Asset Purchase Agreement

AGREEMENT FOR THE


PURCHASE OF ASSETS


OF


HUCON LIMITED, DAVID GRAEBENER, AND


STEPHEN M. WILLIAMS


BY


AMERICAN TECHNOLOGY CORPORATION


TABLE OF CONTENTS
-----------------


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
--------


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
---------


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
------------------ 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
----------- 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
---------- 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.
--------------


(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
--------------------------- 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
------- "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 ...