-----BEGIN PRIVACY-ENHANCED MESSAGE-----
Proc-Type: 2001,MIC-CLEAR
Originator-Name: webmaster@www.sec.gov
Originator-Key-Asymmetric:
 MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen
 TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB
MIC-Info: RSA-MD5,RSA,
 NzQui4DL22tNM8kJApqnWyH6s2HbivzMnFIsWDdwyxuLxK8cAORG+vGwgfK1u8Sk
 pFm9Gomyop0bkaOQ4eFd0A==

<SEC-DOCUMENT>0001019687-04-002844.txt : 20041217
<SEC-HEADER>0001019687-04-002844.hdr.sgml : 20041217
<ACCEPTANCE-DATETIME>20041217152818
ACCESSION NUMBER:		0001019687-04-002844
CONFORMED SUBMISSION TYPE:	8-K
PUBLIC DOCUMENT COUNT:		6
CONFORMED PERIOD OF REPORT:	20041213
ITEM INFORMATION:		Entry into a Material Definitive Agreement
ITEM INFORMATION:		Unregistered Sales of Equity Securities
ITEM INFORMATION:		Financial Statements and Exhibits
FILED AS OF DATE:		20041217
DATE AS OF CHANGE:		20041217

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			AMERICAN TECHNOLOGY CORP /DE/
		CENTRAL INDEX KEY:			0000924383
		STANDARD INDUSTRIAL CLASSIFICATION:	HOUSEHOLD AUDIO & VIDEO EQUIPMENT [3651]
		IRS NUMBER:				870361799
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			0930

	FILING VALUES:
		FORM TYPE:		8-K
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-24248
		FILM NUMBER:		041211293

	BUSINESS ADDRESS:	
		STREET 1:		13114 EVENING CREEK DRIVE SOUTH
		CITY:			SAN DIEGO
		STATE:			CA
		ZIP:			92128
		BUSINESS PHONE:		6196792114

	MAIL ADDRESS:	
		STREET 1:		13114 EVENING CREEK DRIVE SOUTH
		CITY:			SAN DIEGO
		STATE:			CA
		ZIP:			92128
</SEC-HEADER>
<DOCUMENT>
<TYPE>8-K
<SEQUENCE>1
<FILENAME>atc_8k-121704.txt
<TEXT>
<PAGE>

================================================================================

                                  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):
                      December 17, 2004 (December 13, 2004)


                         AMERICAN TECHNOLOGY CORPORATION
               (Exact Name of Registrant as Specified in Charter)

            Delaware                                       87-0361799
            --------                                       ----------
(State or Other Jurisdiction of                (IRS Employer Identification No.)
        Incorporation)

                                     0-24248
                                     -------
                            (Commission File Number)


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)


================================================================================

<PAGE>


ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT.

$4.9 MILLION CONTRACT FOR ACOUSTIC DEVICES FOR U.S. ARMY 3RD INFANTRY DIVISION

On December 13, 2004, we received a firm order from ADS, Inc. that includes $4.5
million in LRAD products for use by the U.S. Army 3rd Infantry Division, Fort
Stewart, Georgia and $0.4 million in ancillary products for sale to the same end
user, which we are providing on a value-added reseller basis along with the LRAD
units. The order calls for deliveries in December 2004 and January 2005 and
customary payment terms. A complete copy of the related press release is filed
herewith as Exhibit 99.1.

$25 MILLION COMMITTED EQUITY FINANCING FACILITY WITH KINGSBRIDGE CAPITAL LIMITED

On December 14, 2004, we entered into a Committed Equity Financing Facility
(CEFF) with Kingsbridge Capital Ltd., pursuant to which Kingsbridge committed to
purchase up to $25 million of our common stock to support future growth. As part
of the arrangement, we issued a warrant to Kingsbridge to purchase 275,000
shares of our common stock at a price of $8.60 per share. The warrant is
exercisable beginning six months after the date of grant and for a period of
five years thereafter. Subject to certain conditions and limitations, from time
to time under the CEFF, we may require Kingsbridge to purchase newly-issued
shares of our common stock at a price that is between 88% and 92% of the volume
weighted average price during a 15 day purchase period, and thereby raise
capital as required, at the time, price and in the amounts deemed suitable to
us. For each election to sell shares to Kingsbridge, we will determine the
lowest threshold price at which our stock may be sold, but the threshold price
cannot be lower than $3.00 per share. The CEFF also requires us to use
reasonable efforts to have a resale registration statement filed within 45 days
of entering into the CEFF, and to have such registration statement declared
effective by the Securities and Exchange Commission (SEC) within 45 days or 120
days of filing, depending on whether the SEC elects to review the registration
statement. As of December 17, 2004, we had not filed the required resale
registration statement. Based on such factors as market conditions, financing
needs and the time required for the SEC to declare the resale registration
statement effective, we currently expect that we may begin to utilize the CEFF
during fiscal 2005, in order to fund working capital requirements. However, the
timing and extent of our ability to utilize the CEFF is uncertain. Under the
rules of the NASDAQ Stock Market, the maximum number of shares we may sell to
Kingsbridge without approval of our stockholders is 3,684,782 (exclusive of the
warrant shares), which may further limit the amount of proceeds we are able to
obtain from the CEFF. We agreed to pay to a consultant a fee equal to 4% of the
first $5 million raised under the CEFF, 3% for the second $5 million raised
under the CEFF, 2% for the third $5 million raised under the CEFF, and 1.5% for
any additional amounts raised under the CEFF.

We relied on the exemption from registration contained in Section 4(2) of the
Securities Act, and Regulation D, Rule 506 thereunder, in connection with
obtaining Kingsbridge's commitment under the CEFF, and for the issuance of the
warrant in consideration of such commitment. An appropriate legend has been
placed on the warrant, and appropriate legends will be placed on all securities
purchased under the CEFF or the warrant which are not subject to an effective
registration statement for their resale.



<PAGE>

A complete copy of the Common Stock Purchase Agreement, the Warrant, the
Registration Rights Agreement (each executed in connection with the CEFF) and
related press release are filed herewith as Exhibit 10.1, Exhibit 4.1, Exhibit
10.2 and Exhibit 99.2, respectively, and incorporated herein by reference. The
foregoing descriptions of the terms of these agreements are qualified in their
entirety by reference to such exhibits.

ITEM 3.02 UNREGISTERED SALES OF EQUITY SECURITIES

         See disclosure in Item 1.01.

ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS

         (c) Exhibits

         4.1      Warrant dated December 14, 2004 executed by the Company in
                  favor of Kingsbridge Capital Limited.*

         10.1     Common Stock Purchase Agreement dated December 14, 2004
                  between the Company and Kingsbridge Capital Limited.*

         10.2     Registration Rights Agreement dated December 14, 2004 between
                  the Company and Kingsbridge Capital Limited.*

         99.1     Press Release dated December 15, 2004.*

         99.2     Press Release dated December 15, 2004.*

         *Filed herewith.



<PAGE>


                                   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:  December 17, 2004                By: /s/ MICHAEL A. RUSSELL
                                            ------------------------------------
                                            Michael A. Russell
                                            Chief Financial Officer




</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.1
<SEQUENCE>2
<FILENAME>atc_8kex10-3.txt
<TEXT>
<PAGE>
                                                                     EXHIBIT 4.1


                                                                  EXECUTION COPY


                                     WARRANT

THE SECURITIES EVIDENCED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY OTHER
APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN
MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, HYPOTHECATED
OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO A TRANSACTION WHICH IS EXEMPT FROM, OR
NOT SUBJECT TO, SUCH REGISTRATION.

                                                               DECEMBER 14, 2004

         Warrant to Purchase up to 275,000 shares of Common Stock of American
Technology Corporation (the "Company").

         In consideration for Kingsbridge Capital Limited (the "INVESTOR")
agreeing to enter into that certain Common Stock Purchase Agreement, dated as of
the date hereof, between the Investor and the Company (the "Agreement"), the
Company hereby agrees that the Investor or any other Warrant Holder (as defined
below) is entitled, on the terms and conditions set forth below, to purchase
from the Company at any time during the Exercise Period (as defined below) up to
275,000 fully paid and nonassessable shares of common stock, par value $.00001
per share, of the Company (the "COMMON STOCK") at the Exercise Price
(hereinafter defined), as the same may be adjusted from time to time pursuant to
Section 6 hereof. The resale of the shares of Common Stock or other securities
issuable upon exercise or exchange of this Warrant is subject to the provisions
of the Registration Rights Agreement (as defined in the Agreement).

         Section 1. DEFINITIONS.

         "AFFILIATE" shall mean any Person that, directly or indirectly through
one or more intermediaries, controls or is controlled by, or is under direct or
indirect common control with any other Person. For the purposes of this
definition, "control," when used with respect to any Person, means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise,
and the term "controls" and "controlled" have meanings correlative to the
foregoing.

         "CLOSING PRICE" shall mean the closing price per share of the Company's
Common Stock as reported by Bloomberg L.P. using the AQR function.

         "EXERCISE PERIOD" shall mean that period beginning six months after the
date of this Warrant and continuing until the expiration of the five-year period
thereafter.

         "EXERCISE PRICE" as of the date hereof shall mean $8.60 per share, as
may be adjusted from time to time pursuant to Section 6 hereof.

         "PER SHARE WARRANT VALUE" shall mean the difference resulting from
subtracting the Exercise Price from the Closing Price on the Trading Day
immediately preceding the Exercise Date.

<PAGE>

         "PERSON" shall mean an individual, a corporation, a partnership, a
limited liability company, an association, a trust or other entity or
organization, including a government or political subdivision or an agency or
instrumentality thereof.

         "PRINCIPAL MARKET" shall mean the Nasdaq National Market, the Nasdaq
SmallCap Market, the American Stock Exchange or the New York Stock Exchange,
whichever is at the time the principal trading exchange or market for the Common
Stock.

         "SEC" shall mean the United States Securities and Exchange Commission.

         "TRADING DAY" shall mean any day other than a Saturday or a Sunday on
which the Principal Market is open for trading in equity securities.

         "WARRANT HOLDER" shall mean the Investor or any permitted assignee or
permitted transferee, as described in Section 13(d), of all or any portion of
this Warrant.

         "WARRANT SHARES" shall mean those shares of Common Stock received upon
exercise of this Warrant.

         Section 2. EXERCISE.

                  (a) METHOD OF EXERCISE. This Warrant may be exercised in whole
or in part (but not as to a fractional share of Common Stock), at any time and
from time to time during the Exercise Period, by the Warrant Holder by (i)
surrender of this Warrant, with the form of exercise attached hereto as Exhibit
A completed and duly executed by the Warrant Holder (the "EXERCISE NOTICE"), to
the Company as set forth in Section 14 hereof, accompanied by payment of the
Exercise Price multiplied by the number of shares of Common Stock for which this
Warrant is being exercised (the "AGGREGATE EXERCISE PRICE") or (ii) telecopying
an executed and completed Exercise Notice to the Company and delivering to the
Company within five (5) business days thereafter the original Exercise Notice,
this Warrant and the Aggregate Exercise Price. Each date on which an Exercise
Notice is received by the Company in accordance with clause (i) and each date on
which the Exercise Notice is telecopied to the Company in accordance with clause
(ii) above shall be deemed an "EXERCISE DATE."

                  (b) PAYMENT OF AGGREGATE EXERCISE PRICE. Subject to paragraph
(c) below, payment of the Aggregate Exercise Price shall be made by wire
transfer of immediately available funds to an account designated by the Company.
If the amount of the payment received by the Company is less than the Aggregate
Exercise Price, the Warrant Holder will be notified of the deficiency and shall
make payment in that amount within three (3) Trading Days. In the event the
payment exceeds the Aggregate Exercise Price, the Company will refund the excess
to the Warrant Holder within five (5) Trading Days of receipt.

                  (c) CASHLESS EXERCISE. In the event that the Warrant Shares to
be received by the Warrant Holder upon exercise of the Warrant may not be resold
pursuant to an effective registration statement or an exemption to the
registration requirements of the Securities Act of 1933, as amended, and
applicable state laws, the Warrant Holder may, as an alternative to payment of
the Aggregate Exercise Price upon exercise in accordance with paragraph (b)
above, elect to effect a cashless exercise by so indicating on the Exercise
Notice and including a calculation of the number of shares of Common Stock to be
issued upon such exercise in accordance with the terms hereof (a "CASHLESS
EXERCISE"). If a registration statement on Form S-1 under the Securities Act of


                                       2
<PAGE>

1933, as amended, or such other form as deemed appropriate by counsel to the
Company for the registration for the resale by the Warrant Holder of (x) the
shares of Common Stock of the Company that may be purchased under the Agreement,
(y) the Warrant Shares, or (z) any securities issued or issuable with respect to
any of the foregoing by way of exchange, stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization or otherwise, has been declared effective by the SEC and
remains effective, the Company may permit or require the Warrant Holder elect to
effect a Cashless Exercise. In the event of a Cashless Exercise, the Warrant
Holder shall receive that number of shares of Common Stock determined by (i)
multiplying the number of Warrant Shares for which this Warrant is being
exercised by the Per Share Warrant Value and (ii) dividing the product by the
Closing Price on the Trading Day immediately preceding the Exercise Date,
rounded to the nearest whole share. The Company shall cancel the total number of
Warrant Shares equal to the excess of the number of the Warrant Shares for which
this Warrant is being exercised over the number of Warrant Shares to be received
by the Warrant Holder pursuant to such Cashless Exercise.

                  (d) REPLACEMENT WARRANT. In the event that the Warrant is not
exercised in full, the number of Warrant Shares shall be reduced by the number
of such Warrant Shares for which this Warrant is exercised, and the Company, at
its expense, shall forthwith issue and deliver to or upon the order of the
Warrant Holder a new Warrant of like tenor in the name of the Warrant Holder,
reflecting such adjusted number of Warrant Shares.

         Section 3. TEN PERCENT LIMITATION. The Warrant Holder may not exercise
this Warrant such that the number of Warrant Shares to be received pursuant to
such exercise aggregated with all other shares of Common Stock then owned by the
Warrant Holder beneficially or deemed beneficially owned by the Warrant Holder
would result in the Warrant Holder owning more than 9.9% of all of such Common
Stock as would be outstanding on such Exercise Date, as determined in accordance
with Section 13(d) of the Exchange Act of 1934 and the rules and regulations
promulgated thereunder.

         Section 4. DELIVERY OF WARRANT SHARES.

                  (a) Subject to the terms and conditions of this Warrant, as
soon as practicable after the exercise of this Warrant in full or in part, and
in any event within ten (10) Trading Days thereafter, the Company at its expense
(including, without limitation, the payment by it of any applicable issue taxes)
will cause to be issued in the name of and delivered to the Warrant Holder, or
as the Warrant Holder may lawfully direct, a certificate or certificates for, or
make deposit with the Depositary Trust Company via book-entry of, the number of
validly issued, fully paid and non-assessable Warrant Shares to which the
Warrant Holder shall be entitled on such exercise, together with any other stock
or other securities or property (including cash, where applicable) to which the
Warrant Holder is entitled upon such exercise in accordance with the provisions
hereof.

                  (b) This Warrant may not be exercised as to fractional shares
of Common Stock. In the event that the exercise of this Warrant, in full or in
part, would result in the issuance of any fractional share of Common Stock, then
in such event the Warrant Holder shall receive the number of shares rounded to
the nearest whole share.


                                       3
<PAGE>

         Section 5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.

                  (a) The Warrant Shares, when issued in accordance with the
terms hereof, will be duly authorized and, when paid for or issued in accordance
with the terms hereof, shall be validly issued, fully paid and non-assessable.

                  (b) The Company shall take all commercially reasonable action
and proceedings as may be required and permitted by applicable law, rule and
regulation for the legal and valid issuance of this Warrant and the Warrant
Shares to the Warrant Holder.

                  (c) The Company has authorized and reserved for issuance to
the Warrant Holder the requisite number of shares of Common Stock to be issued
pursuant to this Warrant. The Company shall at all times reserve and keep
available, solely for issuance and delivery as Warrant Shares hereunder, such
shares of Common Stock as shall from time to time be issuable as Warrant Shares.

                  (d) From the date hereof through the last date on which this
Warrant is exercisable, the Company shall take all steps commercially reasonable
to ensure that the Common Stock remains listed or quoted on the Principal
Market.

         Section 6. ADJUSTMENT OF THE EXERCISE PRICE. The Exercise Price and,
accordingly, the number of Warrant Shares issuable upon exercise of the Warrant,
shall be subject to adjustment from time to time upon the happening of certain
events as follows:

                  (a) RECLASSIFICATION, CONSOLIDATION, MERGER, MANDATORY SHARE
EXCHANGE, SALE OR TRANSFER.

                  (i) Upon occurrence of any of the events specified in
subsection (a)(ii) below (the "ADJUSTMENT EVENTS") while this Warrant is
unexpired and not exercised in full, the Warrant Holder may in its sole
discretion require the Company, or any successor or purchasing corporation, as
the case may be, without payment of any additional consideration therefor, to
execute and deliver to the Warrant Holder a new Warrant providing that the
Warrant Holder shall have the right to exercise such new Warrant (upon terms not
less favorable to the Warrant Holder than those then applicable to this Warrant)
and to receive upon such exercise, in lieu of each share of Common Stock
theretofore issuable upon exercise of this Warrant, the kind and amount of
shares of stock, other securities, money or property receivable upon such
Adjustment Event by the holder of one share of Common Stock issuable upon
exercise of this Warrant had this Warrant been exercised immediately prior to
such Adjustment Event. Such new Warrant shall provide for adjustments that shall
be as nearly equivalent as may be practicable to the adjustments provided for in
this Section 6.

                  (ii) The Adjustment Events shall be (1) any reclassification
or change of Common Stock (other than a change in par value, as a result of a
subdivision or combination of Common Stock or in connection with an Excluded
Merger or Sale), (2) any consolidation, merger or mandatory share exchange of
the Company with or into another corporation (other than a merger or mandatory
share exchange with another corporation in which the Company is a continuing
corporation and which does not result in any reclassification or change other
than a change in par value or as a result of a subdivision or combination of
Common Stock), other than (each of the following referred to as an "EXCLUDED
MERGER OR SALE") a transaction involving (A) sale of all or substantially all of
the assets of the Company, (B) any merger, consolidation or similar transaction


                                       4
<PAGE>

where the consideration payable to the shareholders of the Company by the
acquiring Person consists substantially entirely of cash, or where the acquiring
Person does not agree to assume the obligations of the Company under outstanding
warrants (including this Warrant). In the event of an Excluded Merger or Sale
transaction, if the surviving, successor or purchasing Person does not agree to
assume the obligations under this Warrant, then the Company shall deliver a
notice to the Warrant Holder at least 10 days before the consummation of such
Excluded Merger or Sale, the Warrant Holder may exercise this Warrant at any
time before the consummation of such Excluded Merger or Sale (and such exercise
may be made contingent upon the consummation of such Excluded Merger or Sale),
and any portion of this Warrant that has not been exercised before consummation
of such Excluded Merger or Sale shall terminate and expire, and shall no longer
be outstanding.

                  (b) SUBDIVISION OR COMBINATION OF SHARES. If the Company, at
any time while this Warrant is unexpired and not exercised in full, shall
subdivide its Common Stock, the Exercise Price shall be proportionately reduced
as of the effective date of such subdivision, or, if the Company shall take a
record of holders of its Common Stock for the purpose of so subdividing, as of
such record date, whichever is earlier. If the Company, at any time while this
Warrant is unexpired and not exercised in full, shall combine its Common Stock,
the Exercise Price shall be proportionately increased as of the effective date
of such combination, or, if the Company shall take a record of holders of its
Common Stock for the purpose of so combining, as of such record date, whichever
is earlier.

                  (c) STOCK DIVIDENDS. If the Company, at any time while this
Warrant is unexpired and not exercised in full, shall pay a dividend or other
distribution in shares of Common Stock to all holders of Common Stock, then the
Exercise Price shall be adjusted, as of the date the Company shall take a record
of the holders of its Common Stock for the purpose of receiving such dividend or
other distribution (or if no such record is taken, as at the date of such
payment or other distribution), to that price determined by multiplying the
Exercise Price in effect immediately prior to such payment or other distribution
by a fraction:

                  1. the numerator of which shall be the total number of shares
         of Common Stock outstanding immediately prior to such dividend or
         distribution, and

                  2. the denominator of which shall be the total number of
         shares of Common Stock outstanding immediately after such dividend or
         distribution.

The provisions of this subsection (c) shall not apply under any of the
circumstances for which an adjustment is provided in subsections (a) or (b).

