Directors within thirty (30) days after written notice of such failure or
refusal has been given by the Company to EMPLOYEE.
5.1.3 EMPLOYEE'S performance of any action when specifically
instructed not to do so by the Chief Executive Officer of the Company;
5.1.4 EMPLOYEE'S engaging or in any manner participating in any
activity which is directly competitive with or intentionally injurious to the
Company or which violates any provision of Section 7;
5.1.5 EMPLOYEE'S commission of any fraud against the Company or
use or appropriation for his personal use or benefit of any funds or properties
of the Company not authorized by the Board of Directors to be so used or
appropriated; or
5.1.6 EMPLOYEE'S conviction of any crime involving moral turpitude.
Any notice of termination given pursuant to this Section 5.1 shall effect
termination as of the date specified in such notice or, in the event no such
date is specified, on the last day of the month in which such notice is
delivered.
5.2 The Company may voluntarily terminate this Agreement without Cause by
giving not less than thirty (30) days written notice to EMPLOYEE, provided,
however, in no event shall
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such termination without Cause be earlier than six (6) months from the effective
date of this Agreement. Any such notice shall specify the exact date of
termination (the "Termination Date"). If EMPLOYEE'S employment under this
Agreement is terminated by the Company without Cause (as defined herein),
EMPLOYEE shall be entitled to receive his Base Salary and other then current
benefits for six (6) months, at the rate existing at the date of termination,
provided that all vesting of stock options shall end on the Termination Date.
All such Base Salary payments shall be paid over time in accordance with the
Company's general payroll practices, as and when such Base Salary would have
been paid had EMPLOYEE'S employment not terminated.
5.3 EMPLOYEE may voluntarily terminate this Agreement upon no less than
sixty (60) days written notice of such termination submitted to the Board of
Directors, and in such event EMPLOYEE shall be entitled to receive all amounts
due to him through the date of termination, provided that EMPLOYEE shall not be
entitled to terminate this Agreement unless and until the Technology and other
assets described in the Technology Transfer Term Sheet dated February 25, 2000
(the "Term Sheet") are fully, completely and properly transferred to the Company
to the satisfaction of the Chief Executive Officer or the Board of Directors.
5.4 This Employment Agreement is a personal services contract whereby the
Company is engaging the exclusive services of EMPLOYEE. By entering into this
Agreement, the Company is relying on EMPLOYEE'S performing his services for the
Company throughout the entire term of this Agreement.
5.5 This Agreement shall terminate without notice upon the date of
EMPLOYEE'S death or the date when EMPLOYEE becomes "completely disabled" as that
term is defined in Section 6.1.
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5.6 In the event of EMPLOYEE'S death, all rights of EMPLOYEE to
compensation hereunder shall automatically terminate immediately upon his death,
except that EMPLOYEE'S heirs, personal representatives or estate shall be
entitled to any unpaid portion of his salary and accrued benefits earned up to
the date of his death, and may exercise within six (6) months after the date of
death, all vested options to acquire the common stock of the Company granted to
EMPLOYEE hereunder unless a longer term is provided for in the Company's
Incentive Stock Option Plan.
5.7 In the event EMPLOYEE is disabled, EMPLOYEE shall be entitled to
receive such disability benefits as would apply to other senior executives in
the Company, subject to the terms and conditions of any such Company disability
program.
5.8 If this Agreement is terminated pursuant to Sections 5.1 or 5.2, or
the EMPLOYEE gives the notice described in Section 5.3, the Chief Executive
Officer or the Board of Directors of the Company may, in his or its sole
discretion, relieve EMPLOYEE of his duties under this Agreement and assign
EMPLOYEE other duties and responsibilities to be performed until the termination
becomes effective.
