EXHIBIT 10.7.2
 
e.Digital Corporation
SPECIAL STOCK OPTION GRANT NOTICE

e.Digital Corporation (the “Company”) hereby grants to the Optionee named below,
an employee of the Company, as an inducement material to the Optionee’s
continuing employment with the Company, a stock option to purchase the number of
shares of the Company’s common stock set forth below. This option is subject to
all of the terms and conditions as set forth herein and the Stock Option
Agreement (attached hereto), which is incorporated herein in its entirety.

Optionee:
William Blakeley
Grant No:
S-02
Date of Grant:
3/30/2006
Shares Subject to Option:
250,000 common shares
Exercise Price Per Share:
$0.145
Expiration Date:
3/30/2010
Intended to be Incentive Stock Option:
Yes (Subject to limit)

 
VESTING SCHEDULE:

Vesting Start Date
 
Vesting Schedule
(83,334 shares vest on grant)
 
Subject to continuing Service (as defined in the Stock Option Agreement) this
option becomes exercisable with respect to the Shares Subject to Option with
83,334 on the date of grant and the balance in equal annual installments of
83,333 shares on each of the first and second annual anniversary of the date of
grant. Accordingly, subject to continuing service 100% of the shares shall be
vested on 3/30/2008.

 
ADDITIONAL TERMS/ACKNOWLEDGMENTS: The undersigned Optionee acknowledges receipt
of, and represents that the Optionee has read, understands, accepts and agrees
to the terms of this Grant Notice and the Stock Option Agreement. Optionee
hereby accepts the Option subject to all of its terms and conditions and further
acknowledges that as of the Date of Grant, this Grant Notice and the Stock
Option Agreement set forth the entire understanding between Optionee and the
Company regarding the acquisition of stock in the Company and supersede all
prior oral and written agreements pertaining to this particular option.

NOTE: THE OPTIONEE IS SOLELY RESPONSIBLE FOR ANY ELECTION TO EXERCISE THE
OPTION, AND THE COMPANY SHALL HAVE NO OBLIGATION WHATSOEVER TO PROVIDE NOTICE TO
THE OPTIONEE OF ANY MATTER, INCLUDING, BUT NOT LIMITED TO, THE DATE THE OPTION
TERMINATES.
 
e.Digital Corporation:
Optionee:
       
/s/ ROBERT PUTNAM
/s/ WILLIAM BLAKELEY

--------------------------------------------------------------------------------

By: Robert Putnam

--------------------------------------------------------------------------------

William Blakeley
Senior Vice President
 

 
 
Page 1 of 13

--------------------------------------------------------------------------------

 
 
e.Digital Corporation
SPECIAL STOCK OPTION AGREEMENT

Pursuant to the Grant Notice and this Stock Option Agreement (“Agreement”),
e.Digital Corporation (the “Company”) has granted to the Optionee named in the
Grant Notice (“you” or the “Optionee”) an Option to purchase the number of
shares of the Company’s common stock (“Stock”) indicated in the Grant Notice at
the exercise price indicated in the Grant Notice.

The details of this Option are as follows:

1. Definitions And Construction.

1.1 Definitions. Whenever used herein, the following terms shall have their
respective meanings set forth below:

(a) “Affiliate” means (i) an entity, other than a Parent Corporation, that
directly, or indirectly through one or more intermediary entities, controls the
Company or (ii) an entity, other than a Subsidiary Corporation, that is
controlled by the Company directly, or indirectly through one or more
intermediary entities, or (iii) an entity which the Board designates as an
Affiliate. For this purpose, the term “control” (including the term “controlled
by”) means the possession, direct or indirect, of the power to direct or cause
the direction of the management and policies of the relevant entity, whether
through the ownership of voting securities, by contract or otherwise; or shall
have such other meaning assigned such term for the purposes of registration on
Form S-8 under the Securities Act.

(b) “Board” means the Board of Directors of the Company. If one or more
Committees have been appointed by the Board to administer outstanding stock
options, “Board” also means such Committee(s).

