EXHIBIT 10.6.2
 
THE SHARES ISSUABLE PURSUANT TO THIS AGREEMENT ARE SUBJECT TO THE PROVISIONS OF
THE COMPANY’S 2005 EQUITY-BASED COMPENSATION PLAN AND THIS AGREEMENT IS ENTERED
INTO PURSUANT THERETO. A COPY OF SUCH PLAN IS AVAILABLE UPON WRITTEN REQUEST TO
THE COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICES.
 
E.DIGITAL CORPORATION
 
2005 EQUITY-BASED COMPENSATION PLAN
 
NONSTATUTORY STOCK OPTION AGREEMENT
 
__________________

Re: Grant of Stock Option
 
Dear Renee:
 
The board of directors (the “Board”) of e.Digital Corporation (the “Company”)
has adopted the Company’s 2005 Equity-Based Compensation Plan (the “Plan”) for
certain employees and service providers of the Company and its Subsidiaries. A
copy of the Plan is being furnished to you concurrently with the execution of
this Nonstatutory Stock Option Agreement (the “Option Agreement”) and shall be
deemed a part of this Option Agreement as if fully set forth herein. Unless the
context otherwise requires, all terms defined in the Plan shall have the same
meaning when used herein.
 
1. The Grant. Subject to the conditions set forth below, the Company hereby
grants to you, effective as of ______________ (“Grant Date”), as a matter of
separate inducement and not in lieu of any salary or other compensation for your
services, the right and option to purchase (the “Option”), in accordance with
the terms and conditions set forth herein and in the Plan, an aggregate of
___________ shares of Stock of the Company (the “Option Shares”), at the
Exercise Price (as hereinafter defined). As used herein, the term “Exercise
Price” shall mean a price equal to $________ per share, subject to the
adjustments and limitations set forth herein and in the Plan. In no event shall
the exercise price exceed the Fair Market Value of a share of Stock as of the
Grant Date. The Option granted hereunder is intended to constitute an Option
which is not designed pursuant to section 422 of the Internal Revenue Code of
1986, as amended: however, you should consult with your tax advisor concerning
the proper reporting of any federal or state tax liability that may arise as a
result of the grant or exercise of the Option.
 
2. Exercise.
 
(a) For purposes of this Option Agreement, the Option Shares shall be deemed
“Nonvested Shares” unless and until they have become “Vested Shares.” The Option
shall in all events terminate at the close of business on the _________
anniversary of the date of this Option Agreement. Subject to other terms and
conditions set forth herein, the Option may be exercised in cumulative
installments as follows:

On or After Each of the Following Vesting Dates
 
Cumulative Percentage of Shares as to Which Option is Exercisable
 
Upon Grant Date
   
__
%
First Anniversary of the Grant Date
   
__
%
Second Anniversary of the Grant Date
   
___
%

 

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Option Shares shall constitute Vested Shares once they are exercisable.
 
(b) Subject to the relevant provisions and limitations contained herein and in
the Plan, you may exercise the Option to purchase all or a portion of the
applicable number of Vested Shares at any time prior to the termination of the
Option pursuant to this Option Agreement. In no event shall you be entitled to
exercise the Option for any Nonvested Shares or for a fraction of a Vested
Share.
 
(c) Any exercise by you of the Option shall be in writing addressed to the
Secretary of the Company at its principal place of business (a copy of the form
of exercise to be used will be available upon written request to the Secretary),
and shall be accompanied by a certified or bank check payable to the order of
the Company in the full amount of the Exercise Price of the shares so purchased,
or in such other manner as described in the Plan and approved by the Committee.
 
The terms and provisions of the employment agreement, if any, between you and
the Company or any Subsidiary (the “Employment Agreement”) that relate to or
affect the Option are incorporated herein by reference. Notwithstanding the
foregoing provisions of this Section 2, in the event of any conflict or
inconsistency between the terms and conditions of this Section 2 and the terms
and conditions of the Employment Agreement, the terms and conditions of the
Employment Agreement shall be controlling.
 