6 Death Or Disability During Term Of Employment.
---------------------------------------------
6.1 The term "completely disabled" as used in this Agreement shall mean
the inability of EMPLOYEE to perform his duties under this Agreement because he
has become permanently disabled within the meaning of any policy of disability
income insurance covering EMPLOYEE'S of the Company then in force. In the event
the Company has no policy of disability income insurance covering employees of
the Company in force when EMPLOYEE becomes disabled, the term "completely
disabled" shall mean the inability of EMPLOYEE to perform his normal and
customary duties under this Agreement for a total of six (6) consecutive months
by reason of any incapacity, physical or mental, which the Board of Directors of
the Company, based upon medical advice or an opinion provided by a licensed
physician acceptable to the Board of Directors of the
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Company, determines to have incapacitated EMPLOYEE from satisfactorily
performing all of his usual services for the Company during the foreseeable
future. The action of the Board of Directors of the Company shall be final and
binding and the date such action is taken shall be the date of such complete
disability for purposes of this Agreement, and upon such date this Agreement
shall become null and void and of no further force and effect, provided that
EMPLOYEE may exercise within six months of the date of termination under this
Section 6, all vested options to acquire the common stock of the Company granted
to EMPLOYEE hereunder, provided that EMPLOYEE acknowledges that such options may
then be considered nonqualified options and not incentive stock options pursuant
to federal law unless a longer term is provided for in the Company's Incentive
Stock Option Plan.
7 Proprietary And Confidential Information.
----------------------------------------
7.1 EMPLOYEE, during the term of this Agreement, will have access to and
become acquainted with various information of substantial value to the Company,
including trade secrets, which is not old and generally not known in the
industry, and which gives the Company an advantage over its competitors who do
not know or use it, including, but not limited to, formulas, patterns, devices,
software, patents, patent applications, software applications or algorithms,
secret inventions, processes, techniques, designs, drawings, developments,
equipment, prototypes, sales and customer information, customer and prospect
lists, and business and financial information relating to the business,
products, practices, and techniques of the Company (collectively, the
"Confidential Information"). EMPLOYEE agrees to regard and preserve as
confidential such Confidential Information obtained by EMPLOYEE from whatever
source and will not, either during EMPLOYEE'S employment or thereafter, publish
or disclose any part of such Confidential Information in any manner at any time,
or use such Confidential
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Information except on behalf of the Company, without the prior written consent
of the Company. Further, both during EMPLOYEE'S employment and thereafter,
EMPLOYEE will refrain from any acts or omissions that would reduce the value of
such Confidential Information to the Company. All files, records, documents,
drawings, specifications, equipment, computer disks and software, and other
electronic media or similar items relating to the business of the Company,
whether prepared by the EMPLOYEE or otherwise coming into EMPLOYEE'S possession,
shall remain the exclusive property of the Company.
7.2 Nonsolicitation. In order to protect the Confidential Information
of the Company and avoid injury to the Company, EMPLOYEE represents and warrants
and agrees that, for the longer of one year following the termination of
EMPLOYEE'S employment with the Company, or so long as EMPLOYEE is receiving any
payments under Section 5.2.1 from Company:
(a) EMPLOYEE will not directly or indirectly solicit the customers or
demonstrably prospective customers of the Company to purchase products or
services which are competitive with those of the Company;
(b) EMPLOYEE will not directly or indirectly solicit or in any manner
encourage employees of the Company to leave its employ; and
(c) EMPLOYEE will not accept employment from or with any company
which is directly competitive with the Business of the Company.
Any breach by EMPLOYEE of this Section shall cause the immediate
termination of all of Company's obligation to pay EMPLOYEE any amounts
hereunder.
7.3 Disclosure of Inventions. EMPLOYEE agrees that he will promptly
disclose in writing to the officials designated by the Company to receive such
disclosures, complete information concerning each and every invention,
discovery, improvement, device, design,
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apparatus, practice, process, method or product, whether EMPLOYEE considers them
patentable or not, made, developed, perfected, devised, conceived or first
reduced to practice by EMPLOYEE, either solely or in collaboration with others,
during the period of EMPLOYEE'S employment by the Company, and up to and
including a period of one (1) year after termination of EMPLOYEE'S employment,
whether or not during regular working hours, relating either directly to the
business, products, practices or techniques of the Company, or to the Company's
actual or demonstrably anticipated research or development, or resulting from
any work performed by EMPLOYEE for the Company (collectively, "Inventions").