                  (d) LIQUIDATING DIVIDENDS, ETC. If the Company, at any time
while this Warrant is unexpired and not exercised in full, makes a distribution
of its assets or evidences of indebtedness to all holders of its Common Stock as
a dividend in liquidation or by way of return of capital or other than as a
dividend payable out of earnings or surplus legally available for dividends
under applicable law or any distribution to such holders made in respect of the
sale of all or substantially all of the Company's assets (other than under the
circumstances provided for in the foregoing subsections (a) through (c)), then
the Warrant Holder shall be entitled to receive upon exercise of this Warrant in
addition to the Warrant Shares receivable in connection therewith, and without
payment of any consideration other than the Exercise Price, the kind and amount
of such distribution per share of Common Stock multiplied by the number of
Warrant Shares that, on the record date for such distribution, are issuable upon


                                       5
<PAGE>

such exercise of the Warrant (with no further adjustment being made following
any event which causes a subsequent adjustment in the number of Warrant Shares
issuable), and an appropriate provision therefor shall be made a part of any
such distribution. The value of a distribution that is paid in other than cash
shall be determined in good faith by the Board of Directors of the Company.
Notwithstanding the foregoing, in the event of a proposed dividend in
liquidation or distribution to the shareholders made in respect of the sale of
all or substantially all of the Company's assets, the Company shall deliver a
notice to the Warrant Holder at least 10 days before the consummation of such
event, the Warrant Holder may exercise this Warrant at any time before the
consummation of such event (and such exercise may be made contingent upon the
consummation of such event), and any portion of this Warrant that has not been
exercised before consummation of such event shall terminate and expire, and
shall no longer be outstanding.

                  (e) Upon the expiration of any rights, options, warrants or
conversion privileges with respect to the issuance of which an adjustment to the
Exercise Price or number of Warrant Shares had been made, if such shall not have
been exercised, the Exercise Price or number of Warrant Shares purchasable upon
exercise of this Warrant, to the extent this Warrant has not then been
exercised, shall, upon such expiration, be readjusted and shall thereafter be
such as they would have been had they been originally adjusted (or had the
original adjustment not been required, as the case may be) on the basis of (i)
the fact that Common Stock, if any, actually issued or sold upon the exercise of
such rights, options, warrants or conversion privileges and (ii) the fact that
such shares of Common Stock, if any, were issued or sold for the consideration
actually received by the Company upon such exercise plus the consideration, if
any, actually received by the Company for the issuance, sale or grant of all
such rights, options, warrants or conversion privileges whether or not
exercised; provided, however, that no such readjustment shall have the effect of
decreasing the number of Warrant Shares purchasable upon exercise of this
Warrant by an amount in excess of the amount of the adjustment initially made in
respect of the issuance, sale or grant of such rights, options, warrants or
conversion privileges.

         Section 7. NOTICE OF ADJUSTMENTS.

                  (a) Whenever the Exercise Price or number of Warrant Shares
shall be adjusted pursuant to Section 6 hereof, the Company shall promptly
prepare a certificate signed by its President or Chief Financial Officer setting
forth in reasonable detail the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated (including a
description of the basis on which the Company's Board of Directors made any
determination hereunder), and the Exercise Price and number of Warrant Shares
purchasable at that Exercise Price after giving effect to such adjustment, and
shall promptly cause copies of such certificate to be sent by overnight courier
to the Warrant Holder. In the event the Company shall, at a time while the
Warrant is unexpired and not exercised in full, take any action that pursuant to
subsections (a) through (c) of Section 6 may result in an adjustment of the
Exercise Price, the Company shall give to the Warrant Holder at its last address
known to the Company written notice of such action ten (10) days in advance of
its effective date in order to afford to the Warrant Holder an opportunity to
exercise the Warrant prior to such action becoming effective.

                  (b) Notwithstanding Section 7(a), no adjustment in the
Exercise Price (or in the number of Warrant Shares) shall be required unless
such adjustment would require a change in the Exercise Price of a least $0.05
per share of Common Stock, provided, however, that any adjustment which by
reason of this Section 6.2(b) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
under this Section 7 shall be made to the nearest cent.


                                       6
<PAGE>

         Section 8. NO IMPAIRMENT. The Company will not, by amendment of its
Certificate of Incorporation, as amended, or Bylaws or through any
reorganization, transfer of assets, consolidation, merger, dissolution or issue
or sale of securities, avoid or seek to avoid the observance or performance of
any of the terms of this Warrant, but will at all times in good faith assist in
the carrying out of all such terms and in the taking of all such action as may
be necessary or appropriate in order to protect the rights of the Warrant Holder
against impairment. Without limiting the generality of the foregoing, the
Company (a) will not increase the par value of any Warrant Shares above the
amount payable therefor on such exercise, and (b) will take all such action as
may be reasonably necessary or appropriate in order that the Company may validly
and legally issue fully paid and nonassessable Warrant Shares on the exercise of
this Warrant.

         Section 9. RIGHTS AS STOCKHOLDER. Except as set forth in Section 6
above, prior to exercise of this Warrant, the Warrant Holder shall not be
entitled to any rights as a stockholder of the Company with respect to the
Warrant Shares, including (without limitation) the right to vote such shares,
receive dividends or other distributions thereon or be notified of stockholder
meetings. However, in the event of any taking by the Company of a record of the
holders of any class of securities for the purpose of determining the holders
thereof who are entitled to receive any dividend (other than a cash dividend) or
other distribution, any right to subscribe for, purchase or otherwise acquire
any shares of stock of any class or any other securities or property, or to
receive any other right, the Company shall mail to each Warrant Holder, at least
ten (10) days prior to the date specified therein, a notice specifying the date
on which any such record is to be taken for the purpose of such dividend,
distribution or right, and the amount and character of such dividend,
distribution or right.

         Section 10. REPLACEMENT OF WARRANT. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of the
Warrant and, in the case of any such loss, theft or destruction of the Warrant,
upon delivery of an indemnity agreement or security reasonably satisfactory in
form and amount to the Company or, in the case of any such mutilation, on
surrender and cancellation of such Warrant, the Company at its expense will
execute and deliver, in lieu thereof, a new Warrant of like tenor.

         Section 11. CHOICE OF LAW. This Warrant shall be construed under the
laws of the State of New York.

         Section 12. ENTIRE AGREEMENT; AMENDMENTS. Except for any written
instrument concurrent or subsequent to the date hereof executed by the Company
and the Investor, this Warrant and the Agreement contain the entire
understanding of the parties with respect to the matters covered hereby and
thereby. No provision of this Warrant may be waived or amended other than by a
written instrument signed by the party against whom enforcement of any such
amendment or waiver is sought.

         Section 13. RESTRICTED SECURITIES.

                  (a) REGISTRATION OR EXEMPTION REQUIRED. This Warrant has been
issued in a transaction exempt from the registration requirements of the
Securities Act of 1933, as amended, in reliance upon the provisions of Section
4(2) and Regulation D thereof. This Warrant and the Warrant Shares issuable upon
exercise of this Warrant may not be resold except pursuant to an effective
registration statement or an exemption to the registration requirements of the
Securities Act of 1933 and applicable state laws.


                                       7
<PAGE>

                  (b) LEGEND. Any replacement Warrants issued pursuant to
Section 2 and Section 9 hereof and, unless a registration statement has been
declared effective by the SEC in accordance with the Securities Act of 1933, as
amended, with respect thereto, any Warrant Shares issued upon exercise hereof,
shall bear the following legend:

         "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
         UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
         ACT"), OR ANY OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN
         RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
         SECURITIES ACT AND SUCH OTHER SECURITIES LAWS. NEITHER THIS SECURITY
         NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
         ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, HYPOTHECATED OR OTHERWISE
         DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
         UNDER THE SECURITIES ACT OR PURSUANT TO A TRANSACTION WHICH IS EXEMPT
         FROM, OR NOT SUBJECT TO, SUCH REGISTRATION."

                  (c) NO OTHER LEGEND OR STOCK TRANSFER RESTRICTIONS. No legend
other than the one specified in Section 13(b) has been or shall be placed on the
share certificates representing the Warrant Shares and no instructions or "stop
transfer orders" (so called "stock transfer restrictions") or other restrictions
have been or shall be given to the Company's transfer agent with respect thereto
other than as expressly set forth in this Section 13.

                  (d) ASSIGNMENT. Assuming the conditions of Section 13(a) above
regarding registration or exemption have been satisfied, the Warrant Holder may
sell, transfer, assign, pledge or otherwise dispose of this Warrant (each of the
foregoing, a "TRANSFER"), in whole or in part, but only to an Affiliate of the
Warrant Holder. The Warrant Holder shall deliver a written notice to Company,
substantially in the form of the Assignment attached hereto as Exhibit B,
indicating the person or persons to whom the Warrant shall be Transferred and
the respective number of warrants to be Transferred to each assignee. The
Company shall effect the Transfer within ten (10) days, and shall deliver to the
Transferee(s) designated by the Warrant Holder a Warrant or Warrants of like
tenor and terms for the appropriate number of shares. In connection with and as
a condition of any such proposed Transfer, the Company may request the Warrant
Holder to provide an opinion of counsel to the Warrant Holder in form and
substance reasonably satisfactory to the Company to the effect that the proposed
Transfer complies with all applicable federal and state securities laws.

                  (e) INVESTOR'S COMPLIANCE. Nothing in this Section 13 shall
affect in any way the Investor's obligations under any agreement to comply with
all applicable securities laws upon resale of the Common Stock.

         Section 14. NOTICES. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be
given in accordance with Section 11.04 of the Purchase Agreement.

         Section 15. MISCELLANEOUS. This Warrant and any term hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of such change, waiver, discharge
or termination is sought. The headings in this Warrant are for purposes of


                                       8
<PAGE>

reference only, and shall not limit or otherwise affect any of the terms hereof.
The invalidity or unenforceability of any provision hereof shall in no way
affect the validity or enforceability of any other provision.

         IN WITNESS WHEREOF, this Warrant was duly executed by the undersigned,
thereunto duly authorized, as of the date first set forth above.

                                                 AMERICAN TECHNOLOGY CORPORATION


                                                 By:/s/ Michael A. Russell
                                                 Michael A. Russell
                                                 Chief Financial Officer


                                       9
<PAGE>

                            EXHIBIT A TO THE WARRANT

                                  EXERCISE FORM

                         AMERICAN TECHNOLOGY CORPORATION

         The undersigned hereby irrevocably exercises the right to purchase
__________________ shares of Common Stock ("Warrant Shares") of American
Technology Corporation, a Delaware corporation (the "Company"), evidenced by the
attached Warrant, and (CIRCLE EITHER (i) or (ii)) (i) tenders herewith payment
of the Aggregate Exercise Price with respect to such shares in full, in the
amount of $________, in cash, by certified or official bank check or by wire
transfer for the account of the Company or (ii) elects, pursuant to Section 2(c)
of the Warrant, to convert such Warrant into shares of Common Stock of American
Technology Corporation on a cashless exercise basis, all in accordance with the
conditions and provisions of said Warrant.

         As of the date hereof, the undersigned reaffirms to the Company the
following representations and warranties:

                  (a) If an entity, the undersigned is a company duly organized,
         validly existing and in good standing under its jurisdiction of
         incorporation and has the requisite corporate power and authority to
         exercise the Warrant and purchase the Warrant Shares;

                  (b) The undersigned and its advisors, if any, have been
         furnished with all materials relating to the business, finances and
         operations of the Company and materials relating to the purchase of the
         Warrant Shares which have been requested by the undersigned. The
         undersigned and its advisors, if any, have been afforded the
         opportunity to ask questions of the Company. The undersigned has sought
         such accounting, legal and tax advice as it has considered necessary to
         make an informed investment decision with respect to its acquisition of
         the Warrant Shares. The Investor understands that it (and not the
         Company) shall be responsible for its own tax liabilities that may
         arise as a result of this exercise.

         The undersigned is an "accredited investor" as defined in Regulation D
of the United States Securities Act of 1933, as amended and the rules and
regulations promulgated thereunder.

         The undersigned requests that stock certificates for such Warrant
Shares be issued, and a Warrant representing any unexercised portion hereof be
issued, pursuant to this Warrant, in the name of the registered Warrant Holder
and delivered to the undersigned at the address set forth below.

                                             Dated:_____________________________
                                             ___________________________________
                                             Signature of Registered Holder
                                             Name of Registered Holder (Print)


                                             ___________________________________
                                             Address

<PAGE>

                            EXHIBIT B TO THE WARRANT

                                   ASSIGNMENT

                (To be executed by the registered Warrant Holder
                       desiring to transfer the Warrant)

         FOR VALUED RECEIVED, the undersigned Warrant Holder of the attached
Warrant hereby sells, assigns and transfers unto the persons below named the
right to purchase ______________ shares of Common Stock of American Technology
Corporation (the "Company") evidenced by the attached Warrant and does hereby
irrevocably constitute and appoint ______________________ attorney to transfer
the said Warrant on the books of the Company, with full power of substitution in
the premises.

                                       Dated:___________________________________
                                       Signature


                                       Fill in for new Registration of Warrant:

                                       _________________________________________
                                       Name


                                       _________________________________________
                                       Please print name and address of assignee
                                       (including zip code number)


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>3
<FILENAME>atc_8kex10-1.txt
<TEXT>
<PAGE>
                                                                    EXHIBIT 10.1


                                                                  EXECUTION COPY






                         COMMON STOCK PURCHASE AGREEMENT


                                 BY AND BETWEEN


                           KINGSBRIDGE CAPITAL LIMITED


                                       AND


                         AMERICAN TECHNOLOGY CORPORATION


                          DATED AS OF DECEMBER 14, 2004








<PAGE>

<TABLE>
                                                 TABLE OF CONTENTS


                                                                                                               PAGE

<S>                                                                                                             <C>
ARTICLE I             DEFINITIONS................................................................................1

         Section 1.01.     "Affiliate"...........................................................................1

         Section 1.02.     "Articles"............................................................................2

         Section 1.03.     "Blackout Amount".....................................................................2

         Section 1.04.     "Blackout Shares".....................................................................2

         Section 1.05.     "Closing".............................................................................2

         Section 1.06.     "Closing Date"........................................................................2

         Section 1.07.     "Commission"..........................................................................2

         Section 1.08.     "Commission Documents"................................................................2

         Section 1.09.     "Commitment Period"...................................................................2

         Section 1.10.     "Common Stock"........................................................................2

         Section 1.11.     "Condition Satisfaction Date".........................................................2

         Section 1.12.     "Damages".............................................................................2

         Section 1.13.     "Draw Down"...........................................................................2

         Section 1.14.     "Draw Down Amount"....................................................................2

         Section 1.15.     "Draw Down Discount Price"............................................................2

         Section 1.16.     "Draw Down Notice"....................................................................3

         Section 1.17.     "Draw Down Pricing Period"............................................................3

         Section 1.18.     "DTC".................................................................................3

         Section 1.19.     "EDGAR"...............................................................................3

         Section 1.20.     "Effective Date"......................................................................3

         Section 1.21.     "Exchange Act"........................................................................3

         Section 1.22.     "Knowledge"...........................................................................3

         Section 1.23.     "Legend"..............................................................................3

         Section 1.24.     "Make Whole Amount"...................................................................3

         Section 1.25.     "Market Capitalization"...............................................................3

         Section 1.26.     "Material Adverse Effect".............................................................3

         Section 1.27.     "Maximum Commitment Amount"...........................................................3

         Section 1.28.     "Maximum Draw Down Amount"............................................................3

         Section 1.29.     "NASD"................................................................................3

         Section 1.30.     "Other Financing".....................................................................4

                                                         i
<PAGE>

                                                 TABLE OF CONTENTS


                                                                                                               PAGE

         Section 1.31.     "Permitted Transaction"...............................................................4

         Section 1.32.     "Person"..............................................................................4

         Section 1.33.     "Principal Market"....................................................................4

         Section 1.34.     "Prohibited Transaction"..............................................................4

         Section 1.35.     "Prospectus"..........................................................................4

         Section 1.36.     "Registrable Securities"..............................................................4

         Section 1.37.     "Registration Rights Agreement".......................................................4

         Section 1.38.     "Registration Statement"..............................................................4

         Section 1.39.     "Regulation D"........................................................................4

         Section 1.40.     "Section4(2)".........................................................................4

         Section 1.41.     "Securities Act"......................................................................4

         Section 1.42.     "Settlement Date".....................................................................4

         Section 1.43.     "Shares"..............................................................................5

         Section 1.44.     "Third Party Claim"...................................................................5

         Section 1.45.     "Threshold Price".....................................................................5

         Section 1.46.     "Trading Day".........................................................................5

         Section 1.47.     "Underwriter".........................................................................5

         Section 1.48.     "VWAP"................................................................................5

         Section 1.49.     "Warrant".............................................................................5

         Section 1.50.     "Warrant Shares"......................................................................5

ARTICLE II            PURCHASE AND SALE OF COMMON STOCK..........................................................5

         Section 2.01.     Purchase and Sale of Stock............................................................5

         Section 2.02.     Closing...............................................................................5

         Section 2.03.     Registration Statement and Prospectus.................................................5

         Section 2.04.     Warrant...............................................................................6

         Section 2.05.     Blackout Shares.......................................................................6

ARTICLE III           DRAW DOWN TERMS............................................................................6

         Section 3.01.     Draw Down Notice......................................................................6

         Section 3.02.     Number of Shares......................................................................6

         Section 3.03.     Limitation on Draw Downs..............................................................6

         Section 3.04.     Trading Cushion.......................................................................6

         Section 3.05.     Expiration of Draw Downs..............................................................6


                                                        ii
<PAGE>

                                                 TABLE OF CONTENTS


                                                                                                               PAGE

         Section 3.06.     Settlement............................................................................6

         Section 3.07.     Delivery of Shares; Payment of Draw Down Amount.......................................7

         Section 3.08.     Threshold Price.......................................................................7

         Section 3.09.     Other Issuances.......................................................................7

         Section 3.10.     Failure to Deliver Shares.............................................................7

ARTICLE IV            REPRESENTATIONS AND WARRANTIES OF THE COMPANY..............................................8

         Section 4.01.     Organization, Good Standing and Power.................................................8

         Section 4.02.     Authorization; Enforcement............................................................8

         Section 4.03.     Capitalization........................................................................8

         Section 4.04.     Issuance of Shares....................................................................9

         Section 4.05.     No Conflicts..........................................................................9

         Section 4.06.     Commission Documents, Financial Statements............................................9

         Section 4.07.     No Material Adverse Change...........................................................10

         Section 4.08.     No Undisclosed Liabilities...........................................................10

         Section 4.09.     No Undisclosed Events or Circumstances...............................................10

         Section 4.10.     Actions Pending......................................................................11

         Section 4.11.     Compliance with Law..................................................................11

         Section 4.12.     Certain Fees.........................................................................11

         Section 4.13.     Disclosure...........................................................................11

         Section 4.14.     Exemption from Registration; Valid Issuances.........................................11

         Section 4.15.     No General Solicitation or Advertising in Regard to this Transaction.................11

         Section 4.16.     No Integrated Offering...............................................................12

         Section 4.17.     Acknowledgment Regarding Investor's Purchase of Shares...............................12

ARTICLE V             REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE INVESTOR.................................12

         Section 5.01.     Organization and Standing of the Investor............................................12

         Section 5.02.     Authorization and Power..............................................................12

         Section 5.03.     No Conflicts.........................................................................12

         Section 5.05.     Information..........................................................................13

         Section 5.06.     Selling Restrictions.................................................................13

         Section 5.07.     Statutory Underwriter Status.........................................................13


                                                        iii
<PAGE>

                                                 TABLE OF CONTENTS


                                                                                                               PAGE

ARTICLE VI            COVENANTS OF THE COMPANY..................................................................14

         Section 6.01.     Securities...........................................................................14

         Section 6.02.     Reservation of Common Stock..........................................................14

         Section 6.03.     Registration and Listing.............................................................14

         Section 6.04.     Registration Statement...............................................................14

         Section 6.05.     Compliance with Laws.................................................................14

         Section 6.06.     Reporting Requirements...............................................................15

         Section 6.07.     Other Financing......................................................................15

         Section 6.08.     Prohibited Transactions..............................................................15

         Section 6.09.     Corporate Existence..................................................................16

         Section 6.10.     Non-Disclosure of Non-Public Information.............................................16

         Section 6.11.     Notice of Certain Events Affecting Registration; Suspension of Right to
                           Request a Draw Down..................................................................16

         Section 6.12.     Amendments to the Registration Statement.............................................16

         Section 6.13.     Prospectus Delivery..................................................................16

         Section 6.14.     Expectations Regarding Draw Downs....................................................16

ARTICLE VII           CONDITIONS TO THE OBLIGATION OF THE INVESTOR  TO ACCEPT A DRAW DOWN.......................17

         Section 7.01.     Accuracy of the Company's Representations and Warranties.............................17

         Section 7.02.     Performance by the Company...........................................................17

         Section 7.03.     Compliance with Law..................................................................17

         Section 7.04.     Effective Registration Statement.....................................................17

         Section 7.05.     No Knowledge.........................................................................17

         Section 7.06.     No Suspension........................................................................18

         Section 7.07.     No Injunction........................................................................18

         Section 7.08.     No Proceedings or Litigation.........................................................18

         Section 7.09.     Section16 Limitation.................................................................18

         Section 7.10.     Sufficient Shares Registered for Resale..............................................18

         Section 7.11.     Warrant..............................................................................18

         Section 7.12.     Opinion of Counsel...................................................................18


                                                         iv
<PAGE>

                                                 TABLE OF CONTENTS


                                                                                                               PAGE

ARTICLE VIII          CONDITIONS TO THE OBLIGATIONS OF THE COMPANY TO SELL, ISSUE AND DELIVER THE
                      SHARES TO THE INVESTOR....................................................................19

         Section 8.01.     Accuracy of the Investor's  Representations and Warranties...........................19

         Section 8.02.     Performance by the Investor..........................................................19

         Section 8.03.     Compliance with Law..................................................................19

         Section 8.04.     No Injunction........................................................................19

         Section 8.05.     No Proceedings or Litigation.........................................................19

ARTICLE IX            TERMINATION...............................................................................19

         Section 9.01.     Term.................................................................................19

         Section 9.02.     Other Termination....................................................................19

         Section 9.03.     Effect of Termination................................................................20

ARTICLE X             INDEMNIFICATION...........................................................................20

         Section 10.01.    Indemnification......................................................................20

         Section 10.02.    Notification of Claims for Indemnification...........................................21

         Section 10.03.    Dispute Resolution...................................................................23

ARTICLE XI            MISCELLANEOUS.............................................................................24

         Section 11.01.    Fees and Expenses....................................................................24

         Section 11.02.    Reporting Entity for the Common Stock................................................24

         Section 11.03.    Brokerage............................................................................24

         Section 11.04.    Notices..............................................................................24

         Section 11.05.    Assignment...........................................................................25

         Section 11.06.    Amendment; No Waiver.................................................................25

         Section 11.07.    Entire Agreement.....................................................................25

         Section 11.08.    Severability.........................................................................26

         Section 11.09.    Title and Subtitles..................................................................26

         Section 11.10.    Counterparts.........................................................................26

         Section 11.11.    Choice of Law........................................................................26

         Section 11.12.    Specific Enforcement, Consent to Jurisdiction........................................26

         Section 11.13.    Survival.............................................................................26

         Section 11.14.    Publicity............................................................................26

         Section 11.15.    Further Assurances...................................................................27


                                                         v
</TABLE>

<PAGE>

                         COMMON STOCK PURCHASE AGREEMENT

                                 BY AND BETWEEN

                           KINGSBRIDGE CAPITAL LIMITED

                                       AND

                         AMERICAN TECHNOLOGY CORPORATION

                          DATED AS OF DECEMBER 14, 2004

         This COMMON STOCK PURCHASE AGREEMENT is entered into as of the 14th day
of December, 2004 (this "AGREEMENT"), by and between Kingsbridge Capital
Limited, an entity organized and existing under the laws of the British Virgin
Islands (the "INVESTOR") and AMERICAN TECHNOLOGY CORPORATION, a corporation
organized and existing under the laws of the State of Delaware (the "COMPANY").

