AND

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

TABLE OF CONTENTS

PAGE

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. "XXXXX"...............................................................................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

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

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

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

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

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

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.

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. "XXXXX" 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.

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.

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
Xxxxxxxx Chance US LLP, 00 Xxxx 00xx Xxxxxx, Xxx Xxxx, XX 00000 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.

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

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.

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

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

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.

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

(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

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.

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.

Section 6.06. REPORTING REQUIREMENTS. Unless otherwise available to the
public by way of XXXXX, 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;

(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.

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 XXXXX.

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

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).

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.

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.

(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

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

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.

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.

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
00000 Xxxxxxx Xxxxx Xxxxx Xxxxx
Xxx Xxxxx, Xxxxxxxxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Chief Financial Officer

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

Sheppard, Mullin, Xxxxxxx & Xxxxxxx LLP
00000 Xxxx Xxxxx Xxxxx
Xxx Xxxxx, XX 00000-0000
Telephone: 000-000-0000
Facsimile: 000-000-0000
Attention: Xxxx X. Xxxxxxx, Esq.

if to the Investor:

Kingsbridge Capital Limited/
c/o Kingsbridge Corporate Services Limited
Xxxx Xxxxxx
Xxxxxxxxx, Xxxxxx Xxxxxxx
Xxxxxxxx xx Xxxxxxx
Telephone: 000-000-00-000-000
Facsimile: 011-353-45-482-003
Attention: Xxxx Xxxxxx, Managing Director

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

Xxxxxxxx Chance US LLP
00 Xxxx 00xx Xxxxxx
Xxx Xxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxx X. Xxxxxxxxxx, 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.

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

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]

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 X'Xxxxxxxx
Valentine X'Xxxxxxxx
Director

AMERICAN TECHNOLOGY CORPORATION

By: /s/ Xxxxxxx X. Xxxxxxx
Xxxxxxx X. Xxxxxxx
Chief Financial Officer

EXHIBIT A

Form of Registration Rights Agreement

Exh. A-1

EXHIBIT B

Form of Warrant

Exh. B-1

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

Document Metadata

Table of Contents

AND

Document Metadata