7.4 Assignment of Inventions. EMPLOYEE agrees that any and all
Inventions made, developed, perfected, devised, conceived or reduced to practice
by him during the period of his employment by the Company, and any other
Inventions made, developed, perfected, devised, conceived or reduced to practice
by EMPLOYEE during said period of one (1) year after termination of his
employment, relating either directly to the business, products, practices or
techniques of the Company or the Company's actual or demonstrably anticipated
research or development, or resulting from any work performed by EMPLOYEE for
the Company, are the sole property of the Company, and EMPLOYEE hereby assigns
and agrees to assign to the Company, its successors and assigns, any and all of
his right, title and interest in and to any and all Inventions, and any patent
applications or Letters Patent thereon.
7.5 List of Inventions. As a matter of record, EMPLOYEE will, within 30
days of the execution of this Agreement, provide to Company, to be attached as
Exhibit B to this Agreement, a complete list of all inventions or improvements
relevant to the Business of the Company which have been made or conceived or
first reduced to practice by him alone or jointly with others prior to his
engagement by the Company which he desires to remove from the operation of this
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Agreement, and he represents that such list is complete. If no list is attached
or the list is blank, it means that he has no inventions or improvements to
list.
7.6 Right to Use or Publish. Nothing in this Agreement shall limit or be
construed to limit EMPLOYEE'S right to use or publish information which: (a) was
in the public domain before his employment commenced; (b) was known to EMPLOYEE
to be free from any claim of other third parties before EMPLOYEE'S employment;
(c) was developed or acquired independently of the Company; or (d) becomes
public knowledge without breach by him of any obligations of confidence to the
Company.
7.7 Further Cooperation. EMPLOYEE will, at any time during his
employment or thereafter, upon request and without further compensation
therefor, but at no expense to EMPLOYEE, do all lawful acts, including the
execution of papers and oaths and the giving of testimony, that in the opinion
of the Company, its successors and assigns, may be necessary or desirable for
obtaining, sustaining, reissuing or enforcing Letters Patent or copyrights in
the United States and throughout the world for any and all of said Inventions,
and for perfecting, recording and maintaining the title of the Company, its
successors and assigns, to the Inventions and to any patent or copyright
applications made and any Letters Patent or copyrights granted for the
Inventions in the United States and throughout the world.
7.8 Keeping of Records. EMPLOYEE will keep complete, accurate and
authentic accounts, notes, data and records of any and all of the Inventions in
the manner and form requested by the Company. Such accounts, notes, data and
records, including all copies thereof, shall be the property of the Company,
and, upon its request, EMPLOYEE will promptly surrender same to the Company, or
if not previously surrendered, EMPLOYEE will promptly surrender same to the
Company at the conclusion of his employment.
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7.9 Surrender of Materials. EMPLOYEE agrees that he will also
surrender to the Company, at its request, or at the conclusion of his
employment, all accounts, notes, data, sketches, drawings and other documents
and records, and all material and physical items of any kind, including all
reproductions and copies thereof, which relate in any way to the business,
products, practices or techniques of the Company or contain Confidential
Information, whether or not created by him, or which come into his possession by
reason of his employment with the Company, and EMPLOYEE agrees further that all
of the foregoing are the property of the Company.
7.10 Prohibition of Misappropriation from Others. EMPLOYEE represents and
warrants and agrees that he will not disclose to the Company, use, or induce the
Company to use, any invention or confidential information belonging to any third
party.