         WHEREAS, the parties desire that, upon the terms and subject to the
conditions set forth herein, the Company may issue and sell to the Investor,
from time to time as provided herein, and the Investor shall purchase from the
Company, up to $25 million worth of shares of Common Stock (as defined below);
and

         WHEREAS, such investments will be made in reliance upon the provisions
of Section 4(2) ("SECTION 4(2)") and Regulation D ("REGULATION D") of the United
States Securities Act of 1933, as amended and the rules and regulations
promulgated thereunder (the "SECURITIES ACT"), and/or upon such other exemption
from the registration requirements of the Securities Act as may be available
with respect to any or all of the investments in Common Stock to be made
hereunder; and

         WHEREAS, the parties hereto are concurrently entering into a
Registration Rights Agreement in the form of Exhibit A hereto (the "REGISTRATION
RIGHTS AGREEMENT") pursuant to which the Company intends to register for resale
by the Investor the Common Stock issued and sold to the Investor under this
Agreement and under the Warrant (as defined below), upon the terms and subject
to the conditions set forth therein; and

         WHEREAS, in consideration for the Investor's execution and delivery of,
and its performance of its obligations under, this Agreement, the Company is
concurrently issuing to the Investor a Warrant in the form of Exhibit B hereto
(the "WARRANT") pursuant to which the Investor may purchase from the Company up
to 275,000 shares of Common Stock, upon the terms and subject to the conditions
set forth therein.

         NOW, THEREFORE, the parties hereto agree as follows:

                                    ARTICLE I

                                   DEFINITIONS

         Section 1.01. "AFFILIATE" shall mean any Person that, directly or
indirectly through one or more intermediaries, controls or is controlled by, or
is under direct or indirect common control with any other Person. For the

<PAGE>

purposes of this definition, "control," when used with respect to any Person,
means the power to direct the management and policies of such Person, directly
or indirectly, whether through the ownership of voting securities, by contract
or otherwise, and the term "controls" and "controlled" have meanings correlative
to the foregoing.

         Section 1.02. "ARTICLES" shall have the meaning assigned to such term
in Section 4.03 hereof.

         Section 1.03. "BLACKOUT AMOUNT" shall have the meaning assigned to such
term in the Registration Rights Agreement.

         Section 1.04. "BLACKOUT SHARES" shall have the meaning assigned to such
term in the Registration Rights Agreement.

         Section 1.05. "CLOSING" shall have the meaning assigned to such term in
Section 2.02 hereof.

         Section 1.06. "CLOSING DATE" means the date on which this Agreement is
executed and delivered by the Company and the Investor.

         Section 1.07. "COMMISSION" means the United States Securities Exchange
Commission.

         Section 1.08. "COMMISSION DOCUMENTS" shall have the meaning assigned to
such term in Section 4.06 hereof.

         Section 1.09. "COMMITMENT PERIOD" means the period commencing on the
Effective Date and expiring on the earliest to occur of (x) the date on which
the Investor shall have purchased Shares pursuant to this Agreement for an
aggregate purchase price equal to the Maximum Commitment Amount, (y) the date
this Agreement is terminated pursuant to Article IX hereof, and (z) the date
occurring 24 months from the Effective Date.

         Section 1.10. "COMMON STOCK" means the common stock of the Company, par
value $.00001 per share.

         Section 1.11. "CONDITION SATISFACTION DATE" shall have the meaning
assigned to such term in Article VII hereof.

         Section 1.12. "DAMAGES" means any loss, claim, damage, liability, costs
and expenses (including, without limitation, reasonable attorneys' fees and
expenses and costs and reasonable expenses of expert witnesses and
investigation).

         Section 1.13. "DRAW DOWN" shall have the meaning assigned to such term
in Section 3.01 hereof.

         Section 1.14. "DRAW DOWN AMOUNT" means the actual amount of a Draw Down
paid to the Company.

         Section 1.15. "DRAW DOWN DISCOUNT PRICE" means (i) 88% of the VWAP on
any Trading Day during the Draw Down Pricing Period when the VWAP is equal to or
exceeds $3.00 but is less than $5.00; (ii) 90% of the VWAP on any Trading Day
during the Draw Down Pricing Period when the VWAP is equal to or exceeds $5.00
but is less than $10.00; or (iii) 92% of the VWAP on any Trading Day during the
Draw Down Pricing Period when the VWAP is equal to or exceeds $10.00.


                                       2
<PAGE>

         Section 1.16. "DRAW DOWN NOTICE" shall have the meaning assigned to
such term in Section 3.01 hereof.

         Section 1.17. "DRAW DOWN PRICING PERIOD" shall mean, with respect to
each Draw Down, a period of fifteen (15) consecutive Trading Days beginning on
the first Trading Day specified in a Draw Down Notice.

         Section 1.18. "DTC" shall mean the Depository Trust Corporation, or any
successor thereto.

         Section 1.19. "EDGAR" shall mean the Commission's Electronic Document,
Gathering, Analysis, and Retrieval System.

         Section 1.20. "EFFECTIVE DATE" means the first Trading Day immediately
following the date on which the Registration Statement is declared effective by
the Commission.

         Section 1.21. "EXCHANGE ACT" means the U.S. Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.

         Section 1.22. "KNOWLEDGE" means the actual knowledge of the Chief
Executive Officer, President, Chief Financial Officer, Vice President of
Military Operations and Senior Vice President of Research and Development of the
Company.

         Section 1.23. "MAKE WHOLE AMOUNT" shall have the meaning specified in
Section 3.10.

         Section 1.24. "MARKET CAPITALIZATION" means, as of any Trading Day, the
product of (i) the closing sale price of the Company's Common Stock as reported
by Bloomberg L.P. using the AQR function and (ii) the number of outstanding
shares of Common Stock of the Company as reported by Bloomberg L.P. using the
DES function.

         Section 1.25. "MATERIAL ADVERSE EFFECT" means any effect on the
business, operations, properties or financial condition of the Company and its
consolidated subsidiaries that is material and adverse to the Company and such
subsidiaries, taken as a whole, and/or any condition, circumstance, or situation
that would prohibit or otherwise interfere with the ability of the Company to
perform any of its obligations under this Agreement, the Registration Rights
Agreement or the Warrant in any material respect; PROVIDED, that none of the
following shall constitute a "Material Adverse Effect": (i) the effects of
conditions or events that are generally applicable to the capital, financial,
banking, currency, technology or defense markets, (ii) any changes or effects
resulting from the announcement or consummation of the transactions contemplated
by this Agreement, including, without limitation, any changes or effects
associated with any particular Draw Down, and (iii) changes in the market price
of the Company's Common Stock.

         Section 1.26. "MAXIMUM COMMITMENT AMOUNT" means $25 million in
aggregate Draw Down Amounts.

         Section 1.27. "MAXIMUM DRAW DOWN AMOUNT" means 3% of the Company's
Market Capitalization at the time of the Draw Down; PROVIDED, HOWEVER, that such
amount shall not exceed $10 million in respect of any Draw Down.

         Section 1.28. "NASD" means the National Association of Securities
Dealers, Inc.


                                       3
<PAGE>

         Section 1.29. "PERMITTED TRANSACTION" shall have the meaning assigned
to such term in Section 6.07 hereof.

         Section 1.30. "PERSON" means any individual, corporation, partnership,
limited liability company, association, trust or other entity or organization,
including any government or political subdivision or an agency or
instrumentality thereof.

         Section 1.31. "PRINCIPAL MARKET" means the Nasdaq National Market, the
Nasdaq SmallCap Market, the American Stock Exchange or the New York Stock
Exchange, whichever is at the time the principal trading exchange or market for
the Common Stock.

         Section 1.32. "PROHIBITED TRANSACTION" shall have the meaning assigned
to such term in Section 6.08 hereof.

         Section 1.33. "PROSPECTUS" as used in this Agreement means the
prospectus in the form included in the Registration Statement, as supplemented
from time to time pursuant to Rule 424(b) of the Securities Act.

         Section 1.34. "REGISTRABLE SECURITIES" means (i) the Shares, (ii) the
Warrant Shares, and (iii) any securities issued or issuable with respect to any
of the foregoing by way of exchange, stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization or otherwise. As to any particular Registrable
Securities, once issued such securities shall cease to be Registrable Securities
when (w) the Registration Statement has been declared effective by the SEC and
such Registrable Securities have been disposed of pursuant to the Registration
Statement, (x) such Registrable Securities have been sold under circumstances
under which all of the applicable conditions of Rule 144 (or any similar
provision then in force) under the Securities Act ("RULE 144") are met, (y) such
time as such Registrable Securities have been otherwise transferred to holders
who may trade such shares without restriction under the Securities Act, and the
Company has delivered a new certificate or other evidence of ownership for such
securities not bearing a restrictive legend or (z) in the opinion of counsel to
the Company such Registrable Securities may be sold without registration and
without any time, volume or manner limitations pursuant to Rule 144(k) (or any
similar provision then in effect) under the Securities Act.

         Section 1.35. "REGISTRATION RIGHTS AGREEMENT" shall have the meaning
set forth in the recitals of this Agreement.

         Section 1.36. "REGISTRATION STATEMENT" shall have the meaning assigned
to such term in the Registration Rights Agreement.

         Section 1.37. "REGULATION D" shall have the meaning set forth in the
recitals of this Agreement.

         Section 1.38. "SECTION 4(2)" shall have the meaning set forth in the
recitals of this Agreement.

         Section 1.39. "SECURITIES ACT" shall have the meaning set forth in the
recitals of this Agreement.

         Section 1.40. "SETTLEMENT DATE" shall have the meaning assigned to such
term in Section 3.06 hereof.

         Section 1.41. "SHARES" means the shares of Common Stock of the Company
that are and/or may be purchased hereunder.


                                       4
<PAGE>

         Section 1.42. "THIRD PARTY CLAIM" shall have the meaning assigned to
such term in Section 10.02 hereof.

         Section 1.43. "THRESHOLD PRICE" means the lowest "Draw Down Discount
Price" (as specified by the Company in a Draw Down Notice) at which the Company
will agree to sell Shares during the applicable Draw Down Pricing Period, which
price shall not be set in respect of any Draw Down Pricing Period at less than
$3.00 per share.

         Section 1.44. "TRADING DAY" means any day other than a Saturday or a
Sunday on which the Principal Market is open for trading in equity securities.

         Section 1.45. "UNDERWRITER" shall mean any underwriter (other than the
Investor, to the extent it is deemed to be a statutory underwriter)
participating in any disposition of the Registrable Securities on behalf of the
Investor pursuant to the Registration Statement.

         Section 1.46. "VWAP" means the volume weighted average price (the
aggregate sales price of all trades of Common Stock during each Trading Day
divided by the total number of shares of Common Stock traded during such Trading
Day) of the Common Stock during any Trading Day as reported by Bloomberg, L.P.
using the AQR function.

         Section 1.47. "WARRANT" shall have the meaning set forth in the
recitals of this Agreement.

         Section 1.48. "WARRANT SHARES" means the shares of Common Stock
issuable to the Investor upon exercise of the Warrant.

                                   ARTICLE II

                        PURCHASE AND SALE OF COMMON STOCK

         Section 2.01. PURCHASE AND SALE OF STOCK. Upon the terms and subject to
the conditions set forth in this Agreement, the Company shall issue and sell to
the Investor and the Investor shall purchase from the Company Common Stock for
an aggregate (in Draw Down Amounts) of up to the Maximum Commitment Amount,
consisting of purchases based on Draw Downs in accordance with Article III
hereof.

         Section 2.02. CLOSING. In consideration of and in express reliance upon
the representations, warranties, covenants, terms and conditions of this
Agreement, the Company agrees to issue and sell to the Investor, and the
Investor agrees to purchase from the Company, that number of the Shares to be
issued in connection with each Draw Down. The closing of the execution and
delivery of this Agreement (the "CLOSING") shall take place at the offices of
Clifford Chance US LLP, 31 West 52nd Street, New York, NY 10019 at 2:00 p.m.
local time on December 14, 2004, or at such other time and place or on such date
as the Investor and the Company may agree upon (the "CLOSING DATE"). Each party
shall deliver all documents, instruments and writings required to be delivered
by such party pursuant to this Agreement at or prior to the Closing.

         Section 2.03. REGISTRATION STATEMENT AND PROSPECTUS. Promptly after the
Closing, the Company shall prepare and file with the Commission the Registration
Statement (including the Prospectus) in accordance with the provisions of the
Securities Act and the Registration Rights Agreement.

         Section 2.04. WARRANT. On the Closing Date, the Company shall issue and
deliver the Warrant to the Investor.


                                       5
<PAGE>

         Section 2.05. BLACKOUT SHARES. The Company shall issue and deliver any
Blackout Shares, if any, to the Investor in accordance with Section 1(e) of the
Registration Rights Agreement.

                                  ARTICLE III

                                 DRAW DOWN TERMS

         Subject to the satisfaction of the conditions hereinafter set forth in
this Agreement, the parties agree as follows:

         Section 3.01. DRAW DOWN NOTICE. The Company, may, in its sole
discretion, issue a Draw Down Notice with respect to a Draw Down up to a Draw
Down Amount equal to the Maximum Draw Down Amount (each, a "DRAW DOWN") during
the Commitment Period, which Draw Down the Investor will be obligated to accept.
The Company shall inform the Investor via facsimile transmission, with a copy to
the Investor's counsel, as to the Draw Down Amount the Company wishes to
exercise before commencement of trading on the first Trading Day of any Draw
Down Pricing Period (the "DRAW DOWN NOTICE"). In addition to the Draw Down
Amount, each Draw Down Notice shall specify the Threshold Price in respect of
the applicable Draw Down and shall designate the first Trading Day of the Draw
Down Pricing Period. In no event shall any Draw Down Amount exceed the Maximum
Draw Down Amount. Each Draw Down Notice shall be accompanied by a certificate,
signed by the Chief Executive Officer or Chief Financial Officer dated, as of
the date of such Draw Down Notice, in the form of EXHIBIT C hereof.

         Section 3.02. NUMBER OF SHARES. The number of Shares to be issued in
connection with each Draw Down shall be equal to the sum of the quotients (for
each Trading Day of the Draw Down Pricing Period for which the Draw Down
Discount Price equals or exceeds the Threshold Price) of one fifteenth (1/15th)
of the Draw Down Amount divided by the applicable Draw Down Discount Price.

         Section 3.03. LIMITATION ON DRAW DOWNS. Only one Draw Down shall be
permitted for each Draw Down Pricing Period.

         Section 3.04. TRADING CUSHION. There shall be a minimum of five (5)
Trading Days between the expiration of any Draw Down Pricing Period and the
beginning of the next succeeding Draw Down Pricing Period.

         Section 3.05. EXPIRATION OF DRAW DOWNS. Each Draw Down will expire on
the last Trading Day of each Draw Down Pricing Period.

         Section 3.06. SETTLEMENT. The number of Shares purchased by the
Investor with respect to each Draw Down shall be determined and settled on a
periodic basis in respect of the applicable Draw Down Pricing Period. Settlement
in respect of each determination shall be made at the Company's sole discretion,
but no later than the third Trading Day after the fifth, tenth and fifteenth
Trading Day of the Draw Down Pricing Period. Each date on which settlement of
the purchase and sale of Shares occurs hereunder being referred to as a
"SETTLEMENT DATE." The Investor shall provide the Company with delivery
instructions for the Shares to be issued at each Settlement Date at least three
(3) Trading Days in advance of such Settlement Date (except to the extent
previously provided). The number of Shares actually issued shall be rounded to
the nearest whole number of Shares.

         Section 3.07. DELIVERY OF SHARES; PAYMENT OF DRAW DOWN AMOUNT. On each
Settlement Date, the Company shall deliver the Shares purchased by the Investor
to the Investor or its designees via book-entry through the DTC to an account
designated by the Investor, and upon receipt of the Shares, the Investor shall
cause payment therefor to be made to the Company's designated account by wire


                                       6
<PAGE>

transfer of immediately available funds, if the Shares are received by the
Investor no later than 1:00 p.m. (Eastern Time), or next day available funds, if
the Shares are received thereafter.

         Section 3.08. THRESHOLD PRICE. For each Trading Day during a Draw Down
Pricing Period that the Draw Down Discount Price is less than the Threshold
Price, no Shares shall be purchased or sold on such Trading Day and the total
amount of the Draw Down Amount in respect of such Draw Down Pricing Period shall
be reduced by one fifteenth (1/15th). The amount of the Draw Down Amount not so
purchased or sold shall continue to be available in future Draw Downs and a part
of the Maximum Commitment Amount. If trading in the Company's Common Stock is
suspended for any reason for more than three (3) consecutive or non-consecutive
hours during any Trading Day during a Draw Down Pricing Period, the Draw Down
Discount Price shall be deemed to be less than the Threshold Price for that
Trading Day.

         Section 3.09. OTHER ISSUANCES. If during any Draw Down Pricing Period
the Company shall (with the consent of the Investor pursuant to Section 6.07 or
6.08 hereof, if applicable) issue any shares of Common Stock to any Person other
than the Investor (other than shares of Common Stock issued in connection with a
Permitted Transaction), then the applicable Draw Down Notice shall be deemed
null and void and the Investor shall promptly return to the Company any and all
Shares transferred to the Investor in respect of any Settlement Date(s) during
such Draw Down Pricing Period and the Company shall promptly thereafter pay to
the Investor by wire transfer of immediately available funds to an account
designated by the Investor that portion of the applicable Draw Down Amount paid
to the Company in respect of such Settlement Date(s).