3. Termination of Employment. Except as provided below in this Section 3 upon
the termination of your employment with the Company or any Subsidiary, any and
all Options heldby you that are not then exercisable will become null and void
upon the date of such terminationand you may, until the earlier of (x) ninety
(90) days from the date of such termination or (y) the expiration of the Option
in accordance with its terms, exercise the Option with respect to all orany part
of the Vested Shares which you were entitled to purchase immediately prior to
such termination and, thereafter, the Option shall, to the extent not previously
exercised, automatically terminate and become null and void, provided that:
 
(a) in the case of termination of your employment with the Company or any
Subsidiary due to death, your estate (or any Person who acquired the right to
exercise such Option by bequest or inheritance or otherwise by reason of your
death) may, until the earlier of (x) the date that is one (1) year after the
date of death or (y) the expiration of the Option in accordance with its terms,
exercise the Option with respect to all or any part of the Vested Shares to
which the Option relates;
 
 
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(b) in the case of termination of your employment with the Company or any
Subsidiary due to your Disability, as determined in the sole discretion of the
Committee and as defined in Section 15, you or your legal representative may,
until the earlier of (x) the one hundred and eightieth (180) day after the date
your employment was terminated or (y) the expiration of the Option in accordance
with its terms, exercise the Option with respect to all or any part of the
Vested Shares to which the Option relates;
 
(c) in the case of termination of your employment by the Company or any
Subsidiary for any reason other than Cause, as determined in the sole discretion
of the Committee and as defined in Section 15, within one (1) year of a Change
in Control or in the case of your resignation from the Company or any Subsidiary
for Good Reason, as determined in the sole discretion of the Committee and as
defined in Section 15, within one (1) year of a Change in Control, then any
portion of the Option held by you as of the date of separation that is not yet
exercisable but would, pursuant to Section 2(a), become exercisable over the
twelve month period immediately following such termination, shall become
exercisable, as of the date of separation, and any portion of the Option held by
you as of the date of separation that is exercisable (either as a result of this
sentence or otherwise) shall be exercisable for a period of the lesser of (x)
the remainder of the term of the Option or (y) the date which is one (1) year
after the termination of employment; and
 
(d) if you are on leave of absence for any reason, the Company may, in its sole
discretion, determine that you will be considered to still be in the employ of
or providing services for the Company, provided that rights to the Option Shares
will be limited to the extent to which those rights were earned or vested when
the leave or absence began.
 
Notwithstanding the foregoing provisions of this Section 3, in the event of any
conflict or
inconsistency between the terms and conditions of this Section 3 and the terms
and conditions of
the Employment Agreement, the terms and conditions of the Employment Agreement
shall be
controlling.

4. Transferability. Any rights or interests herein will be assignable or
transferable by you only as provided in Section 10(a) of the Plan and by will or
the laws of descent and distribution.
 
5. Withholding Taxes. The Committee may, in its discretion, require you to pay
to the Company (or the Company’s Subsidiary if you are an employee of a
Subsidiary of the Company), at the time of the exercise of an Option or
thereafter, the amount that the Committee deems necessary to satisfy the
Company’s or its Subsidiary’s current or future obligation to withhold federal,
state or local income or other taxes that you incur by exercising an Option. In
connection with the exercise of an Option requiring tax withholding, you may (a)
direct the Company to withhold from the shares of Stock to be issued to you the
number of shares necessary to satisfy the Company’s obligation to withhold
taxes, that determination to be based on the shares’ Fair Market Value as of the
date of exercise; (b) deliver to the Company sufficient shares of Stock (based
upon the Fair Market Value as of the date of such delivery) to satisfy the
Company’s tax withholding obligation, which tax withholding obligation is based
on the shares’ Fair Market Value as of the later of the date of exercise or the
date as of which the shares of Stock issued in connection with such exercise
become includable in your income; or (c) deliver sufficient cash to the Company
to satisfy its tax withholding obligations. If you elect to use such a Stock
withholding feature you must make the election at the time and in the manner
that the Committee prescribes. The Committee may, at its sole option, deny your
request to satisfy withholding obligations through Stock instead of cash. In the
event the Committee subsequently determines that the aggregate Fair Market Value
(as determined above) of any shares of Stock withheld or delivered as payment of
any tax withholding obligation is insufficient to discharge that tax withholding
obligation, then you shall pay to the Company, immediately upon the Committee’s
request, the amount of that deficiency in the form of payment requested by the
Committee.
 