7.11 Imposed Obligations. EMPLOYEE understands that the Company may
enter into agreements or arrangements that may be subject to laws and
regulations which impose obligations, restrictions and limitations on it with
respect to Inventions and patents which may be acquired by it or which may be
conceived or developed by employees, consultants or other agents rendering
services to it. EMPLOYEE agrees that he shall be bound by all such obligations,
restrictions and limitations applicable to any Invention conceived or developed
by him during the period of his employment, and EMPLOYEE shall take any and all
further action which may be required to discharge such obligations and to comply
with such restrictions and limitations.
7.12 Preservation of Property. EMPLOYEE will exercise reasonable care,
consistent with good business judgment, to preserve in good working order,
subject to reasonable wear and tear from authorized usage, and to prevent loss
of, any equipment, instruments or accessories of
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the Company in his custody for the purpose of making demonstrations,
implementing trials, carrying out development work, or otherwise conducting the
business of the Company. Upon request, EMPLOYEE will promptly surrender the same
to the Company at the conclusion of his employment, or if not surrendered,
EMPLOYEE will account to the Company to its reasonable satisfaction as to the
present location of all such instruments or accessories and the business purpose
for their placement at such location. At the conclusion of EMPLOYEE'S employment
with the Company, he agrees to return such instruments or accessories to the
Company or to account for same to the Company's reasonable satisfaction.
7.13 No Inconsistent Agreements. EMPLOYEE represents and warrants that
he has no agreement with any other party that would preclude his compliance with
any obligations under this Agreement.
7.14 Indemnity. EMPLOYEE agrees to indemnify and hold Company harmless
from and against any and all loss, liability or expense arising from or related
to any breach of this Section 7 or the representations and warranties made by
EMPLOYEE hereunder. Any material breach of this Section 7 or any representation
and warranty of EMPLOYEE hereunder shall permit the Company to purchase from
EMPLOYEE any or all of any Contingent Stock (as defined in the Term Sheet)
EMPLOYEE receives at the price paid by EMPLOYEE for such stock.
8 Assignment And Binding Effect.
-----------------------------
8.1 This Agreement shall be binding upon and inure to the benefit of
EMPLOYEE and EMPLOYEE'S heirs, executors, administrators, estate, beneficiaries,
and legal representatives. Neither this Agreement nor any rights or obligations
under this Agreement shall be assignable by either party without the prior
express written consent of the other party. This
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Agreement shall be binding upon and inure to the benefit of the Company and its
successors, assigns and legal representatives.
9 Notices.
-------
9.1 All notices or demands of any kind required or permitted to be given
by the Company or EMPLOYEE under this Agreement shall be given in writing and
shall be personally delivered (and receipted for) or mailed by certified mail,
return receipt requested, postage prepaid, addressed as follows:
If to the Company: American Technology Corporation
13114 Evening Creek Drive South
San Diego, California 92128
Attention: Board of Directors
with a copy to: Michael J. Kinkelaar, Esq.
Procopio, Cory, Hargreaves & Savitch LLP
530 B Street, Suite 2100
San Diego, California 92101
If to EMPLOYEE: David Graebener
C/o Stratton Ballew
1313 Seattle Tower
1218 Third Avenue
Seattle, Washington 98101
Any such written notice shall be deemed received when personally delivered, or
three (3) days after its deposit in the United States mail as specified above.
Either Party may change its address for notices by giving notice to the other
Party in the manner specified in this section.
10 Choice Of Law.
-------------
10.1 This Agreement is made in San Diego, California. This Agreement
shall be construed and interpreted in accordance with the laws of the State of
California. Each of the parties hereto agree to the exclusive jurisdiction of
the state and federal courts located in the State of California for any and all
actions between the parties. Any controversy or claim arising
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out of or relating to this Agreement or the breach thereof, whether involving
remedies at law or in equity, shall be adjudicated in San Diego County,
California.
11 Integration.
-----------
11.1 This Agreement contains the entire agreement of the parties relating
to the subject matter of this Agreement, and supersedes all prior oral and
written employment agreements or arrangements between the Parties. This
Agreement cannot be amended or modified except by a written agreement signed by
EMPLOYEE and the Company.