         Section 3.10. FAILURE TO DELIVER SHARES. If on any Settlement Date, the
Company fails to deliver the Shares to be purchased by the Investor, and such
failure is not cured within ten (10) Trading Days following the date on which
the Investor delivered payment for such Shares, the Company shall pay to the
Investor on demand in cash by wire transfer of immediately available funds to an
account designated by the Investor the "MAKE WHOLE AMOUNT;" PROVIDED, HOWEVER,
that in the event that the Company is prevented from delivering Shares in
respect of any such Settlement Date in a timely manner by any fact or
circumstance that is reasonably within the control of, or directly attributable
to, the Investor, then such ten (10) Trading Day period shall be automatically
extended until such time as such fact or circumstance is cured. As used herein,
the Make Whole Amount shall be an amount equal to the sum of (i) the Draw Down
Amount actually paid by the Investor in respect of such Shares plus (ii) an
amount equal to the actual loss suffered by the Investor in respect of sales to
subsequent purchasers, pursuant to transactions entered into before the
Settlement Date, of the Shares that were required to be delivered by the
Company, which shall be based upon documentation reasonably satisfactory to the
Company demonstrating the difference (if greater than zero) between (A) the
price per share paid by the Investor to purchase such number of shares of Common
Stock necessary for the Investor to meet its share delivery obligations to such
subsequent purchasers minus (B) the average Draw Down Discount Price during the
applicable Draw Down Pricing Period. In the event that the Make Whole Amount is
not paid within five (5) Trading Days following a demand therefor from the
Investor, the Make Whole Amount shall accrue interest compounded daily at a rate
of five percent (5%) per annum up to and including the date on which the Make
Whole Amount is actually paid. Notwithstanding anything to the contrary set
forth in this Agreement, in the event that the Company pays the Make Whole
Amount (plus interest, if applicable) in respect of any Settlement Date in
accordance with this Section 3.10, such payment shall be the Investor's sole
remedy in respect of the Company's failure to deliver Shares in respect of such
Settlement Date, and the Company shall not be obligated to deliver such Shares
and the Company shall not be deemed to be in breach of its obligations to the
Investor in connection with the failure by the Company to deliver shares to the
Investor on a Settlement Date.


                                       7
<PAGE>

                                   ARTICLE IV

                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

         The Company hereby makes the following representations and warranties
to the Investor:

         Section 4.01. ORGANIZATION, GOOD STANDING AND POWER. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all corporate power and authority to own, lease
and operate its properties and to carry on its business as now being conducted.
Except as set forth in the Commission Documents (as defined below), the Company
does not own more than fifty percent (50%) of the outstanding capital stock of
or control any other business entity, other than any wholly-owned subsidiary
that is not "significant" within the meaning of Regulation S-X promulgated by
the Commission. The Company is duly qualified as a foreign corporation to do
business and is in good standing in every jurisdiction in which the nature of
the business conducted or property owned by it makes such qualification
necessary, other than those in which the failure so to qualify or be in good
standing would not have a Material Adverse Effect.

         Section 4.02. AUTHORIZATION; ENFORCEMENT. (i) The Company has the
requisite corporate power and authority to enter into and perform its
obligations under this Agreement, the Registration Rights Agreement and the
Warrant and to issue the Shares, the Warrant, the Warrant Shares and any
Blackout Shares (except to the extent that the number of Blackout Shares
required to be issued exceeds the number of authorized shares of Common Stock
under the Articles); (ii) the execution and delivery of this Agreement and the
Registration Rights Agreement, and the execution, issuance and delivery of the
Warrant, by the Company and the consummation by it of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action and no further consent or authorization of the Company or its
Board of Directors or stockholders is required (other than as contemplated by
Section 6.05); and (iii) each of this Agreement and the Registration Rights
Agreement has been duly executed and delivered, and the Warrant has been duly
executed, issued and delivered, by the Company and constitute the valid and
binding obligations of the Company enforceable against the Company in accordance
with their respective terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, or similar laws relating to, or affecting
generally the enforcement of, creditors' rights and remedies or by other
equitable principles of general application.

         Section 4.03. CAPITALIZATION. The authorized capital stock of the
Company and the shares thereof issued and outstanding as of June 30, 2004 are
set forth on a Schedule previously delivered to the Investor. All of the
outstanding shares of the Common Stock have been duly and validly authorized and
issued, and are fully paid and non-assessable. Except as set forth in this
Agreement, in the Commission Documents or as previously disclosed to the
Investor in writing, as of the date hereof no shares of Common Stock are
entitled to preemptive rights or registration rights and there are no
outstanding options, warrants, scrip, rights to subscribe to, call or
commitments of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for or giving any right to subscribe for, any
shares of capital stock of the Company. Except as set forth in this Agreement,
in the Commission Documents or as previously disclosed to the Investor in
writing, as of the date hereof, there are no contracts, commitments,
understandings, or arrangements by which the Company is or may become bound to
issue additional shares of the capital stock of the Company or options,
securities or rights convertible into or exchangeable for or giving any right to
subscribe for any shares of capital stock of the Company. Except as set forth in
the Commission Documents or as previously disclosed to the Investor in writing,
as of the date hereof, the Company is not a party to any agreement granting
registration rights to any Person with respect to any of its equity or debt
securities. Except as set forth in the Commission Documents or as previously
disclosed to the Investor in writing, as of the date hereof the Company is not a
party to, and it has no Knowledge of, any agreement restricting the voting or


                                       8
<PAGE>

transfer of any shares of the capital stock of the Company. The offer and sale
of all capital stock, convertible securities, rights, warrants, or options of
the Company issued during the twenty-four month period immediately prior to the
Closing complied with all applicable federal and state securities laws, and to
the Knowledge of the Company, no stockholder has a right of rescission or
damages with respect thereto that could reasonably be expected to have a
Material Adverse Effect. The Company has furnished or made available to the
Investor true and correct copies of the Company's Certificate of Incorporation,
as amended and in effect on the date hereof (the "ARTICLES"), and the Company's
Bylaws, as amended and in effect on the date hereof (the "BYLAWS").

         Section 4.04. ISSUANCE OF SHARES. The Shares, the Warrant and the
Warrant Shares have been, and any Blackout Shares will be, duly authorized by
all necessary corporate action (except to the extent that the number of Blackout
Shares required to be issued exceeds the number of authorized shares of Common
Stock under the Articles) and, when issued and paid for in accordance with the
terms of this Agreement, the Registration Rights Agreement and the Warrant, the
Shares and the Warrant Shares shall be validly issued and outstanding, fully
paid and non-assessable, and the Investor shall be entitled to all rights
accorded to a holder of shares of Common Stock.

         Section 4.05. NO CONFLICTS. The execution, delivery and performance of
this Agreement, the Registration Rights Agreement, the Warrant and any other
document or instrument contemplated hereby or thereby, by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby
do not: (i) violate any provision of the Articles or Bylaws, (ii) conflict with,
or constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any material agreement, mortgage,
deed of trust, indenture, note, bond, license, lease agreement, instrument or
obligation to which the Company is a party, (iii) create or impose a lien,
charge or encumbrance on any property of the Company under any agreement or any
commitment to which the Company is a party or by which the Company is bound or
by which any of its respective properties or assets are bound, or (iv) result in
a violation of any federal, state, local or foreign statute, rule, regulation,
order, judgment or decree (including federal and state securities laws and
regulations) applicable to the Company or any of its subsidiaries or by which
any property or asset of the Company or any of its subsidiaries are bound or
affected, except, in all cases (i) through (iv) above, for such conflicts,
defaults, terminations, amendments, accelerations, cancellations and violations
as would not, individually or in the aggregate, have a Material Adverse Effect.
The Company is not required under federal, state or local law, rule or
regulation to obtain any consent, authorization or order of, or make any filing
or registration with, any court or governmental agency in order for it to
execute, deliver or perform any of its obligations under this Agreement, the
Registration Rights Agreement or the Warrant, or issue and sell the Shares, the
Warrant Shares or the Blackout Shares (except to the extent that the number of
Blackout Shares required to be issued exceeds the number of authorized shares of
Common Stock under the Articles) in accordance with the terms hereof and thereof
(other than any filings that may be required to be made by the Company with the
Commission, the NASD/Nasdaq or state securities commissions subsequent to the
Closing, and, any registration statement (including any amendment or supplement
thereto) which may be filed pursuant hereto) where the failure to obtain such
consent would have a Material Adverse Effect; PROVIDED that, for purposes of the
representation made in this sentence, the Company is assuming and relying upon
the accuracy of the relevant representations and agreements of the Investor
herein.

         Section 4.06. COMMISSION DOCUMENTS, FINANCIAL STATEMENTS. The Common
Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange Act and
except as previously disclosed to the Investor in writing or disclosed in the
Commission Documents, the Company has timely filed all reports, schedules,
forms, statements and other documents required to be filed by it with the
Commission pursuant to the reporting requirements of the Exchange Act, including
material filed pursuant to Section 13(a) or 15(d) of the Exchange Act (all of
the foregoing, including filings incorporated by reference therein, being


                                       9
<PAGE>

referred to herein as the "COMMISSION DOCUMENTS") other than reports on Form 8-K
for which the Commission has granted a safe harbor with respect to the timing of
disclosure of such information required by Form 8-K. Except as previously
disclosed to the Investor in writing, the Company has maintained all
requirements for the continued listing or quotation of its Common Stock, and
such Common Stock is currently listed or quoted on the Nasdaq National Market or
another Principal Market. The Company has made available to the Investor, or
otherwise made available on its website, true and complete copies of the
Commission Documents filed with the Commission since December 31, 2002 and prior
to the Closing Date. Except as disclosed to the Investor in writing prior to the
date hereof, the Company has not provided to the Investor any information which,
according to applicable law, rule or regulation, should have been disclosed
publicly by the Company but which has not been so disclosed, other than with
respect to the transactions contemplated by this Agreement. As of its date, the
Company's Form 10-K for the fiscal year ended September 30, 2003 filed on
December 29, 2003, as amended by Amendment No. 1 to Form 10-K filed on January
28, 2004, complied in all material respects with the requirements of the
Exchange Act and the rules and regulations of the Commission promulgated
thereunder applicable to such document, and, as of January 28, 2004, after
giving effect to the information disclosed and incorporated by reference
therein, such Form 10-K did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. As of their respective dates, the financial
statements of the Company included in the Commission Documents filed with the
Commission since December 31, 2002, as such Commission Documents have been
amended prior to the Closing, complied as to form and substance in all material
respects with applicable accounting requirements and the published rules and
regulations of the Commission or other applicable rules and regulations with
respect thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") applied on a consistent basis
during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto or (ii) in the case of unaudited
interim statements, to the extent they may not include footnotes or may be
condensed or summary statements), and fairly present in all material respects
the financial position of the Company and its subsidiaries as of the dates
thereof and the results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).

         Section 4.07. NO MATERIAL ADVERSE CHANGE. Except as disclosed in the
Commission Documents, or as disclosed to the Investor in writing prior to the
date hereof, since June 30, 2004, no event or series of events has or have
occurred that would, individually or in the aggregate, have a Material Adverse
Effect on the Company other than continued losses from operations in the
ordinary course of the Company's business.

         Section 4.08. NO UNDISCLOSED LIABILITIES. Neither the Company nor any
of its subsidiaries has any liabilities, obligations, claims or losses (whether
liquidated or unliquidated, secured or unsecured, absolute, accrued, contingent
or otherwise) that would be required to be disclosed on a balance sheet of the
Company or any subsidiary (including the notes thereto) in conformity with GAAP
and are not disclosed in the Commission Documents, other than those incurred in
the ordinary course of the Company's or its subsidiaries respective businesses
since June 30, 2004 and which, individually or in the aggregate, do not or would
not have a Material Adverse Effect on the Company.

         Section 4.09. NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. To the Knowledge
of the Company, no event or circumstance has occurred or exists with respect to
the Company or its subsidiaries or their respective businesses, properties,
operations or financial condition, which, under applicable law, rule or
regulation, requires public disclosure or announcement by the Company but which
has not been so publicly announced or disclosed and which, individually or in
the aggregate, do not or would not have a Material Adverse Effect on the
Company.


                                       10
<PAGE>

         Section 4.10. ACTIONS PENDING. There is no action, suit, claim,
investigation or proceeding pending or, to the Knowledge of the Company,
threatened against the Company or any subsidiary which questions the validity of
this Agreement or the transactions contemplated hereby or any action taken or to
be taken pursuant hereto or thereto. Except as set forth in the Commission
Documents or on SCHEDULE 4.10, there is no action, suit, claim, investigation or
proceeding pending or, to the Knowledge of the Company, threatened, against or
involving the Company, any of its subsidiaries or any of their respective
properties or assets that could be reasonably expected to have a Material
Adverse Effect on the Company. Except as set forth in the Commission Documents
or on SCHEDULE 4.10, no judgment, order, writ, injunction or decree or award has
been issued by or, to the Knowledge of the Company, requested of any court,
arbitrator or governmental agency which might result in a Material Adverse
Effect.

         Section 4.11. COMPLIANCE WITH LAW. The businesses of the Company and
its subsidiaries have been and are presently being conducted in accordance with
all applicable federal, state and local governmental laws, rules, regulations
and ordinances, except as set forth in the Commission Documents or such that
would not reasonably be expected to cause a Material Adverse Effect. Except as
set forth in the Commission Documents, the Company and each of its subsidiaries
have all franchises, permits, licenses, consents and other governmental or
regulatory authorizations and approvals necessary for the conduct of its
business as now being conducted by it, except for such franchises, permits,
licenses, consents and other governmental or regulatory authorizations and
approvals, the failure to possess which, individually or in the aggregate, could
not reasonably be expected to have a Material Adverse Effect.

         Section 4.12. CERTAIN FEES. Except as disclosed to the Investor in
writing prior to the date hereof or as expressly set forth in this Agreement, no
brokers, finders or financial advisory fees or commissions will be payable by
the Company or any of its subsidiaries in respect of the transactions
contemplated by this Agreement.

         Section 4.13. DISCLOSURE. To the best of the Company's Knowledge,
neither this Agreement nor the Schedules hereto nor any other documents,
certificates or instruments furnished to the Investor by or on behalf of the
Company or any subsidiary in connection with the transactions contemplated by
this Agreement contain any untrue statement of a material fact or omit to state
a material fact necessary in order to make the statements made herein or
therein, in the light of the circumstances under which they were made herein or
therein, not misleading.

         Section 4.14. EXEMPTION FROM REGISTRATION; VALID ISSUANCES. The
issuance and sale of the Shares, the Warrant, the Warrant Shares and any
Blackout Shares in accordance with the terms and on the bases of the
representations and warranties set forth in this Agreement, may and shall be
properly issued pursuant to Section 4(2), Regulation D and/or any other
applicable federal and state securities laws. Neither the sales of the Shares,
the Warrant, the Warrant Shares or any Blackout Shares pursuant to, nor the
Company's performance of its obligations under, this Agreement, the Registration
Rights Agreement, or the Warrant shall (i) result in the creation or imposition
of any liens, charges, claims or other encumbrances upon the Shares, the Warrant
Shares, any Blackout Shares or any of the assets of the Company, or (ii) except
as previously disclosed to the Investor in writing, entitle the holders of any
outstanding shares of capital stock of the Company to preemptive or other rights
to subscribe to or acquire the shares of Common Stock or other securities of the
Company. The Shares, the Warrant Shares and any Blackout Shares shall not
subject the Investor to personal liability for the debts and obligations of the
Company solely by reason of the ownership thereof.

         Section 4.15. NO GENERAL SOLICITATION OR ADVERTISING IN REGARD TO THIS
TRANSACTION. Neither the Company nor any of its Affiliates or any person acting
on its or their behalf (i) has conducted any general solicitation (as that term
is used in Rule 502(c) of Regulation D) or general advertising with respect to
any of the Shares, the Warrant, the Warrant Shares or any Blackout Shares or


                                       11
<PAGE>

(ii) has made any offers or sales of any security or solicited any offers to buy
any security under any circumstances that would require registration of the
Shares under the Securities Act.

         Section 4.16. NO INTEGRATED OFFERING. Neither the Company, nor any of
its Affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, other than pursuant to this Agreement and employee benefit
plans, under circumstances that would require registration under the Securities
Act of shares of the Common Stock issuable hereunder with any other offers or
sales of securities of the Company.

         Section 4.17. ACKNOWLEDGMENT REGARDING INVESTOR'S PURCHASE OF SHARES.
The Company acknowledges and agrees that the Investor is acting solely in the
capacity of an arm's length Investor with respect to this Agreement and the
transactions contemplated hereunder. The Company further acknowledges that the
Investor is not acting as a financial advisor or fiduciary of the Company (or in
any similar capacity) with respect to this Agreement and the transactions
contemplated hereunder and any advice given by the Investor or any of its
representatives or agents in connection with this Agreement and the transactions
contemplated hereunder is merely incidental to the Investor's purchase of the
Shares.

                                   ARTICLE V

            REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE INVESTOR

         The Investor hereby makes the following representations, warranties and
covenants to the Company:

         Section 5.01. ORGANIZATION AND STANDING OF THE INVESTOR. The Investor
is a company duly organized, validly existing and in good standing under the
laws of the British Virgin Islands.

         Section 5.02. AUTHORIZATION AND POWER. The Investor has the requisite
power and authority to enter into and perform its obligations under this
Agreement, the Registration Rights Agreement and the Warrant and to purchase the
Shares in accordance with the terms hereof. The execution, delivery and
performance of this Agreement by Investor and the consummation by it of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action, and no further consent or authorization of the Investor, its
Board of Directors or stockholders is required. This Agreement has been duly
executed and delivered by the Investor and constitutes a valid and binding
obligation of the Investor enforceable against the Investor in accordance with
its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation,
conservatorship, receivership, or similar laws relating to, or affecting
generally the enforcement of creditor's rights and remedies or by other
equitable principles of general application.

         Section 5.03. NO CONFLICTS. The execution, delivery and performance of
this Agreement, the Registration Rights Agreement, the Warrant and any other
document or instrument contemplated hereby, by the Investor and the consummation
of the transactions contemplated thereby do not (i) violate any provision of the
Investor's charter documents or bylaws, (ii) conflict with, or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any material agreement, mortgage, deed of
trust, indenture, note, bond, license, lease agreement, instrument or obligation
to which the Investor is a party, (iii) create or impose a lien, charge or
encumbrance on any property of the Investor under any agreement or any
commitment to which the Investor is a party or by which the Investor is bound or
by which any of its respective properties or assets are bound or (iv) result in
a violation of any federal, state, local or foreign statute, rule, regulation,
order, judgment or decree (including federal and state securities laws and
regulations) applicable to the Investor or by which any property or asset of the


                                       12
<PAGE>

Investor are bound or affected, except in all cases (i) through (iv), for such
conflicts, defaults, terminations, amendments, accelerations, cancellations and
violations as would not, individually or in the aggregate, prohibit or otherwise
interfere with the ability of the Investor to enter into and perform its
obligations under this Agreement in any material respect. The Investor is not
required under federal, state or local law, rule or regulation to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency in order for it to execute, deliver or perform any
of its obligations under this Agreement or to purchase the Shares in accordance
with the terms hereof, PROVIDED that, for purposes of the representation made in
this sentence, the Investor is assuming and relying upon the accuracy of the
relevant representations and agreements of the Company herein.

         Section 5.04. FINANCIAL CAPABILITY. The Investor has the financial
capability to perform all of its obligations under this Agreement, including the
capability to purchase the Shares in accordance with the terms hereof. The
Investor is an "accredited investor" as defined in Regulation D and is able to
bear the risks of an investment in the Shares.

         Section 5.05. INFORMATION. The Investor and its advisors, if any, have
been furnished with all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of the
Shares which have been requested by the Investor. The Investor and its advisors,
if any, have been afforded the opportunity to ask questions of the Company. The
Investor has sought such accounting, legal and tax advice as it has considered
necessary to make an informed investment decision with respect to its
acquisition of the Shares. The Investor understands that it (and not the
Company) shall be responsible for its own tax liabilities that may arise as a
result of this investment or the transactions contemplated by this Agreement.
The Investor has such business and financial experience as is required to give
it the capacity to utilize the information received, to evaluate the risks
involved in purchasing the Shares, to make an informed decision about purchasing
the Shares and to protect its own interests in connection with the purchase of
the Shares.

         Section 5.06. SELLING RESTRICTIONS. The Investor covenants that during
the Commitment Period, neither the Investor nor any of its Affiliates nor any
entity managed by the Investor (i) will ever, through related parties or
otherwise, (x) purchase, trade, offer, pledge, sell, contract to sell or to
purchase or sell or "short" or "short against the box" (as those terms are
generally understood in the securities markets), or otherwise dispose of or
acquire, any derivative securities of the Company or options in respect of such
securities, including, but not limited to, by way of option or equity swap
transactions in or with respect to the Company's Common Stock or any other
derivative security transaction or (y) upon receipt by the Investor of any Draw
Down Notice from the Company, sell or contract to sell any shares of Common
Stock (other than any shares of Common Stock purchased by the Investor pursuant
to any Draw Down Notice under this Agreement) until the end of the Draw Down
Pricing Period set forth in such Draw Down Notice or (ii) will ever, through
related parties or otherwise, engage in any transaction intended to reduce the
economic risk of ownership of shares of Common Stock (including, without
limitation, the purchase of any option or contract to sell) that would, directly
or indirectly, have an effect substantially equivalent to selling short such
shares of Common Stock that are subject to, underlie or may be deliverable in
satisfaction of such transaction or otherwise may be reasonably be expected to
adversely affect the market price of the Common Stock. Notwithstanding the
foregoing, the Investor shall have the right during any Draw Down Pricing Period
to sell shares of the Company's Common Stock equal in number to the aggregate
number of the Shares to be purchased pursuant to the applicable Draw Down
Notice.