 
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6. Adjustments. The terms of an Option shall be subject to adjustment from time
to time, in accordance with the following provisions:
 
(a) If at any time, or from time to time, the Company shall subdivide as a whole
(by reclassification, by a Stock split, by the issuance of a distribution on
Stock payable in Stock or otherwise) the number of shares of Stock then
outstanding into a greater number of shares of Stock, then (i) the number of
shares of Stock (or other kind of securities) that may be acquired under the
Option shall be increased proportionately and (ii) the price (including Exercise
Price) for each share of Stock (or other kind of shares or securities) subject
to the then outstanding Option shall be reduced proportionately, without
changing the aggregate purchase price or value of the outstanding Option.
 
(b) If at any time, or from time to time, the Company shall consolidate as a
whole (by reclassification, reverse Stock split or otherwise) the number of
shares of Stock then outstanding into a lesser number of shares of Stock, (i)
the number of shares of Stock (or other kind of shares or securities) that may
be acquired under the Option shall be decreased proportionately; and (ii) the
price (including Exercise Price) for each share of Stock (or other kind of
shares or securities) subject to the Option shall be increased proportionately,
without changing the aggregate purchase price or value of the outstanding
Option.
 
(c) Whenever the number of shares of Stock subject to the Option and the price
for each share of Stock subject to the Option are required to be adjusted as
provided in this Section 6, the Committee shall promptly prepare a notice
setting forth, in reasonable detail, the event requiring adjustment, the amount
of the adjustment, the method by which such adjustment was calculated, and the
change in price and the number of shares of Stock, other securities, cash, or
property purchasable subject to the Option after giving effect to the
adjustments. The Committee shall promptly give you such a notice.
 
(d) Adjustments under this Section 6 shall be made by the Committee, and its
determination as to what adjustments shall be made and the extent thereof shall
be final, binding, and conclusive. No fractional interest shall be issued under
the Plan on account of any such adjustments.
 
 
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7. Notice. All notices required or permitted under this Option Agreement must be
in writing and personally delivered or sent by mail and shall be deemed to be
delivered on the date on which it is actually received by the person to whom it
is properly addressed. A notice shall be effective when actually received by the
Company in writing and in conformance with this Option Agreement and the Plan.
Until changed in accordance herewith, the Company and the optionee specify their
respective addresses as set forth below:
 

 
Company:
e.Digital Corporation

   
13114 Evening Cr. Dr. S.

   
San Diego, CA 92128

   
Attention: Robert Putnam

 

 
Optionee:
_______________

   
_____________________________________________

   
_____________________________________________

 
8. Information Confidential. As partial consideration for the granting of this
Option, you agree that you will keep confidential all information and knowledge
that you have relating to the manner and amount of your participation in the
Plan; provided, however, that such information may be disclosed as required by
law and may be given in confidence to your spouse, tax and financial advisors,
or a financial institution to the extent that such information is necessary to
obtain a loan.
 
9. Furnish Information. You agree to furnish to the Company all information
requested by the Company to enable it to comply with any reporting or other
requirement imposed upon the Company by or under any applicable statute or
regulation.
 
10. Company Records. Records of the Company or its Subsidiaries regarding your
period of employment, termination of employment and the reason therefor, leaves
of absence, re-employment, and other matters shall be conclusive for all
purposes hereunder.
 
11. Successors. This Agreement shall be binding upon you, your legal
representatives, heirs, legatees and distributees, and upon the Company, its
successors and assigns.
 
12. Headings. The titles and headings of paragraphs are included for convenience
of reference only and are not to be considered in construction of the provisions
hereof.
 
13. Governing Law. All questions arising with respect to the provisions of this
Agreement shall be determined by application of the laws of the State of
Delaware except to the extent Delaware law is preempted by federal law. The
obligation of the Company to sell and deliver Stock hereunder is subject to
applicable laws and to the approval of any governmental authority required in
connection with the authorization, issuance, sale, or delivery of such Stock.
 