12 Waiver.
------
12.1 No term, covenant or condition of this Agreement or any breach
thereof shall be deemed waived, except with the written consent of the Party
against whom the waiver is claimed, and any waiver of any such term, covenant,
condition or breach shall not be deemed to be a waiver of any preceding or
succeeding breach of the same or any other term, covenant, condition or breach.
No failure or exercise, delay in exercising, or single or partial exercise of
any right, power or remedy by either party hereto shall constitute a waiver
thereof or shall preclude any other or further exercise of the same or any other
right, power or remedy.
13 Severability.
------------
13.1 The unenforceability, invalidity or illegality of any provision of
this Agreement shall not render any other provision of this Agreement
unenforceable, invalid or illegal.
14 Interpretation; Construction.
----------------------------
14.1 The headings set forth in this Agreement are for convenience only and
shall not be used in interpreting this Agreement.
15 Attorneys' Fees. In any controversy or claim arising out of or relating to
---------------
this Agreement or the breach thereof, which results in legal action, proceeding
or arbitration,
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the prevailing party in such action, as determined by the court or arbitrator,
shall be entitled to recover reasonable attorneys' fees and costs incurred in
such action.
16 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which when so executed and delivered shall together
constitute an original hereof.
17 Representations And Warranties.
------------------------------
17.1 EMPLOYEE represents and warrants that he is not restricted or
prohibited, contractually or otherwise, from entering into and performing each
of the terms and covenants contained in this Agreement, and that his execution
and performance of this Agreement will not violate or breach any other agreement
between EMPLOYEE and any other person or entity.
18 Arbitration.
-----------
18.1 Any controversy or claim arising out or relating to this Agreement,
or the breach hereof, or arising out of or relating to the rights, duties or
obligations of the Company or of EMPLOYEE shall be settled by arbitration
conducted in San Diego County, California in accordance with, and by an
arbitrator appointed pursuant to, the rules of the American Arbitration
Association in effect at the time, and the judgment upon the award rendered
pursuant thereto may be entered in any court having jurisdiction, and all rights
or remedies of the Company and of the EMPLOYEE to the contrary are hereby
expressly waived. Prior arbitration pursuant to the provisions of this Section,
and an award pursuant thereto, shall be a condition precedent to the bringing of
any action, suit or proceeding by EMPLOYEE for any form of relief against the
Company or any of its shareholders, directors or officers subject to this
Agreement.
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IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date first above written.
THE COMPANY:
American Technology Corporation,
a Delaware Corporation
By: /s/ CORNELIUS J. BROSNAN
----------------------------
Cornelius J. Brosnan
Chief Executive Officer
EMPLOYEE:
/s/ DAVID GRAEBENER
------------------------------
David Graebener
P.O. Box 2193
Carson City, NV 98703
[address]
579482885
-------------------------------
EMPLOYEE Social Security No.
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Exhibit A
Effective immediately upon signing this Agreement, EMPLOYEE shall be
awarded incentive stock options to purchase 100,000 shares of Common voting
shares in the Company.
The exercise price of all said options shall be $8.125 per share.
The above-mentioned options shall vest on the earlier of (i)quarterly
over three (3) years, with the first 8333 option shares vesting May 15, 2000,
and the balance vesting in equal amounts of 8333 option shares beginning on the
15th day of August, November, February and May of each year during the term of
this Agreement, until February 14, 2003, on which day balance of any unvested
option shares shall vest, or (ii) in the event of a significant license, trade
or sales agreement for the technology purchased from Hucon Limited.
The options described above shall be set forth in a definitive stock
option agreement between EMPLOYEE and the Company which shall include all of the
above terms and other usual and customary provisions as deemed necessary by
counsel to the Company.
Initials:
/s/ CB The Company /s/ DG David Graebener
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