         Section 5.07. STATUTORY UNDERWRITER STATUS. The Investor acknowledges
and agrees that, pursuant to the Commission's current interpretations of the
Securities Act, the Investor will be disclosed as an "underwriter" within the
meaning of the Securities Act in the Registration Statement (and amendments
thereto) and in any Prospectus contained therein to the extent required by
applicable law.


                                       13
<PAGE>

                                   ARTICLE VI

                            COVENANTS OF THE COMPANY

         The Company covenants with the Investor as follows, which covenants are
for the benefit of the Investor and its permitted assignees (as defined herein):

         Section 6.01. SECURITIES. The Company shall notify the Commission and
the Principal Market, if and as applicable, in accordance with their rules and
regulations, of the transactions contemplated by this Agreement, and shall use
commercially reasonable efforts to take all other necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of the Shares, the Warrant Shares
and the Blackout Shares, if any, to the Investor.

         Section 6.02. RESERVATION OF COMMON STOCK. As of the date hereof, the
Company has available and the Company shall reserve and keep available at all
times, free of preemptive rights and other similar contractual rights of
stockholders, shares of Common Stock for the purpose of enabling the Company to
satisfy any obligation to issue the Shares in connection with all Draw Downs
contemplated hereunder and the Warrant Shares. The number of shares so reserved
from time to time, as theretofore increased or reduced as hereinafter provided,
may be reduced by the number of shares actually delivered hereunder.

         Section 6.03. REGISTRATION AND LISTING. During the Commitment Period,
the Company shall use commercially reasonable efforts: (i) to take all action
necessary to cause its Common Stock to continue to be registered under Section
12(b) or 12(g) of the Exchange Act, (ii) to comply in all material respects with
its reporting and filing obligations under the Exchange Act, and (iii) to
prevent the termination or suspension such registration, or the termination or
suspension of its reporting and filing obligations under the Exchange Act or
Securities Act (except as expressly permitted herein). The Company shall use
commercially reasonable efforts necessary to maintain the listing and trading of
its Common Stock and the listing of the Shares purchased by Investor hereunder
on a Principal Market (including, without limitation, maintaining sufficient net
tangible assets) and will comply in all material respects with the Company's
reporting, filing and other obligations under the bylaws or Rules of the NASD
and the Principal Market.

         Section 6.04. REGISTRATION STATEMENT. Without the prior written consent
of the Investor, the Registration Statement shall be used solely in connection
with the transactions between the Company and the Investor contemplated hereby.

         Section 6.05. COMPLIANCE WITH LAWS.

                  (a) The Company shall comply, and cause each of its
subsidiaries to comply, with all applicable laws, rules, regulations and orders,
noncompliance with which could reasonably be expected to have a Material Adverse
Effect.

                  (b) Without the consent of its stockholders in accordance with
the NASDAQ Marketplace Rules, the Company may not issue, and the Investor may
not be obligated to purchase, any Shares, Warrant Shares, or Blackout Shares,
which in the aggregate would result in the issuance of Shares, Warrant Shares,
or Blackout Shares representing more than the applicable percentage under the
NASDAQ Marketplace Rules that would require stockholder approval of the issuance
thereof.


                                       14
<PAGE>

         Section 6.06. REPORTING REQUIREMENTS. Unless otherwise available to the
public by way of EDGAR, upon reasonable written request of the Investor during
the Commitment Period, the Company shall furnish copies of the following to the
Investor within three (3) Trading Days of such request (but not sooner than
filed with or submitted to the Commission):

                  (a)      Quarterly Reports on Form 10-Q ;

                  (b)      Annual Reports on Form 10-K;

                  (c)      Periodic Reports on Form 8-K; and

                  (d)      any other documents publicly furnished or submitted
                           to the Commission.

         Section 6.07. OTHER FINANCING. The Company may, without the prior
written consent of the Investor, (i) establish stock option or award plans or
agreements (for directors, employees, consultants and/or advisors), and issue
securities thereunder, and amend such plans or agreements, including increasing
the number of shares available thereunder, (ii) use equity securities to
finance, or otherwise in connection with, the acquisition of one or more other
companies, equipment, technologies or lines of business, (iii) issue shares of
Common Stock and/or preferred stock in connection with the Company's option or
award plans, stock purchase plans, rights plans, warrants or options, (iv) issue
shares of Common Stock and/or preferred stock in connection with the acquisition
of products, licenses, equipment or other assets and strategic partnerships or
joint ventures (the primary purpose of which is not to raise equity capital);
(v) issue shares of Common Stock and/or preferred stock to consultants and/or
advisors as consideration for services rendered, (vi) issue and sell equity,
debt or hybrid securities in a public offering, (vii) issue and sell and equity,
debt or hybrid securities in a private placement (other than in connection with
any Prohibited Transaction), (viii) issue equity securities to equipment
lessors, equipment vendors, banks or similar lending institutions in connection
with leases or loans, or in connection with strategic commercial or licensing
transactions, (ix) issue securities in connection with any stock split, stock
dividend, recapitalization, reclassification or similar event by the Company,
(x) issue Common Stock upon the conversion of any derivative securities,
including preferred stock, (xi) issue shares of Common Stock to the Investor
under any other agreement entered into between the Investor and the Company and
(xii) enter into any transaction that is not a Prohibited Transactions (each a
"PERMITTED TRANSACTION"). The Company shall use commercially reasonable efforts
to notify the Investor in writing prior to the consummation of any material
Permitted Transaction described in clauses (vi), (vii) or (ix) above, provided
that notice would not violate the Company's obligations in SECTION 6.10 hereof.

         Section 6.08. PROHIBITED TRANSACTIONS. During the term of this
Agreement, the Company shall not enter into any Prohibited Transaction without
the prior written consent of the Investor, which consent may be withheld at the
sole discretion of the Investor. For the purposes of this Agreement, the term
"PROHIBITED TRANSACTION" shall refer to the issuance by the Company of any
"future priced securities," which shall be deemed to mean the issuance of shares
of Common Stock or securities of any type whatsoever that are, or may become,
convertible or exchangeable into shares of Common Stock where the purchase,
conversion or exchange price for such Common Stock is determined using any
floating or otherwise adjustable discount to the market price of Common Stock,
including, without limitation, pursuant to any equity line or other financing
that is substantially similar to the financing provided for under this
Agreement; provided, however, that nothing in this Section shall prohibit the
Company from issuing any securities of any type that are, or may become,
convertible or exchangeable into shares of Common Stock with a purchase,
conversion or exchange price that is fixed at the time of issuance (and which
may be accompanied by anti-dilution provisions), which price may be at a
discount to the market price of Common Stock.


                                       15
<PAGE>

         Section 6.09. CORPORATE EXISTENCE. The Company shall take all steps
necessary to preserve and continue the corporate existence of the Company;
PROVIDED, HOWEVER, that nothing in this Agreement shall be deemed to prohibit
the Company from engaging in any merger, consolidation, sale of all or
substantially all of its assets or similar transaction with another Person
pursuant to which such other Person is the surviving entity in the transaction.

         Section 6.10. NON-DISCLOSURE OF NON-PUBLIC INFORMATION. None of the
Company, its officers, directors, employees nor agents shall disclose material
non-public information to the Investor, its advisors or representatives except
as has been previously disclosed to the Investor in writing prior to the date
hereof.

         Section 6.11. NOTICE OF CERTAIN EVENTS AFFECTING REGISTRATION;
SUSPENSION OF RIGHT TO REQUEST A DRAW DOWN. Notwithstanding the provisions of
SECTION 6.10, the Company shall immediately notify the Investor upon the
occurrence of any of the following events in respect of the Registration
Statement or the Prospectus related to the offer, issuance and sale of the
Shares and the Warrant Shares hereunder: (i) receipt of any request for
additional information by the Commission or any other federal or state
governmental authority during the period of effectiveness of the Registration
Statement for amendments or supplements to the Registration Statement or the
Prospectus; (ii) the issuance by the Commission or any other federal or state
governmental authority of any stop order suspending the effectiveness of the
Registration Statement or the initiation of any proceedings for that purpose;
and (iii) receipt of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose. The Company shall not request a Draw Down during
the continuation of any of the foregoing events.

         Section 6.12. AMENDMENTS TO THE REGISTRATION STATEMENT. Notwithstanding
the provisions of SECTION 6.10, if the Registration Statement is declared
effective by the Commission, the Company shall not (i) file any amendment to the
Registration Statement or make any amendment or supplement to the Prospectus of
which the Investor shall not previously have been advised or to which the
Investor shall reasonably object after being so advised, other than amendments
or supplements deemed to result from the filing of documents incorporated by
reference therein, or (ii) so long as, in the reasonable opinion of counsel for
the Investor, a Prospectus is required to be delivered in connection with sales
of the Shares by the Investor, file any information, documents or reports
pursuant to the Exchange Act without delivering a copy of such information,
documents or reports to the Investor promptly following such filing unless such
information, documents or reports are available on EDGAR.

         Section 6.13. PROSPECTUS DELIVERY. From time to time for such period as
in the opinion of counsel for the Investor a prospectus is required by the
Securities Act to be delivered in connection with sales by the Investor, the
Company will expeditiously deliver to the Investor, without charge, as many
copies of the Prospectus (and of any amendment or supplement thereto) as the
Investor may reasonably request. The Company consents to the use of the
Prospectus (and of any amendment or supplement thereto) in accordance with the
provisions of the Securities Act and state securities laws in connection with
the offering and sale of the Shares and the Warrant Shares and for such period
of time thereafter as the Prospectus is required by the Securities Act to be
delivered in connection with sales of the Shares and the Warrant Shares.

         Section 6.14. EXPECTATIONS REGARDING DRAW DOWNS. Within ten (10)
calendar days after the commencement of each calendar quarter occurring
subsequent to the date hereof, the Company shall notify the Investor as to its
reasonable expectations as to the dollar amount it intends to raise during such
calendar quarter, if any, through the issuance of Draw Down Notices. Such
notification shall constitute only the Company's good faith estimate with
respect to such calendar quarter and shall in no way obligate the Company to


                                       16
<PAGE>

raise such amount during such calendar quarter or otherwise limit its ability to
deliver Draw Down Notices during such calendar quarter. The failure by the
Company to comply with this provision can be cured, and shall not be deemed a
breach of this Agreement, by the Company's notifying the Investor at any time as
to its reasonable expectations with respect to the current calendar quarter.

                                  ARTICLE VII

                  CONDITIONS TO THE OBLIGATION OF THE INVESTOR
                              TO ACCEPT A DRAW DOWN

         The obligation of the Investor hereunder to accept a Draw Down Notice
and to acquire and pay for the Shares in accordance therewith is subject to the
satisfaction or waiver, at each Condition Satisfaction Date, of each of the
conditions set forth below. The conditions are for the Investor's sole benefit
and may be waived by the Investor at any time in its sole discretion. As used in
this Agreement, the term "CONDITION SATISFACTION Date" shall mean, with respect
to each Draw Down, the date on which the applicable Draw Down Notice is
delivered to the Investor and each Settlement Date in respect of the applicable
Draw Down Pricing Period.

         Section 7.01. ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES.
Each of the representations and warranties of the Company in this Agreement
shall be true and correct in all material respects as though made on and as of
such Condition Satisfaction Date, except for such representations and warranties
that are expressly made as of a particular date.

         Section 7.02. PERFORMANCE BY THE COMPANY. The Company shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement, the Registration Rights
Agreement and the Warrant to be performed, satisfied or complied with by the
Company as of or prior to the applicable Condition Satisfaction Date.

         Section 7.03. COMPLIANCE WITH LAW. The Company shall have complied in
all material respects with all applicable federal, state and local governmental
laws, rules, regulations and ordinances in connection with the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby.

         Section 7.04. EFFECTIVE REGISTRATION STATEMENT. Upon the terms and
subject to the conditions as set forth in the Registration Rights Agreement, the
Registration Statement shall have previously become effective and shall remain
effective and (i) neither the Company nor the Investor shall have received
notice that the Commission has issued or intends to issue a stop order with
respect to the Registration Statement or that the Commission otherwise has
suspended or withdrawn the effectiveness of the Registration Statement, either
temporarily or permanently, or intends or has threatened to do so (unless the
Commission's concerns have been addressed and the Investor is reasonably
satisfied that the Commission no longer is considering or intends to take such
action), and (ii) no other suspension of the use or withdrawal of the
effectiveness of the Registration Statement or the Prospectus shall exist.

         Section 7.05. NO KNOWLEDGE. The Company shall have no Knowledge of any
event more likely than not to have the effect of causing the Registration
Statement with respect to the resale of the Registrable Securities by the
Investor to be suspended or otherwise ineffective (which event is more likely
than not to occur within fifteen (15) Trading Days following the Trading Day on
which a Draw Down Notice is delivered).


                                       17
<PAGE>

         Section 7.06. NO SUSPENSION. Trading in the Company's Common Stock
shall not have been suspended by the Commission, the applicable Principal Market
or, if applicable, the NASD and trading in securities generally as reported on
the Principal Market shall not have been suspended or limited.

         Section 7.07. NO INJUNCTION. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement.

         Section 7.08. NO PROCEEDINGS OR LITIGATION. No action, suit or
proceeding before any arbitrator or any governmental authority shall have been
commenced, and no investigation by any governmental authority shall have been
threatened, against the Company or any subsidiary, or any of the officers,
directors or Affiliates of the Company or any subsidiary seeking to enjoin,
prevent or change the transactions contemplated by this Agreement.

         Section 7.09. SECTION 16 LIMITATION. On each Settlement Date, the
number of Shares then to be purchased by the Investor shall not exceed the
number of such shares that, when aggregated with all other Registrable
Securities then owned by the Investor beneficially or deemed beneficially owned
by the Investor, would result in the Investor owning more than 9.9% of all of
such Common Stock as would be outstanding on such Settlement Date, as determined
in accordance with Section 16 of the Exchange Act. For purposes of this Section
7.09, in the event that the amount of Common Stock outstanding as determined in
accordance with Section 16 of the Exchange Act and the regulations promulgated
thereunder is greater on a Settlement Date than on the date upon which the Draw
Down Notice associated with such Settlement Date is given, the amount of Common
Stock outstanding on such Settlement Date shall govern for purposes of
determining whether the Investor, when aggregating all purchases of Common Stock
made pursuant to this Agreement and, if any, Warrant Shares and Blackout Shares,
would own more than 9.9% of the Common Stock following such Settlement Date.

         Section 7.10. SUFFICIENT SHARES REGISTERED FOR RESALE. The Company
shall have sufficient Shares, calculated using the closing price reported on the
applicable Principal Market of the Common Stock as of the Trading Day
immediately preceding such Draw Down Notice, registered under the Registration
Statement to issue and sell such Shares in accordance with such Draw Down
Notice.

         Section 7.11. WARRANT. The Warrant shall have been duly executed,
delivered and issued to the Investor, and the Company shall not be in default in
any material respect under any of the provisions thereof, provided that any
refusal by or failure of the Company to issue and deliver Warrant Shares in
respect of any exercise (in whole or in part) thereof shall be deemed to be
material for the purposes of this Section 7.11.

         Section 7.12. OPINION OF COUNSEL. The Investor shall have received an
opinion of counsel to the Company, dated as of the Effective Date, in form and
substance reasonably satisfactory to the Investor and its counsel.

                                  ARTICLE VIII

              CONDITIONS TO THE OBLIGATIONS OF THE COMPANY TO SELL,
                  ISSUE AND DELIVER THE SHARES TO THE INVESTOR

         The obligation of the Company hereunder to sell, issue and deliver
Shares to the Investor in accordance with the terms of any Draw Down notice is
subject to the satisfaction or waiver, at each Settlement Date, of each of the
conditions set forth below. The conditions are for the Company's sole benefit
and may be waived by the Company at any time in its sole discretion.


                                       18
<PAGE>

         Section 8.01. ACCURACY OF THE INVESTOR'S REPRESENTATIONS AND
WARRANTIES. Each of the representations and warranties of the Investor shall be
true and correct in all material respects as though made on the Settlement date,
except for such representations and warranties that are expressly made as of a
particular date.

         Section 8.02. PERFORMANCE BY THE INVESTOR. The Investor shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement, the Registration Rights
Agreement and the Warrant to be performed, satisfied or complied with by the
Investor.

         Section 8.03. COMPLIANCE WITH LAW. The Investor shall have complied in
all material respects with all applicable federal, state and local governmental
laws, rules, regulations and ordinances, including all NASD Rules and
regulations, in connection with the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby.

         Section 8.04. NO INJUNCTION. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement.

         Section 8.05. NO PROCEEDINGS OR LITIGATION. No action, suit or
proceeding before any arbitrator or any governmental authority shall have been
commenced, and no investigation by any governmental authority shall have been
threatened, against the Investor, the Company or any of their subsidiaries, or
any of the officers, directors or affiliates of the Investor or the Company or
any of their subsidiaries seeking to enjoin, prevent or change the transactions
contemplated by this Agreement.

                                   ARTICLE IX

                                   TERMINATION

         Section 9.01. TERM. Unless otherwise terminated in accordance with
Section 9.02 below, this Agreement shall terminate upon the expiration of the
Commitment Period.

         Section 9.02. OTHER TERMINATION.

                  (a) The Investor may terminate this Agreement upon one (1)
day's notice within ten (10) Trading Days after the Investor obtains Knowledge
that (x) the Company has entered into any Prohibited Transaction as set forth in
Section 6.08 without the Investor's prior written consent, or (y) an event
resulting in a Material Adverse Effect has occurred; PROVIDED, HOWEVER, that the
Investor shall be deemed to possess such Knowledge within five (5) Trading Days
after such event has been publicly disclosed by the Company in accordance with
its periodic reporting requirements under the Exchange Act.

                  (b) The Investor may terminate this Agreement upon one (1)
day's notice to the Company at any time in the event that the Registration
Statement is not declared effective in accordance with the Registration Rights
Agreement.


                                       19
<PAGE>

                  (c) The Company may terminate this Agreement upon one (1)
day's notice; PROVIDED, HOWEVER, that the Company shall not terminate this
Agreement pursuant to this SECTION 9.02(C) during any Draw Down Pricing Period;
PROVIDED FURTHER; that, in the event of any termination of this Agreement by the
Company hereunder, so long as the Investor owns Shares purchased hereunder
and/or Warrant Shares, unless all of such shares of Common Stock may be resold
by the Investor without registration and without any time, volume or manner
limitations pursuant to Rule 144(k) (or any similar provision then in effect)
under the Securities Act, the Company shall not suspend or withdraw the
Registration Statement or otherwise cause the Registration Statement to become
ineffective, or voluntarily delist the Common Stock from, the Principal Market
without listing the Common Stock on another Principal Market.

                  (d) Each of the parties hereto may terminate this Agreement
upon one (1) day's notice if the other party has breached a material
representation, warranty or covenant to this Agreement and such breach is not
remedied within ten (10) Trading Days after notice of such breach is delivered
to the breaching party.

                  (e) The obligation of the Investor to purchase shares of
Common Stock shall terminate permanently upon one (1) day's notice by the
Investor in the event that there shall occur any stop order or suspension of
effectiveness of the Registration Statement for an aggregate of thirty (30)
calendar days during any calendar year during the Commitment Period.

         Section 9.03. EFFECT OF TERMINATION.

                  (a) In the event of termination by the Company or the
Investor, written notice thereof shall forthwith be given to the other party and
the transactions contemplated by this Agreement shall be terminated without
further action by either party. If this Agreement is terminated as provided in
Section 9.01 or 9.02 herein, this Agreement shall become void and of no further
force and effect, except as provided in Section 11.13. Nothing in this Section
9.03 shall be deemed to release the Company or the Investor from any liability
for any breach under this Agreement, or to impair the rights of the Company and
the Investor to compel specific performance by the other party of its
obligations under this Agreement.

                                   ARTICLE X

                                 INDEMNIFICATION

         Section 10.01. INDEMNIFICATION.

                  (a) Except as otherwise provided in this Article X, unless
disputed in accordance with Section 10.03, the Company agrees to indemnify,
defend and hold harmless the Investor and its Affiliates and their respective
officers, directors, agents, employees, subsidiaries, partners, members and
controlling persons (each, an "INVESTOR INDEMNIFIED PARTY"), to the fullest
extent permitted by law from and against any and all Damages directly resulting
from or directly arising out of any breach of any representation or warranty,
covenant or agreement by the Company in this Agreement, the Registration Rights
Agreement or the Warrant; PROVIDED, HOWEVER, that the Company shall not be
liable under this Article X to an Investor Indemnified Party to the extent that
such Damages resulted or arose from the breach by an Investor Indemnified Party
of any representation, warranty, covenant or agreement of an Investor
Indemnified Party contained in this Agreement, the Registration Rights Agreement
or the Warrant or the gross negligence, recklessness, willful misconduct or bad
faith of an Investor Indemnified Party. The parties intend that any Damages
subject to indemnification pursuant to this Article X will be net of insurance
proceeds (which the Investor Indemnified Party agrees to use commercially
reasonable efforts to recover). Accordingly, the amount which the Company is


                                       20
<PAGE>

required to pay to any Investor Indemnified Party hereunder (a "COMPANY
INDEMNITY PAYMENT") will be reduced by any insurance proceeds actually recovered
by or on behalf of any Investor Indemnified Party in reduction of the related
Damages. In addition, if an Investor Indemnified Party receives a Company
Indemnity Payment required by this Article X in respect of any Damages and
subsequently receives any such insurance proceeds, then the Investor Indemnified
Party will pay to the Company an amount equal to the Company Indemnity Payment
received less the amount of the Company Indemnity Payment that would have been
due if the insurance proceeds had been received, realized or recovered before
the Company Indemnity Payment was made.