 
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14. Word Usage. Words used in the masculine shall apply to the feminine where
applicable, and wherever the context of this Agreement dictates, the plural
shall be read as the singular and the singular as the plural.
 
15. Miscellaneous.
 
(a) This Option Agreement is subject to all the terms, conditions, limitations
and restrictions contained in the Plan. In the event of any conflict or
inconsistency between the terms hereof and the terms of the Plan, the terms of
the Plan shall be controlling.
 
(b) This Option Agreement is not a contract of employment and the terms of your
employment shall not be affected by, or construed to be affected by, this Option
Agreement, except to the extent specifically provided herein. Nothing herein
shall impose, or be construed as imposing, any obligation (i) on the part of the
Company or any Subsidiary to continue your employment, or (ii) on your part to
remain in the employ of the Company or any Subsidiary.
 
(c) This Option Agreement may be amended as provided in Section 10(c) of the
Plan.
 
(d) Definitions.
 
(i) Cause shall have the meaning given such term in your Employment Agreement
(if any) with the Company or a Subsidiary of the Company; provided, however,
that if you do not have an Employment Agreement or such agreement does not
define Cause, Cause shall mean, as determined by the Board or Committee in its
sole discretion exercised in good faith, (A) your breach of any nondisclosure,
noncompetition, or other agreement to which you and the Company are parties; (B)
your commission of a felony or of a misdemeanor involving moral turpitude; (C)
the participation by you in any fraud; (D) your dishonesty that is detrimental
to the best interest of the Company; (E) the willful and continued failure by
you to substantially perform your duties to the Company (other than any such
failure resulting from your incapacity due to physical or mental illness) after
written demand for substantial performance is delivered by the Company
specifically identifying the manner in which the Company believes you have not
substantially performed your duties; or (F) the willful engagement by you in
misconduct which is materially injurious to the Company, monetarily or
otherwise.
 
(ii) Disability shall have the meaning given such term in your Employment
Agreement (if any) with the Company or a Subsidiary of the Company; provided,
however, that if you do not have an Employment Agreement or it does not define
Disability, Disability shall mean, as determined by the Board or Committee in
its sole discretion exercised in good faith, a physical or mental impairment of
sufficient severity that either you are unable to continue performing the duties
you performed before such impairment or your condition entitles you to
disability benefits under any insurance or employee benefit plan of the Company
or its subsidiaries and that impairment or condition is cited by the Company as
the reason for termination of your employment.
 
 
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(iii) Good Reason shall have the meaning given such term in your Employment
Agreement (if any) with the Company or a Subsidiary of the Company; provided,
however, that if you do not have an Employment Agreement or the Employment
Agreement does not define Good Reason, Good Reason shall mean, as determined by
the Board or Committee in its sole discretion exercised in good faith, the
occurrence of one or more of the following events: (A) breach by the Company of
any provision of you Employment Agreement where such breach continues for a
period of ten (10) days after written notice thereof by you; (B) the Company
gives notice to you pursuant to the provisions of your Employment Agreement that
the Company does not wish to extend the Employment Agreement and you resign
before the expiration of the Employment Agreement; (C) relocation of your
regular work address by more than fifty miles without your consent; or (D) any
material adverse change in your job responsibilities, duties, functions, status,
offices, title, prerequisites or support staff. By way of example only and
without limiting the applicability of the preceding clause, a material adverse
change in your job responsibilities, functions and status would result from a
demotion which significantly reduces your discretion and independent judgment
within the Company or significantly reduces the number of employees subject to
your authority.

 
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Please indicate your acceptance of all the terms and conditions of the Option
and the Plan by signing and returning a copy of this Option Agreement.

       
e.Digital Corporation
 
   
   
  By:    

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Name: W.A. Blakeley  
Title: President

 
ACCEPTED:

__________________________________
Signature of Optionee

__________________________________
Name of Optionee (Please Print)

Date: _________________, ___________
 
 
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