                  (b) Except as otherwise provided in this Article X, unless
disputed as set forth in Section 10.03, the Investor agrees to indemnify, defend
and hold harmless the Company and its Affiliates and their respective officers,
directors, agents, employees, subsidiaries, partners, members and controlling
persons (each, a "COMPANY INDEMNIFIED PARTY"), to the fullest extent permitted
by law from and against any and all Damages directly resulting from or directly
arising out of any breach of any representation or warranty, covenant or
agreement by the Investor in this Agreement, the Registration Right Agreement or
the Warrant; PROVIDED, HOWEVER, that the Investor shall not be liable under this
Article X to a Company Indemnified Party to the extent that such Damages
resulted or arose from the breach by a Company Indemnified Party of any
representation, warranty, covenant or agreement of a Company Indemnified Party
contained in this Agreement, the Registration Right Agreement or the Warrant or
gross negligence, recklessness, willful misconduct or bad faith of a Company
Indemnified Party. The parties intend that any Damages subject to
indemnification pursuant to this Article X will be net of insurance proceeds
(which the Company agrees to use commercially reasonable efforts to recover).
Accordingly, the amount which the Investor is required to pay to any Company
Indemnified Party hereunder (an "INVESTOR INDEMNITY Payment") will be reduced by
any insurance proceeds theretofore actually recovered by or on behalf of any
Company Indemnified Party in reduction of the related Damages. In addition, if a
Company Indemnified Party receives a Investor Indemnity Payment required by this
Article X in respect of any Damages and subsequently receives insurance such
proceeds, then the Company Indemnified Party will pay to the Investor an amount
equal to the Investor Indemnity Payment received less the amount of the Investor
Indemnity Payment that would have been due if the insurance proceeds had been
received, realized or recovered before the Investor Indemnity Payment was made.

         Section 10.02. NOTIFICATION OF CLAIMS FOR INDEMNIFICATION. Each party
entitled to indemnification under this Article X (an "INDEMNIFIED PARTY") shall,
promptly after the receipt of notice of the commencement of any claim against
such Indemnified Party in respect of which indemnity may be sought from the
party obligated to indemnify such Indemnified Party under this Article X (the
"INDEMNIFYING PARTY"), notify the Indemnifying Party in writing of the
commencement thereof. Any such notice shall describe the claim in reasonable
detail. The failure of any Indemnified Party to so notify the Indemnifying Party
of any such action shall not relieve the Indemnifying Party from any liability
which it may have to such Indemnified Party (a) other than pursuant to this
Article X or (b) under this Article X unless, and only to the extent that, such
failure results in the Indemnifying Party's forfeiture of substantive rights or
defenses or the Indemnifying Party is prejudiced by such delay. The procedures
listed below shall govern the procedures for the handling of indemnification
claims.

                  (a) Any claim for indemnification for Damages that do not
result from a Third Party Claim as defined in the following paragraph, shall be
asserted by written notice given by the Indemnified Party to the Indemnifying
Party. Such Indemnifying Party shall have a period of thirty (30) days after the
receipt of such notice within which to respond thereto. If such Indemnifying
Party does not respond within such thirty (30) day period, such Indemnifying
Party shall be deemed to have refused to accept responsibility to make payment


                                       21
<PAGE>

as set forth in Section 10.01. If such Indemnifying Party does not respond
within such thirty (30) day period or rejects such claim in whole or in part,
the Indemnified Party shall be free to pursue such remedies as specified in this
Agreement, including the dispute resolution provisions set forth in Section
10.03 below.

                  (b) If an Indemnified Party shall receive notice or otherwise
learn of the assertion by a person or entity not a party to this Agreement of
any threatened legal action or claim (collectively a "THIRD PARTY CLAIM"), with
respect to which an Indemnifying Party may be obligated to provide
indemnification, the Indemnified Party shall give such Indemnifying Party
written notice thereof within twenty (20) days after becoming aware of such
Third Party Claim.

                  (c) An Indemnifying Party may elect to defend (and, unless the
Indemnifying Party has specified any reservations or exceptions, to seek to
settle or compromise) at such Indemnifying Party's own expense and by such
Indemnifying Party's own counsel, any Third Party Claim. Within thirty (30) days
after the receipt of notice from an Indemnified Party (or sooner if the nature
of such Third Party Claim so requires), the Indemnifying Party shall notify the
Indemnified Party whether the Indemnifying Party will assume responsibility for
defending such Third Party Claim, which election shall specify any reservations
or exceptions. If such Indemnifying Party does not respond within such thirty
(30) day period or rejects such claim in whole or in part, the Indemnified Party
shall be free to pursue such remedies as specified in this Agreement, including
the dispute resolution provisions set forth in Section 10.03 below. In case any
such Third Party Claim shall be brought against any Indemnified Party, and it
shall notify the Indemnifying Party of the commencement thereof, the
Indemnifying Party shall be entitled to assume the defense thereof at its own
expense, with counsel satisfactory to such Indemnified Party in its reasonable
judgment; provided, however, that any Indemnified Party may, at its own expense,
retain separate counsel to participate in such defense at its own expense.
Notwithstanding the foregoing, in any Third Party Claim in which both the
Indemnifying Party, on the one hand, and an Indemnified Party, on the other
hand, are, or are reasonably likely to become, a party, such Indemnified Party
shall have the right to employ separate counsel and to control its own defense
of such claim if, in the reasonable opinion of counsel to such Indemnified
Party, either (x) one or more significant defenses are available to the
Indemnified Party that are not available to the Indemnifying Party or (y) a
conflict or potential conflict exists between the Indemnifying Party, on the one
hand, and such Indemnified Party, on the other hand, that would make such
separate representation advisable; PROVIDED, HOWEVER, that in such circumstances
the Indemnifying Party (i) shall not be liable for the fees and expenses of more
than one counsel to all Indemnified Parties and (ii) shall reimburse the
Indemnified Parties for such reasonable fees and expenses of such counsel
incurred in any such Third Party Claim, as such expenses are incurred, provided
that the Indemnified Parties agree to repay such amounts if it is ultimately
determined that the Indemnifying Party was not obligated to provide
indemnification under this Article X. The Indemnifying Party agrees that it will
not, without the prior written consent of the Indemnified Party, settle,
compromise or consent to the entry of any judgment in any pending or threatened
claim relating to the matters contemplated hereby (if any Indemnified Party is a
party thereto or has been actually threatened to be made a party thereto) unless
such settlement, compromise or consent includes an unconditional release of such
Indemnified Party from all liability arising or that may arise out of such
claim. The Indemnifying Party shall not be liable for any settlement of any
claim effected against an Indemnified Party without the Indemnifying Party's
written consent, which consent shall not be unreasonably withheld, conditioned
or delayed. The rights accorded to an Indemnified Party hereunder shall be in
addition to any rights that any Indemnified Party may have at common law, by
separate agreement or otherwise (subject, however, to the provisions of Section
10.03 below); PROVIDED, HOWEVER, that notwithstanding the foregoing or anything
to the contrary contained in this Agreement, nothing in this Article X (other
than Section 10.03) shall restrict or limit any rights that any Indemnified
Party may have to seek equitable relief.


                                       22
<PAGE>

         Section 10.03. DISPUTE RESOLUTION.

                  (a) Any dispute under this Agreement, the Registration Rights
Agreement or the Warrant shall be submitted to arbitration (including, without
limitation, pursuant to this Article X) by one arbitrator mutually agreed upon
by the parties, and if no agreement can be reached within twenty (20) days after
names of potential arbitrators have been proposed by the American Arbitration
Association (the "AAA"), then by one arbitrator having reasonable experience in
corporate finance transactions of the type provided for in this Agreement and
who has been chosen by AAA (the "Arbitrator"). The arbitration shall take place
in San Diego, California, on consecutive business days in accordance with the
AAA Rules then in effect, and judgment upon any award rendered in such
arbitration will be binding and may be entered in any court having jurisdiction
thereof.

                  (b) There shall be limited discovery prior to the arbitration
hearing as follows: (i) exchange of witness lists and copies of documentary
evidence and documents relating to or arising out of the issues to be
arbitrated, (ii) depositions of all party witnesses and (iii) such other
depositions as may be allowed by the Arbitrator upon a showing of good cause.
Depositions shall be conducted in accordance with the California Code of Civil
Procedure, the Arbitrator shall be required to provide in writing to the parties
the basis for the award or order (including the findings of fact and conclusions
of law) of the Arbitrator with respect to the amount, if any, which the
Indemnifying Party is required to pay to the Indemnified Party in respect of a
claim filed by the Indemnified Party, and a court reporter shall record all
hearings, with such record constituting the official transcript of such
proceedings.

                  (c) To the extent practical, decisions of the Board of
Arbitration shall be rendered no more than thirty (30) calendar days following
commencement of proceedings with respect thereto. The Board of Arbitration shall
cause its written decision to be delivered to the Indemnified Party and the
Indemnifying Party.

                  (d) Any decision made by the Arbitrator (either prior to or
after the expiration of such thirty (30) calendar day period) shall be final,
binding and conclusive on the Indemnified Party and the Indemnifying Party and
entitled to be enforced to the fullest extent permitted by law and entered in
any court of competent jurisdiction. Each party submits itself to the
jurisdiction of any such court, but only for the entry and enforcement to
judgment with respect to the decision of the Arbitrator. Each party to any
arbitration shall bear its own expense in relation thereto, including but not
limited to such party's attorneys' fees, if any, and the expenses and fees of
the Board of Arbitration shall be paid initially one-half by each of the
Indemnifying Party and the Indemnified Party, but then apportioned between the
Indemnifying Party and the Indemnified Party in the same proportion as the
portion of the related claim determined by the Arbitrator to be payable to the
Indemnified Party bears to the portion of such claim determined not to be so
payable.

                  (e) The Arbitrator shall have the power to grant all legal and
equitable remedies, including without limitation, specific performance, and
award compensatory damages provided by applicable law, but shall not have the
power to award punitive damages in relations to any matter under, arising out
of, or in connection with or relating to this Agreement, the Registration Rights
Agreement or the Warrant. Notwithstanding the foregoing, either party, subject
to the terms, conditions and provisions of Section 11.12, may apply to a court
of competent jurisdiction for a temporary restraining order, a preliminary
injunction or other equitable relief to preserve the status quo or prevent
irreparable harm.


                                       23
<PAGE>

                                   ARTICLE XI

                                  MISCELLANEOUS

         Section 11.01. FEES AND EXPENSES. The Company shall be solely
responsible for (i) all reasonable attorneys fees and expenses incurred by the
Investor in connection with the preparation, negotiation, execution and delivery
of this Agreement, the Registration Rights Agreement and the Warrant, and any
communications with the Commission, (ii) all reasonable fees and expenses
incurred by the Investor in connection with any amendments, modifications or
waivers of this Agreement or incurred in connection with the Investor's
enforcement of this Agreement, including, without limitation, all reasonable
attorneys fees and expenses, (iii) all reasonable due diligence expenses
incurred by the Investor during the term of this Agreement up to $12,000 per
calendar quarter, beginning the fiscal quarter commencing January 1, 2005, and
(iv) all stamp or other similar taxes and duties, if any, levied in connection
with issuance of the Shares pursuant hereto; PROVIDED, HOWEVER, that in each of
the above instances the Investor shall provide customary supporting invoices or
similar documentation in reasonable detail describing such expenses. The
Investor shall reimburse all reasonable due diligence expenses incurred by the
Company in connection with this transaction prior to the date of this Agreement.

         Section 11.02. REPORTING ENTITY FOR THE COMMON STOCK. The reporting
entity relied upon for the determination of the trading price or trading volume
of the Common Stock on any given Trading Day for the purposes of this Agreement
shall be Bloomberg, L.P. or any successor thereto. The written mutual consent of
the Investor and the Company shall be required to employ any other reporting
entity.

         Section 11.03. BROKERAGE. Each of the parties hereto represents that it
has had no dealings in connection with this transaction with any finder or
broker who will demand payment of any fee or commission from the other party.
The Company on the one hand, and the Investor, on the other hand, agree to
indemnify the other against and hold the other harmless from any and all
liabilities to any Persons claiming brokerage commissions or finder's fees on
account of services purported to have been rendered on behalf of the
indemnifying party in connection with this Agreement or the transactions
contemplated hereby.

         Section 11.04. NOTICES. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (i) personally served,
(ii) deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice given in accordance herewith. Any notice or
other communication required or permitted to be given hereunder shall be deemed
effective (a) upon hand delivery or delivery by facsimile, with accurate
confirmation generated by the transmitting facsimile machine, at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal business
hours where such notice is to be received) or (b) on the second business day
following the date of mailing by express courier service, fully prepaid,
addressed to such address, or upon actual receipt of such mailing, whichever
shall first occur. The addresses for such communications shall be:

                  If to the Company:

                  American Technology Corporation
                  13114 Evening Creek Drive South
                  San Diego, California 92128
                  Telephone:  (858) 679-2114
                  Facsimile:  (858) 679-0545
                  Attention:  Chief Financial Officer


                                       24
<PAGE>

with a copy (which shall not constitute notice) to:

                  Sheppard, Mullin, Richter & Hampton LLP
                  12544 High Bluff Drive
                  San Diego, CA 92130-3051
                  Telephone: 858-720-8943
                  Facsimile: 858-509-3691
                  Attention: John D. Tishler, Esq.

if to the Investor:

                  Kingsbridge Capital Limited/
                  c/o Kingsbridge Corporate Services Limited
                  Main Street
                  Kilcullen, County Kildare
                  Republic of Ireland
                  Telephone:  011-353-45-481-811
                  Facsimile:  011-353-45-482-003
                  Attention:  Adam Gurney, Managing Director

with a copy (which shall not constitute notice) to:

                  Clifford Chance US LLP
                  31 West 52nd Street
                  New York, NY  10019
                  Telephone: (212) 878-8000
                  Facsimile: (212) 878-8375
                  Attention: Keith M. Andruschak, Esq.

Either party hereto may from time to time change its address or facsimile number
for notices under this Section by giving at least ten (10) days' prior written
notice of such changed address or facsimile number to the other party hereto.

         Section 11.05. ASSIGNMENT. Neither this Agreement nor any rights of the
Investor or the Company hereunder may be assigned by either party to any other
Person.

         Section 11.06. AMENDMENT; NO WAIVER. No party shall be liable or bound
to any other party in any manner by any warranties, representations or covenants
except as specifically set forth in this Agreement or therein. Except as
expressly provided in this Agreement, neither this Agreement nor any term hereof
may be amended, waived, discharged or terminated other than by a written
instrument signed by both parties hereto. The failure of the either party to
insist on strict compliance with this Agreement, or to exercise any right or
remedy under this Agreement, shall not constitute a waiver of any rights
provided under this Agreement, nor estop the parties from thereafter demanding
full and complete compliance nor prevent the parties from exercising such a
right or remedy in the future.

         Section 11.07. ENTIRE AGREEMENT. This Agreement, the Registration
Rights Agreement and the Warrant set forth the entire agreement and
understanding of the parties relating to the subject matter hereof and
supersedes all prior and contemporaneous agreements, negotiations and
understandings between the parties, both oral and written, relating to the
subject matter hereof.


                                       25
<PAGE>

         Section 11.08. SEVERABILITY. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision; PROVIDED that, such severability shall be
ineffective if it materially changes the economic benefit of this Agreement to
any party.

         Section 11.09. TITLE AND SUBTITLES. The titles and subtitles used in
this Agreement are used for the convenience of reference and are not to be
considered in construing or interpreting this Agreement.

         Section 11.10. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which may be executed by less than all of the parties and
shall be deemed to be an original instrument which shall be enforceable against
the parties actually executing such counterparts and all of which together shall
constitute one and the same instrument.

         Section 11.11. CHOICE OF LAW. This Agreement shall be construed under
the laws of the State of New York. Section 11.12. SPECIFIC ENFORCEMENT, CONSENT
TO JURISDICTION.

                  (a) The Company and the Investor acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent or cure breaches of the provisions of
this Agreement and to enforce specifically the terms and provisions hereof or
thereof, this being in addition to any other remedy to which any of them may be
entitled by law or equity.

                  (b) Subject to Section 10.03, each of the Company and the
Investor (i) hereby irrevocably submits to the jurisdiction of the United States
District Court and other courts of the United States sitting in the State of New
York for the purposes of any suit, action or proceeding arising out of or
relating to this Agreement and (ii) hereby waives, and agrees not to assert in
any such suit, action or proceeding, any claim that it is not personally subject
to the jurisdiction of such court, that the suit, action or proceeding is
brought in an inconvenient forum or that the venue of the suit, action or
proceeding is improper. Each of the Company and the Investor consents to process
being served in any such suit, action or proceeding by mailing a copy thereof to
such party at the address in effect for notices to it under this Agreement and
agrees that such service shall constitute good and sufficient service of process
and notice thereof. Nothing in this Section shall affect or limit any right to
serve process in any other manner permitted by law.

         Section 11.13. SURVIVAL. The representations and warranties of the
Company and the Investor contained in Articles IV and V and the covenants
contained in Article V shall survive the execution and delivery hereof and the
Closing until the termination of this Agreement, and the agreements and
covenants set forth in Article X and Article XI of this Agreement shall survive
the execution and delivery hereof and the Closing hereunder.

         Section 11.14. PUBLICITY. Prior to the Closing, neither the Company nor
the Investor shall issue any press release or otherwise make any public
statement or announcement with respect to this Agreement or the transactions
contemplated hereby or the existence of this Agreement. In the event the Company
is required by law, based upon an opinion of the Company's counsel, to issue a
press release or otherwise make a public statement or announcement with respect
to this Agreement prior to the Closing, the Company shall consult with the
Investor on the form and substance of such press release. Promptly after the
Closing, each party may issue a press release or otherwise make a public
statement or announcement, including but not limited to, the (i) filing of a
report on Form 8-K with respect to this Agreement or the transactions


                                       26
<PAGE>

contemplated hereby or the existence of this Agreement and (ii) the filing of
any agreements or other documents as attached exhibits to a Form 8-K, Form 10-Q,
Form 10-K or any other Form filed by the Company with the Commission with
respect to this Agreement or the transactions contemplated hereby; PROVIDED
that, prior to issuing any such press release, making any such public statement
or announcement, the party wishing to make such release, statement or
announcement consults and cooperates in good faith with the other party in order
to formulate such press release, public statement or announcement in form and
substance reasonably acceptable to both parties.

         Section 11.15. FURTHER ASSURANCES. From and after the date of this
Agreement, upon the request of the Investor or the Company, each of the Company
and the Investor shall execute and deliver such instruments, documents and other
writings as may be reasonably necessary or desirable to confirm and carry out
and to effectuate fully the intent and purposes of this Agreement.

                [Remainder of this page intentionally left blank]


                                       27
<PAGE>

                  IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized officer as of the
date first written.


                                    KINGSBRIDGE CAPITAL LIMITED


                                    By: /s/ Valentine O'Donoghue
                                        Valentine O'Donoghue
                                        Director



                                    AMERICAN TECHNOLOGY CORPORATION


                                    By: /s/ Michael A. Russell
                                        Michael A. Russell
                                        Chief Financial Officer


                                       28
<PAGE>

                                    EXHIBIT A

                      Form of Registration Rights Agreement



                                    Exh. A-1
<PAGE>

                                    EXHIBIT B

                                 Form of Warrant



                                    Exh. B-1

<PAGE>

                                    EXHIBIT C

                              Officer's Certificate

         I, [NAME OF OFFICER], do hereby certify to Kingsbridge Capital Limited
(the "Investor"), with respect to the common stock of American Technology
Corporation (the "Company") issuable in connection with the Draw Down Notice,
dated _____________ (the "Notice") attached hereto and delivered pursuant to
Article II of the Common Stock Purchase Agreement, dated December [__], 2004
(the "Agreement"), by and between the Company and the Investor, as follows:

         1. I am the duly elected [OFFICER] of the Company.

         2. The representations and warranties of the Company set forth in
Article IV of the Agreement are true and correct in all material respects as
though made on and as of the date hereof (except for such representations and
warranties that are made as of a particular date).

         3. The Company has performed in all material respects all covenants and
agreements to be performed by the Company on or prior to the date hereof related
to the Notice and has satisfied each of the conditions to the obligation of the
Investor set forth in Article VII of the Agreement.

         The undersigned has executed this Certificate this ____ day of
________, 200[_].


                                             ___________________________________
                                             Name:
                                             Title:


                                    Exh. C-1

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.2
<SEQUENCE>4
<FILENAME>atc_8kex10-2.txt
<TEXT>
<PAGE>
                                                                    EXHIBIT 10.2


                                                                  EXECUTION COPY

                          REGISTRATION RIGHTS AGREEMENT


         This REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of
December 14, 2004, is by and between AMERICAN TECHNOLOGY CORPORATION (the
"COMPANY") and KINGSBRIDGE CAPITAL LIMITED (the "INVESTOR").

         WHEREAS, the Company and the Investor have entered into that certain
Common Stock Purchase Agreement, dated as of the date hereof (the "PURCHASE
AGREEMENT"), pursuant to which the Company may issue, from time to time, to the
Investor up to $25 million worth of shares of Common Stock as provided for
therein;

         WHEREAS, pursuant to the terms of, and in partial consideration for the
Investor entering into, the Purchase Agreement, the Company has issued to the
Investor a warrant, exercisable from time to time within five (5) years
following the six-month anniversary of the date of issuance (the "WARRANT") for
the purchase of an aggregate of up to 275,000 shares of Common Stock at a price
specified in such Warrant;

         WHEREAS, pursuant to the terms of, and in partial consideration for,
the Investor's agreement to enter into the Purchase Agreement, the Company has
agreed to provide the Investor with certain registration rights with respect to
the Registrable Securities (as defined in the Purchase Agreement) as set forth
herein;

         NOW, THEREFORE, in consideration of the premises, the representations,
warranties, covenants and agreements contained herein, in the Warrant, and in
the Purchase Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, intending to be legally
bound hereby, the parties hereto agree as follows (capitalized terms used herein
and not defined herein shall have the respective meanings ascribed to them in
the Purchase Agreement):

                                   ARTICLE I
                               REGISTRATION RIGHTS

Section 1.1. REGISTRATION STATEMENT.

         (a) FILING OF THE REGISTRATION STATEMENT. Upon the terms and subject to
the conditions set forth in this Agreement, the Company shall file with the
Commission, within forty-five (45) calendar days after the Effective Date, a
registration statement on Form S-3 under the Securities Act or such other form
as deemed appropriate by counsel to the Company for the registration for the
resale by the Investor of the Registrable Securities (the "REGISTRATION
STATEMENT").

         (b) EFFECTIVENESS OF THE REGISTRATION STATEMENT. The Company shall use
commercially reasonable efforts (i) to have the Registration Statement declared
effective by the Commission as soon as reasonably practicable, but in any event
no later than forty-five (45) calendar days, or one-hundred twenty (120)
calendar days in the event that the Commission reviews the Registration
Statement, following the date that the Registration Statement is filed and (ii)
to ensure that the Registration Statement remains in effect throughout the term
of this Agreement as set forth in Section 4.2, subject to the terms and
conditions of this Agreement.

         (c) REGULATORY DISAPPROVAL. The contemplated effective date for the
Registration Statement as described in Section 1.1(b) shall be extended without
default or liquidated damages hereunder or under the Purchase Agreement in the
event that the Company's failure to obtain the effectiveness of the Registration
Statement on a timely basis results solely from the Commission's disapproval of

<PAGE>

the structure of the transactions contemplated by the Purchase Agreement. In
such event, the parties agree to cooperate with one another in good faith to
arrive at a resolution acceptable to the Commission.

         (d) FAILURE TO MAINTAIN EFFECTIVENESS OF REGISTRATION STATEMENT. After
the Registration Statement has been declared effective, in the event the Company
fails to maintain the effectiveness of the Registration Statement (or the
Prospectus) throughout the period set forth in Section 4.2, other than temporary
suspensions as set forth in Section 1.1(e) or 2.1(n), and the Investor holds any
Registrable Securities at any time during the period of such ineffectiveness (an
"INEFFECTIVE PERIOD"), the Company shall pay to the Investor in immediately
available funds into an account designated by the Investor an amount , which
shall not exceed $2.5 million equal to the product of (x) the total number of
Registrable Securities issued to the Investor under the Purchase Agreement and
owned by the Investor at any time during such Ineffective Period and (y) the
result, if greater than zero, obtained by subtracting the VWAP on the Trading
Day immediately following the last day of such Ineffective Period from the VWAP
on the Trading Day immediately preceding the day on which any such Ineffective
Period began; PROVIDED, HOWEVER, that the foregoing payments shall not apply in
respect of Registrable Securities that are otherwise freely tradable by the
Investor or that the Company offers to repurchase from the Investor for a per
share purchase price equal to the VWAP on the Trading Day immediately preceding
the day on which any such Ineffective Period began.

         (e) DEFERRAL OR SUSPENSION DURING A BLACKOUT PERIOD. Notwithstanding
the provisions of Section 1.1 (d), if in the good faith judgment of the Company,
following consultation with legal counsel, it would be detrimental to the
Company or its stockholders for the Registration Statement to be filed or
declared effective, or for resales of Registrable Securities to be made pursuant
to the Registration Statement due to (i) the existence of a material development
or potential material development involving the Company that the Company would
be obligated to disclose in the Registration Statement, which disclosure would
be premature or otherwise inadvisable at such time or would have a Material
Adverse Effect on the Company or its stockholders, or (ii) a proposed filing or
use of an existing registration statement in connection with a Company-initiated
registration of any class of its equity securities, which, in the good faith
judgment of the Company, would adversely effect or require premature disclosure
of the filing or use of such Company-initiated registration (notice thereof, a
"BLACKOUT NOTICE"), the Company shall have the right to (A) immediately defer
such filing or request for effectiveness for a period of not more than sixty
(60) days beyond the date by which such Registration Statement was otherwise
required hereunder to be filed or declared effective or (B) suspend use of such
Registration Statement for a period of not more than thirty (30) days during any
calendar year (any such deferral or suspension period, a "BLACKOUT Period"). The
Investor acknowledges that it would be seriously detrimental to the Company and
its stockholders for such Registration Statement to be filed or declared
effective (or remain in effect) during a Blackout Period and therefore essential
to defer such filing (or suspend the use thereof) during such Blackout Period
and agrees to cease any disposition of the Registrable Securities during such
Blackout Period. The Company may not utilize any of its rights under this
Section 1.1(e) to defer the filing or request for effectiveness of a
Registration Statement (or suspend its effectiveness) more than six (6) times in
any twelve (12) month period. In the event that, within fifteen (15) Trading
Days following any Settlement Date, the Company gives a Blackout Notice to the
Investor and the VWAP on the Trading Day immediately preceding such Blackout
Period ("OLD VWAP") is greater than the VWAP on the first Trading Day following
such Blackout Period that the Investor may sell its Registrable Securities
pursuant to an effective Registration Statement ("NEW VWAP"), then the Company
shall pay to the Investor, by wire transfer of immediately funds to an account
designated by the Investor, the "BLACKOUT AMOUNT." For the purposes of this
Agreement, Blackout Amount means a percentage equal to: (1) seventy-five percent
(75%) if such Blackout Notice is delivered prior to the fifth (5th) Trading Day
following such Settlement Date; (2) fifty percent (50%) if such Blackout Notice
is delivered on or after the fifth (5th) Trading Day following such Settlement
Date, but prior to the tenth (10th) Trading Day following such Settlement Date;
(3) twenty-five percent (25%) if such Blackout Notice is delivered on or after


                                       2
<PAGE>

the tenth (10th) Trading Day following such Settlement Date, but prior to the
fifteenth (15th) Trading Day following such Settlement Date; and (4) zero
percent (0%) thereafter of: the product of (i) the number of Registrable
Securities purchased by the Investor pursuant to the most recent Draw Down and
actually held by the Investor immediately prior to the Blackout Period and (ii)
the result obtained by subtracting the New VWAP from the Old VWAP; PROVIDED,
HOWEVER, that (a) no Blackout Amount in respect of any Blackout Period shall
exceed $1.75 million, (b) no Blackout Amount shall be payable under this Section
1.1(e) in the event that the Registrable Securities are eligible for resale
under Rule 144 during the Blackout Period and (c) no Blackout Amount shall be
payable under this Section 1.1(e) in the event that the Company offers to
repurchase from the Investor for a per share purchase price equal to the VWAP on
the Trading Day immediately preceding the day on which any such Ineffective
Period began. For any Blackout Period in respect of which a Blackout Amount
becomes due and payable, rather than paying the Blackout Amount, the Company may
at is sole discretion, issue to the Investor shares of Common Stock with an
aggregate market value determined as of the first Trading Day following such
Blackout Period equal to the Blackout Amount ("BLACKOUT SHARES").

         (f) LIQUIDATED DAMAGES. The Company and the Investor hereto acknowledge
and agree that the amounts payable under Sections 1.1(d) and 1.1(e) and the
Blackout Shares deliverable under Section 1.1(e) above shall constitute
liquidated damages and not penalties. The parties further acknowledge that (i)
the amount of loss or damages likely to be incurred by the Investor is incapable
or is difficult to precisely estimate, (ii) the amounts specified in such
subsections bear a reasonable proportion and are not plainly or grossly
disproportionate to the probable loss likely to be incurred in connection with
any failure by the Company to obtain or maintain the effectiveness of the
Registration Statement, (iii) one of the reasons for the Company and the
Investor reaching an agreement as to such amounts was the uncertainty and cost
of litigation regarding the question of actual damages, and (iv) the Company and
the Investor are sophisticated business parties and have been represented by
sophisticated and able legal and financial counsel and negotiated this Agreement
at arm's length.

         (g) SOLE REMEDY. The Company and the Investor agree and acknowledge
that, subject to the penultimate sentence of Section 9.03 of the Purchase
Agreement, the amounts payable under Sections 1.1(d) and 1.1(e), as applicable,
constitute the Investor's sole remedy with respect to the Company's failure to
maintain the effectiveness for the Registration Statement or for any deferral or
suspension of the Registration Statement during a Blackout Period as discussed
in such Sections. The Investor further agrees and acknowledges that assuming the
payment of any amount by the Company, as set forth in such Sections, the
Company's failure to maintain the effectiveness of the Registration Statement or
for any deferral or suspension of the Registration Statement during a Blackout
Period, as applicable, shall not constitute a material breach or default of any
obligation of the Company to the Investor.

         (h) ADDITIONAL REGISTRATION STATEMENTS. In the event and to the extent
that the Registration Statement fails to register a sufficient amount of Common
Stock necessary for the Company to issue and sell to the Investor and the
Investor to purchase from the Company all of the Registrable Securities to be
issued, sold and purchased under the Purchase Agreement and the Warrant, the
Company shall prepare and file with the Commission an additional registration
statement or statements in order to effectuate the purpose of this Agreement,
the Purchase Agreement, and the Warrant.

                                   ARTICLE II
                             REGISTRATION PROCEDURES

Section 2.1. FILINGS; INFORMATION. The Company shall use commercially reasonable
efforts to effect the registration with respect to the sale of the Registrable
Securities by the Investor in accordance with the intended methods of
disposition thereof. Without limiting the foregoing, the Company in each such


                                       3
<PAGE>

case will use commercially reasonable efforts to do the following as
expeditiously as possible, but in no event later than the deadline, if any,
prescribed therefor in this Agreement:

         (a) Subject to Section 1.1(e), the Company shall (i) prepare and file
with the Commission the Registration Statement; (ii) use commercially reasonable
efforts to cause such filed Registration Statement to become and to remain
effective (pursuant to Rule 415 under the Securities Act or otherwise); (iii)
prepare and file with the Commission such amendments and supplements to the
Registration Statement and the Prospectus used in connection therewith as may be
necessary to keep such Registration Statement effective for the time period
prescribed by Section 4.2 and in order to effectuate the purpose of this
Agreement, the Purchase Agreement, and the Warrant; and (iv) comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such Registration Statement during such period in
accordance with the intended methods of disposition by the Investor set forth in
such Registration Statement; PROVIDED, HOWEVER, that the Investor shall be
responsible for the delivery of the Prospectus to the Persons to whom the
Investor sells the Shares, the Warrant Shares, and the Blackout Shares, if any,
and the Investor agrees to dispose of Registrable Securities in compliance with
the plan of distribution described in the Registration Statement and otherwise
in compliance with applicable federal and state securities laws.

         (b) Two (2) Trading Days prior to filing the Registration Statement or
Prospectus, or any amendment or supplement thereto (excluding amendments or
supplements deemed to result from the filing of documents incorporated by
reference therein), the Company shall deliver to the Investor and to counsel
representing the Investor, in accordance with the notice provisions of Section
4.8, copies of the Registration Statement, Prospectus and/or any amendments or
supplements thereto as proposed to be filed, together with exhibits thereto,
which documents will be subject to review by the Investor and such counsel, and
thereafter deliver to the Investor and such counsel, in accordance with the
notice provisions of Section 4.8, such number of copies of the Registration
Statement, each amendment and supplement thereto (in each case including all
exhibits thereto), the Prospectus (including each preliminary prospectus) and
such other documents or information as the Investor or counsel may reasonably
request in order to facilitate the disposition of the Registrable Securities.

         (c) The Company shall deliver, in accordance with the notice provisions
of Section 4.8, to each seller of Registrable Securities covered by the
Registration Statement such number of conformed copies of the Registration
Statement and of each amendment and supplement thereto (in each case including
all exhibits and documents incorporated by reference), such number of copies of
the Prospectus (including each preliminary prospectus and any summary
prospectus) and any other prospectus filed under Rule 424 promulgated under the
Securities Act relating to such seller's Registrable Securities, and such other
documents, as such seller may reasonably request to facilitate the disposition
of its Registrable Securities.

         (d) After the filing of the Registration Statement, the Company shall
promptly notify the Investor of any stop order issued or threatened by the
Commission in connection therewith and take all commercially reasonable actions
required to prevent the entry of such stop order or to remove it if entered.

         (e) The Company shall use commercially reasonable efforts to (i)
register or qualify the Registrable Securities under such other securities or
blue sky laws of each jurisdiction in the United States as the Investor may
reasonably (in light of its intended plan of distribution) request, and (ii)
cause the Registrable Securities to be registered with or approved by such other
governmental agencies or authorities in the United States as may be necessary by
virtue of the business and operations of the Company and do any and all other
customary acts and things that may be reasonably necessary or advisable to
enable the Investor to consummate the disposition of the Registrable Securities;


                                       4
<PAGE>

PROVIDED, HOWEVER, that the Company will not be required to qualify generally to
do business in any jurisdiction where it would not otherwise be required to
qualify but for this Section 2.1(g), subject itself to taxation in any such
jurisdiction, consent or subject itself to general service of process in any
such jurisdiction, change any existing business practices, benefit plans or
outstanding securities or amend or otherwise modify the Charter or Bylaws.

         (f) The Company shall make available to the Investor (and will deliver
to Investor's counsel), (A) subject to restrictions imposed by the United States
federal government or any agency or instrumentality thereof, copies of all
public correspondence between the Commission and the Company concerning the
Registration Statement and will also make available for inspection by the
Investor and any attorney, accountant or other professional retained by the
Investor (collectively, the "INSPECTORS"), (B) upon reasonable advance notice
during normal business hours all financial and other records, pertinent
corporate documents and properties of the Company (collectively, the "RECORDS")
as shall be reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Company's officers and employees to supply all
information reasonably requested by any Inspectors in connection with the
Registration Statement; PROVIDED, HOWEVER, that any such Inspectors must agree
in writing for the benefit of the Company not to use or disclose any such
Records except as provided in this Section 2.1(i). Records that the Company
determines, in good faith, to be confidential and that it notifies the
Inspectors are confidential shall not be disclosed by the Inspectors unless the
disclosure or release of such Records is requested or required pursuant to oral
questions, interrogatories, requests for information or documents or a subpoena
or other order from a court of competent jurisdiction or other judicial or
governmental process; PROVIDED, HOWEVER, that prior to any disclosure or release
pursuant to the immediately preceding clause, the Inspectors shall provide the
Company with prompt notice of any such request or requirement so that the
Company may seek an appropriate protective order or waive such Inspectors'
obligation not to disclose such Records; and, PROVIDED, FURTHER, that if failing
the entry of a protective order or the waiver by the Company permitting the
disclosure or release of such Records, the Inspectors, upon advice of counsel,
are compelled to disclose such Records, the Inspectors may disclose that portion
of the Records that counsel has advised the Inspectors that the Inspectors are
compelled to disclose; PROVIDED, HOWEVER, that upon any such required
disclosure, such Inspector shall use his or her best efforts to obtain
reasonable assurances that confidential treatment will be afforded such
information. The Investor agrees that information obtained by it solely as a
result of such inspections (not including any information obtained from a third
party who, insofar as is known to the Investor after reasonable inquiry, is not
prohibited from providing such information by a contractual, legal or fiduciary
obligation to the Company) shall be deemed confidential and shall not be used
for any purposes other than as indicated above or by it as the basis for any
market transactions in the securities of the Company or its affiliates unless
and until such information is made generally available to the public. The
Investor further agrees that it will, upon learning that disclosure of such
Records is sought in a court of competent jurisdiction, give notice to the
Company and allow the Company, at its expense, to undertake appropriate action
to prevent disclosure of the Records deemed confidential.

         (g) The Company shall otherwise comply with all applicable rules and
regulations of the Commission, including, without limitation, compliance with
applicable reporting requirements under the Exchange Act.

         (h) The Company shall appoint a transfer agent and registrar for all of
the Registrable Securities covered by such Registration Statement not later than
the effective date of such Registration Statement.

         (i) The Investor shall cooperate with the Company, as reasonably
requested by the Company, in connection with the preparation and filing of any
Registration Statement hereunder. The Company may require the Investor to
promptly furnish in writing to the Company such information as may be required


                                       5
<PAGE>

in connection with such registration including, without limitation, all such
information as may be requested by the Commission or the NASD or any state
securities commission and all such information regarding the Investor, the
Registrable Securities held by the Investor and the intended method of
disposition of the Registrable Securities. The Investor agrees to provide such
information requested in connection with such registration within two (2)
Trading Days after receiving such written request and the Company shall not be
responsible for any delays in obtaining or maintaining the effectiveness of the
Registration Statement caused by the Investor's failure to timely provide such
information.

         (j) Upon receipt of a Blackout Notice from the Company, the Investor
shall immediately discontinue disposition of Registrable Securities pursuant to
the Registration Statement covering such Registrable Securities until (i) the
Company advises the Investor that the Blackout Period has terminated and (ii)
the Investor receives copies of a supplemented or amended prospectus, if
necessary. If so directed by the Company, the Investor will deliver to the
Company (at the expense of the Company) or destroy (and deliver to the Company a
certificate of destruction) all copies in the Investor's possession (other than
a limited number of file copies) of the prospectus covering such Registrable
Securities that is current at the time of receipt of such notice.

         (k) The Investor shall not take any action with respect to any
distribution deemed to be made pursuant to the Registration Statement, which
would constitute a violation of Regulation M under the Exchange Act or any other
applicable rule, regulation or law.

Section 2.2. REGISTRATION EXPENSES. The Company shall pay all registration
expenses incurred in connection with the Registration Statement (the
"REGISTRATION EXPENSES"), including, without limitation: (i) all registration,
filing, securities exchange listing and fees required by the NASD, (ii) all
registration, filing, qualification and other fees and expenses of compliance
with securities or blue sky laws (including reasonable fees and disbursements of
counsel in connection with blue sky qualifications of the Registrable
Securities), (iii) all word processing, duplicating, printing, messenger and
delivery expenses, (iv) the Company's internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal or accounting duties), (v) the fees and expenses incurred by the Company
in connection with the listing of the Registrable Securities, (vi) reasonable
fees and disbursements of counsel for the Company and customary fees and
expenses for independent certified public accountants retained by the Company
(including the expenses of any special audits or comfort letters or costs
associated with the delivery by independent certified public accountants of such
special audit(s) or comfort letter(s) requested pursuant to Section 2.1(k)
hereof), (vii) the fees and expenses of any special experts retained by the
Company in connection with such registration and amendments and supplements to
the Registration Statement and Prospectus, and (viii) all reasonable fees and
expenses of counsel for the Investor to the extent incurred in connection with
the review, and assistance in preparation, of the Registration Statement,
correspondence with the Commission and amendments and supplements to the
Registration Statement and Prospectus. Any fees and disbursements of
underwriters, broker-dealers or investment bankers, including without limitation
underwriting fees, discounts, transfer taxes or commissions, and any other fees
or expenses (including legal fees and expenses) if any, attributable to the sale
of Registrable Securities, shall be payable by each holder of Registrable
Securities pro rata on the basis of the number of Registrable Securities of each
such holder that are included in a registration under this Agreement.

                                  ARTICLE III
                                 INDEMNIFICATION

Section 3.1. INDEMNIFICATION.


                                       6
<PAGE>

         (a) COMPANY INDEMNIFICATION. The Company agrees to indemnify and hold
harmless the Investor, its partners, Affiliates, officers, directors, employees
and duly authorized agents, and each Person or entity, if any, who controls the
Investor within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act (collectively, the "CONTROLLING PERSONS"), from and against any
loss, claim, damage, liability, costs and expenses (including, without
limitation, reasonable attorneys' fees and disbursements and costs and expenses
of investigating and defending any such claim) (collectively, "DAMAGES"), joint
or several, and any action or proceeding in respect thereof to which the
Investor, its partners, affiliates, officers, directors, employees and duly
authorized agents, and any Controlling Person, may become subject under the
Securities Act or otherwise, as incurred, insofar as such Damages (or actions or
proceedings in respect thereof) arise out of, or are based upon, any untrue
statement or alleged untrue statement of a material fact contained in any
Registration Statement, or in any preliminary prospectus, final prospectus,
summary prospectus, amendment or supplement relating to the Registrable
Securities or arises out of, or are based upon, any omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein under the circumstances not misleading, and shall
reimburse the Investor and each such Controlling Person, for any legal and other
expenses reasonably incurred by the Investor or any such Controlling Person, as
incurred, in investigating or defending or preparing to defend against any such
Damages or actions or proceedings; PROVIDED, HOWEVER, that the Company shall not
be liable (i) to the extent that any such Damages arise out of the Investor's
(or any other indemnified Person's) failure to send or give a copy of the final
prospectus or supplement (as then amended or supplemented) to the persons
asserting an untrue statement or alleged untrue statement or omission or alleged
omission at or prior to the written confirmation of the sale of Registrable
Securities to such person if such statement or omission was corrected in such
final prospectus or supplement; (ii) to the extent that any such Damages arise
out of or are based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in such Registration Statement, or any such
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement in reliance upon and in conformity with written information furnished
to the Company by or on behalf of the Investor or any other person who
participates as an underwriter in the offering or sale of such securities, in
either case, specifically stating that it is for use in the preparation thereof;
or (iii) to the extent any such Damages arise out of the sale by the Investor of
Registrable Securities during a Blackout Period.

         (b) INVESTOR INDEMNIFICATION. In connection with any Registration
Statement with respect to which the Investor is participating, such Investor
will indemnify and hold harmless, to the same extent and in the same manner as
set forth in the preceding paragraph, the Company, each of its directors,
officers, each Person, if any, who controls the Company within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act (each a
"COMPANY INDEMNIFIED PERSON") against any Damages to which any Company
Indemnified Person may become subject under the Securities Act, the Exchange Act
or otherwise, insofar as such Damages arise out of or are based upon (i) any
untrue statement or alleged untrue statement of a material fact contained in any
Registration Statement, or in any preliminary prospectus, final prospectus,
summary prospectus, amendment or supplement relating to the Registrable
Securities or arising out of, or are based upon, any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein under the circumstances not misleading
to the extent that such violation occurs in reliance upon and in conformity with
written information furnished to the Company by the Investor or on behalf of the
Investor expressly for use in connection with such Registration Statement, (ii)
any failure by the Investor to comply with prospectus delivery requirements of
the Securities Act, the Exchange Act or any other law or legal requirement
applicable to sales under the Registration Statement or (iii) any sale by the
Investor of Registrable Securities during a Blackout Period.

Section 3.2. CONDUCT OF INDEMNIFICATION PROCEEDINGS. All claims for
indemnification under Section 3.1 shall be asserted and resolved in accordance
with the provisions of Section 11.02 and 11.03 of the Purchase Agreement.


                                       7
<PAGE>

Section 3.3. ADDITIONAL INDEMNIFICATION. Indemnification similar to that
specified in the preceding paragraphs of this Article 3 (with appropriate
modifications) shall be given by the Company with respect to any required
registration or other qualification of securities under any federal or state law
or regulation of any governmental authority other than the Securities Act. The
provisions of this Article III shall be in addition to any other rights to
indemnification, contribution or other remedies which an Indemnified Party or a
Company Indemnified Person may have pursuant to law, equity, contract or
otherwise.

To the extent that any indemnification provided for herein is prohibited or
limited by law, the indemnifying party will make the maximum contribution with
respect to any amounts for which it would otherwise be liable under this Article
III to the fullest extent permitted by law. However, (a) no contribution will be
make under circumstances where maker of such contribution would not have been
required to indemnify the indemnified party under the fault standards set forth
in this Article III, (b) no seller of Registrable Securities guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) will be entitled to contribution from any Person who is not
guilty of such fraudulent misrepresentation, and (c) contribution (together with
any indemnification obligations under this Agreement) by any seller of
Registrable Securities will be limited in amount of proceeds received by such
seller from the sale of such Registrable Securities.

                                   ARTICLE IV
                                  MISCELLANEOUS

Section 4.1. NO OUTSTANDING REGISTRATION RIGHTS. Except as otherwise disclosed
in accordance with the Purchase Agreement or in the Commission Documents, the
Company represents and warrants to the Investor that there is not in effect on
the date hereof any agreement by the Company pursuant to which any holders of
securities of the Company have a right to cause the Company to register or
qualify such securities under the Securities Act or any securities or blue sky
laws of any jurisdiction.

Section 4.2. TERM. The registration rights provided to the holders of
Registrable Securities hereunder, and the Company's obligation to keep the
Registration Statement effective, shall terminate at the earlier of (i) such
time that is two years following the termination of the Purchase Agreement, (ii)
such time as all Registrable Securities have been issued and have ceased to be
Registrable Securities, or (iii) upon the consummation of an "Excluded Merger or
Sale" as defined in the Warrant. Notwithstanding the foregoing, paragraphs (c)
and (d) of Section 1.1, Article III, Section 4.8, and Section 4.9 shall survive
the termination of this Agreement.

Section 4.3. RULE 144. The Company will, at its expense, promptly take such
action as holders of Registrable Securities may reasonably request to enable
such holders of Registrable Securities to sell Registrable Securities without
registration under the Securities Act within the limitation of the exemptions
provided by (a) Rule 144 under the Securities Act ("RULE 144"), as such Rule may
be amended from time to time, or (b) any similar rule or regulation hereafter
adopted by the Commission. If at any time the Company is not required to file
such reports, it will, at its expense, forthwith upon the written request of any
holder of Registrable Securities, make available adequate current public
information with respect to the Company within the meaning of paragraph (c)(2)
of Rule 144 or such other information as necessary to permit sales pursuant to
Rule 144. Upon the request of the Investor, the Company will deliver to the
Investor a written statement, signed by the Company's principal financial
officer, as to whether it has complied with such requirements.

Section 4.4. CERTIFICATE. The Company will, at its expense, forthwith upon the
request of any holder of Registrable Securities, deliver to such holder a
certificate, signed by the Company's principal financial officer, stating (a)
the Company's name, address and telephone number (including area code), (b) the


                                       8
<PAGE>

Company's Internal Revenue Service identification number, (c) the Company's
Commission file number, (d) the number of shares of each class of Stock
outstanding as shown by the most recent report or statement published by the
Company, and (e) whether the Company has filed the reports required to be filed
under the Exchange Act for a period of at least ninety (90) days prior to the
date of such certificate and in addition has filed the most recent annual report
required to be filed thereunder.

Section 4.5. AMENDMENT AND MODIFICATION. Any provision of this Agreement may be
waived, provided that such waiver is set forth in a writing executed by both
parties to this Agreement. The provisions of this Agreement, including the
provisions of this sentence, may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given,
unless the Company has obtained the written consent of the holders of a majority
of the then outstanding Registrable Securities. Notwithstanding the foregoing,
the waiver of any provision hereof with respect to a matter that relates
exclusively to the rights of holders of Registrable Securities whose securities
are being sold pursuant to a Registration Statement and does not directly or
indirectly affect the rights of other holders of Registrable Securities may be
given by holders of at least a majority of the Registrable Securities being sold
by such holders; provided that the provisions of this sentence may not be
amended, modified or supplemented except in accordance with the provisions of
the immediately preceding sentence. No course of dealing between or among any
Person having any interest in this Agreement will be deemed effective to modify,
amend or discharge any part of this Agreement or any rights or obligations of
any person under or by reason of this Agreement.

Section 4.6. SUCCESSORS AND ASSIGNS; ENTIRE AGREEMENT. This Agreement and all of
the provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns. The Investor may
assign its rights under this Agreement to any subsequent holder of the
Registrable Securities (unless sold pursuant to an effective registration
statement or in accordance with Rule 144 under the Securities Act), provided
that the Company shall have the right to require any holder of Registrable
Securities to execute a counterpart of this Agreement as a condition to such
holder's claim to any rights hereunder. The Company may assign this Agreement at
any time in connection with a sale or acquisition of the Company, whether by
merger, consolidation, sale of all or substantially all of the Company's assets,
or similar transaction, without the consent of the Investor or other holders of
Registrable Securities, provided that the successor or acquiring Person or
entity agrees in writing to assume all of the Company's rights and obligations
under this Agreement. This Agreement, together with the Purchase Agreement and
the Warrant(s) sets forth the entire agreement and understanding between the
parties as to the subject matter hereof and merges and supersedes all prior
discussions, agreements and understandings of any and every nature among them.

Section 4.7. SEVERABILITY. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that such severability shall be ineffective if
it materially changes the economic benefit of this Agreement to any party
hereto.

Section 4.8. NOTICES. All notices, demands, requests, consents, approvals, and
other communications required or permitted hereunder shall be given in
accordance with Section 12.04 of the Purchase Agreement.

Section 4.9. GOVERNING LAW; DISPUTE RESOLUTION. This Agreement shall be
construed under the laws of the State of New York. Any dispute arising out of or
relating to this Agreement shall be resolved by means of arbitration pursuant to
the provisions of Article X of the Purchase Agreement.

Section 4.10. HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not constitute a part of this Agreement, nor shall they
affect their meaning, construction or effect.


                                       9
<PAGE>

Section 4.11. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed to be an original instrument and all
of which together shall constitute one and the same instrument.

Section 4.12. FURTHER ASSURANCES. Each party shall cooperate and take such
action as may be reasonably requested by another party in order to carry out the
provisions and purposes of this Agreement and the transactions contemplated
hereby.

Section 4.13. ABSENCE OF PRESUMPTION. This Agreement shall be construed without
regard to any presumption or rule requiring construction or interpretation
against the party drafting or causing any instrument to be drafted.


                                       10
<PAGE>

         IN WITNESS WHEREOF, the parties hereto have caused this Registration
Rights Agreement to be executed by the undersigned, thereunto duly authorized,
as of the date first set forth above.

                                    KINGSBRIDGE CAPITAL LIMITED


                                    By: /s/ Valentine O'Donoghue
                                        Valentine O'Donoghue
                                        Director



                                    AMERICAN TECHNOLOGY CORPORATION


                                    By: /s/ Michael A. Russell
                                        Michael A. Russell
                                        Chief Financial Officer


                                       11

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.1
<SEQUENCE>5
<FILENAME>atco_8kex99-1.txt
<TEXT>
<PAGE>

EXHIBIT 99.1


ATC SUPPORTS U.S. ARMY WITH LRAD DEPLOYMENTS IN IRAQ

SAN DIEGO--(BUSINESS WIRE)--Dec. 15, 2004--American Technology Corporation (ATC)
(NASDAQ:ATCO - News), an innovator of proprietary sound reproduction
technologies, announced today it has been awarded a new order totaling
$4,899,000 for its proprietary Long Range Acoustic Devices (LRAD(TM)). The
contract, calling for immediate deliveries this month and in early January, will
support the U.S. Army's 3rd Infantry Division deploying in support of Operation
Iraqi Freedom.

Regarded as the Army's most technologically advanced division, the 3rd Infantry
Division will be utilizing LRADs in Iraq for crowd control, area denial and
clearing buildings. The immediate deliveries will also support the division's
mission to provide security for the Iraqi elections scheduled for late January
2005.

LRAD is a breakthrough long-range hailing and warning, directed acoustic device
designed to communicate with authority and exceptionally high intelligibility in
a 15-30 degree beam. LRAD can issue a verbal challenge with instructions in
excess of 500 meters and has the capability of following up with a warning tone
to influence behavior or determine intent. LRADs are currently deployed with the
U.S. Marine Corps, U.S. Army, and U.S. Navy in Operation Iraqi Freedom in and
around Fallujah, Mosul, and the port of Basra.

"It is clear," stated Senator Olympia Snowe, U.S. Senator (R-ME), "that the Long
Range Acoustic Device represents a new breakthrough in non-lethal capability.
This order affirms the intent of Congress to provide the best possible emerging
technologies for the effectiveness and safety of our service men and women."
"LRAD supports the unique challenges of military operations, law enforcement and
infrastructure protection," commented Carl Gruenler, ATC's vice president of
government and force protection systems.

"LRAD addresses the urgent and compelling need to place distance between
peacekeepers and a potential threat, provides crystal clear instructions in host
nation language to clarify purpose and intent, and creates safe situations out
of uncertain ones."

Continued Gruenler, "This order also reflects an expanding partnership between
VoxTec, a division of Marine Acoustics and ATC. VoxTec has developed the
Phraselator, a hand-held voice translation device, which is a key tool to store
and immediately retrieve thousands of messages recorded by the Defense Language
Institute for transmission through LRAD at extended ranges in the host nation
language. This capability is being implemented with each LRAD delivered in this
order and augments ATC's hardened MP3 player used for messaging and
instantly-available aversive warning tones."

Gruenler concluded, "This and other expected LRAD orders are providing evidence
that our proprietary, long range hailing and warning device is expanding its
worldwide leadership position for military, government and commercial customers
as The Sound of Force Protection(TM)."



                                        1
<PAGE>

About American Technology Corporation

American Technology Corporation is Shaping the Future of Sound(R) by developing,
manufacturing and globally distributing its proprietary sound technologies and
products which include: the award-winning HSS(R) (HyperSonic(R) Sound
technology); LRAD(TM) (Long Range Acoustic Device); NeoPlanar(R) planar magnetic
technology and others. The Company is establishing a strong portfolio of
patents, trademarks, and intellectual property including over 160 U.S. and
foreign patents and patent filings to date. For more information on the company
and its technologies and products please visit our web site at www.atcsd.com.


Safe Harbor statement under the Private Securities Litigation Reform Act of
1995: Except for historical information contained herein, the matters discussed
are forward-looking statements within the meaning of Section 21E of the
Securities Exchange Act. You should not place undue reliance on these
statements. We base these statements on particular assumptions that we have made
in light of our industry experience, the stage of product and market development
as well as our perception of historical trends, current market conditions,
current economic data, expected future developments and other factors that we
believe are appropriate under the circumstances. These statements involve risks
and uncertainties that could cause actual results to differ materially from
those suggested in the forward-looking statements, including but not limited to
changes in the sound reproduction industry, the need for market acceptance of
our sound reproduction technologies, entry of competitors in the sound
reproduction market, the possibility our intellectual property protections will
not prevent others from marketing products similar to or competitive with our
products, our ability to develop future products which maintain a competitive
advantage over competing products, pricing pressures, technology shifts,
potential technical or manufacturing difficulties that could delay products,
possible government regulations, warranty or other claims, the outcome of
pending or future litigation, general economic and political factors which
influence buying decisions, and other risks identified and discussed in our
filings with the Securities and Exchange Commission. These forward-looking
statements are based on information and management's expectations as of the date
hereof. Future results may differ materially from our current expectations.
American Technology Corporation disclaims any intent or obligation to update
those forward-looking statements, except as otherwise specifically stated.


                                       2

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2
<SEQUENCE>6
<FILENAME>atco_8kex99-2.txt
<TEXT>
<PAGE>

EXHIBIT 99.2

AGREEMENT PROVIDES FINANCIAL RESOURCES FOR GROWING BUSINESS

SAN DIEGO--(BUSINESS WIRE)--Dec. 15, 2004--American Technology Corporation (ATC)
(NASDAQ:ATCO - News), an innovator of proprietary sound reproduction
technologies, announced today it has entered into a committed equity financing
facility (CEFF) with Kingsbridge Capital Limited (Kingsbridge) in which
Kingsbridge has committed to provide up to $25 million in financing over the
next two years through the purchase of ATC's common stock. Kingsbridge Capital
is an investment group managing substantial assets for its principal. Under the
agreement, ATC controls the timing, amount and pricing of any financings,
subject to certain conditions.

"This financing structure provides us substantial flexibility in financing our
increasing business," commented Michael A. Russell, ATC's chief financial
officer. "When compared to other financing options, we believe the CEFF not only
offers superior terms and conditions, but also gives us the latitude we need to
enable our anticipated rapid growth."

Certain details of the CEFF include:

        For the next two years, ATC can access up to a total of $25 million from
        Kingsbridge in exchange for newly-issued shares of ATC's common stock.
        ATC may begin to access the capital upon the Securities and Exchange
        Commission declaring effective a registration statement to be filed by
        ATC in connection with this financing agreement.

        Capital may be accessed in purchase installments of up to 3% of ATC's
        market capitalization or $10 million, whichever is less, upon issuance
        of a purchase notice by the company, subject to certain conditions. Each
        purchase installment will be priced during 15-day financing periods,
        with ATC controlling the minimum acceptable purchase price for any
        shares to be issued to Kingsbridge, provided that ATC may not set the
        purchase price for such shares below $3.00.

        Kingsbridge will purchase shares of common stock at discounts ranging
        from 8% to 12% of the volume weighted average market price of the common
        stock during the financing period, with the reduced discount applying if
        the price of the common stock is equal to or greater than $10.

        ATC is not obligated to access any of the $25 million available, and
        there are no minimum commitments or penalties for non-use.

                                      -1-
<PAGE>

        The agreement does not prohibit ATC from entering into other fixed-price
        debt or traditional equity financing arrangements with other
        institutional investors.

        Throughout the term of the agreement, Kingsbridge is restricted from any
        short selling of ATC's shares.

        ATC has issued Kingsbridge a five-year warrant to purchase up to 275,000
        shares of its common stock at an exercise price of $8.60 per share.

In connection with this transaction, ATC has entered into a one-year consulting
agreement with Flagstone Securities (Flagstone) for their assistance in
arranging the CEFF and for certain other duties Flagstone has agreed to perform
during the term of the agreement.

Russell concluded, "Kingsbridge is a highly-respected institutional investor who
has successfully provided similar financing facilities to other companies and
has an extensive network of institutional contacts within the North American and
European investment communities. We look forward to working with Kingsbridge and
Flagstone in raising ATC's visibility with institutional investors throughout
the world as we Shape the Future of Sound(R)."

This announcement does not constitute an offer to sell or a solicitation of an
offer to buy shares of the ATC's common stock. The warrant issued to Kingsbridge
and the shares that may be issued to Kingsbridge upon exercise of the warrant
and under the CEFF have not been registered under the Securities Act of 1933 or
applicable state securities laws and may not be offered or sold in the United
States or any state thereof absent registration under the Securities Act and
applicable state securities laws or an applicable exemption from the
registration requirements of the Securities Act and applicable state securities
laws. This press release is being issued pursuant to and in accordance with Rule
135c under the Securities Act. ATC has agreed to file a registration statement
covering the resale of the shares of common stock that may be issued to
Kingsbridge upon conversion of the warrant and pursuant to the CEFF.

About American Technology Corporation

American Technology Corporation is Shaping the Future of Sound(R) by developing,
manufacturing and globally distributing its proprietary sound technologies and
products which include: the award-winning HSS(R) (HyperSonic(R) Sound
technology); LRAD(TM) (Long Range Acoustic Device); NeoPlanar(R) planar magnetic
technology and others. The Company is establishing a strong portfolio of
patents, trademarks, and intellectual property including over 160 U.S. and
foreign patents and patent filings to date. For more information on the company
and its technologies and products please visit our web site at www.atcsd.com.


                                      -2-
<PAGE>

Safe Harbor statement under the Private Securities Litigation Reform Act of
1995: Except for historical information contained herein, the matters discussed
are forward-looking statements within the meaning of Section 21E of the
Securities Exchange Act. You should not place undue reliance on these
statements. We base these statements on particular assumptions that we have made
in light of our industry experience, the stage of product and market development
as well as our perception of historical trends, current market conditions,
current economic data, expected future developments and other factors that we
believe are appropriate under the circumstances. These statements involve risks
and uncertainties that could cause actual results to differ materially from
those suggested in the forward-looking statements, including but not limited to
our ability to timely file and have declared effective a registration statement
related to this financing, an absence of material adverse changes in our
business which could render this financing unavailable, the market price of our
common stock which determines the amount of the proceeds we may receive,
substantial liquidated damages which are payable if the registration statement
becomes unavailable and other risks identified and discussed in our filings with
the Securities and Exchange Commission. These forward-looking statements are
based on information and management's expectations as of the date hereof. Future
results may differ materially from our current expectations. American Technology
Corporation disclaims any intent or obligation to update those forward-looking
statements, except as otherwise specifically stated.



                                      -3-

</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