(c) A “Change In Control” means the occurrence of any of the following events:
 
(i)  The agreement to acquire or a tender offer that is accepted for beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
by any individual, entity or group (within the meaning of section 13(d)(3) or
14(d)(2) of the Exchange Act) (a “Person”), of 50% or more of either (x) the
then outstanding shares of Stock (the “Outstanding Stock”) or (y) the combined
voting power of the then outstanding voting securities of the Company entitled
to vote generally in the election of directors (the “Outstanding Company Voting
Securities”); provided, however, that for purposes of this subsection (i), the
following acquisitions shall not constitute a Change in Control: (A) any
acquisition directly from the Company, (B) any acquisition by the Company, (C)
any acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company, (D) any
acquisition by any corporation pursuant to a transaction which complies with
clauses (A), (B) and (C) of paragraph (iii) below; or
 
(ii)  Individuals who constitute the Incumbent Board cease for any reason to
constitute at least a majority of the Board; or
 
 
Page 2 of 13

--------------------------------------------------------------------------------

 
 
(iii)  Consummation of a reorganization, merger or consolidation or sale or
other disposition of all or substantially all of the assets of the Company or an
acquisition of assets of another corporation (a “Business Combination”), in each
case, unless, following such Business Combination, (A) the Outstanding Stock and
Outstanding Company Voting Securities immediately prior to such Business
Combination represent or are converted into or exchanged for securities which
represent or are convertible into more than 50% of, respectively, the then
outstanding shares of common stock and the combined voting power of the then
outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation which as a result of
such transaction owns the Company, or all or substantially all of the Company’s
assets either directly or through one or more subsidiaries), (B) no Person
(excluding any employee benefit plan (or related trust) of the Company or the
corporation resulting from such Business Combination) beneficially owns,
directly or indirectly, 20% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such Business
Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership of the
Company existed prior to the Business Combination and (C) at least a majority of
the members of the board of directors of the corporation resulting from such
Business Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board, providing for
such Business Combination; or
 
(iv)  Consummation of a reorganization, merger or consolidation or sale or other
disposition of all or substantially all of the assets of the Company (a
“Business Combination”), unless, following such Business Combination, the
Outstanding Stock and Outstanding Company Voting Securities immediately prior to
such Business Combination represent or are converted into or exchanged for
securities which represent or are convertible into more than 50% of,
respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company, or all or
substantially all of the Company’s assets either directly or through one or more
subsidiaries); or
 
(v)  Approval by the stockholders of the Company of a complete liquidation or
dissolution of the Company.

(d) “Code” means the Internal Revenue Code of 1986, as amended, and any
applicable regulations promulgated thereunder.

(e) “Committee” means the Compensation Committee or other committee of the Board
duly appointed to administer this Agreement and having such powers as shall be
specified by the Board. Unless the powers of the Committee have been
specifically limited, the Committee shall have all of the powers of the Board
granted herein.

(f) “Company” means e.Digital Corporation, a Delaware corporation, or any
Successor.
 
 
Page 3 of 13

--------------------------------------------------------------------------------

 
 
(g) “Consultant” means a person engaged to provide consulting or advisory
services (other than as an Employee or a Director) to a Participating Company.

(h) “Director” means a member of the Board or of the board of directors of any
other Participating Company.

(i) “Disability” means the Optionee has been determined by the long-term
disability insurer of the Participating Company Group as eligible for disability
benefits under the long-term disability plan of the Participating Company Group
or the Optionee has been determined eligible for Supplemental Security Income
benefits by the Social Security Administration of the United States of America.

(j) “Employee” means any person treated as an employee (including an Officer or
a Director who is also treated as an employee) in the records of a Participating
Company. The Company shall determine in good faith and in the exercise of its
discretion whether the Optionee has become or has ceased to be an Employee and
the effective date of the Optionee’s employment or termination of employment, as
the case may be.

(k) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

(l) “Fair Market Value” means, as of any date, the value of the Stock determined
as follows:

(vi)  if shares of Stock of the same class are listed or admitted to unlisted
trading privileges on any national or regional securities exchange at the date
of determining the Fair Market Value, then the last reported sale price, regular
way, on the composite tape of that exchange on that business day or, if no such
sale takes place on that business day, the average of the closing bid and asked
prices, regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
unlisted trading privileges on that securities exchange or, if no such closing
prices are available for that day, the last reported sale price, regular way, on
the composite tape of that exchange on the last business day before the date in
question; or
 
(vii)  if shares of Stock of the same class are not listed or admitted to
unlisted trading privileges as provided in subparagraph (i) and if sales prices
for shares of Stock of the same class in the over-the-counter market are
reported by the OTC Bulletin Board (“OTCBB”) as of the date of determining the
Fair Market Value, then the last reported sales price so reported on that
business day or, if no such sale takes place on that business day, the average
of the high bid and low asked prices so reported or, if no such prices are
available for that day, the last reported sale price so reported on the last
business day before the date in question; or
 
(viii)  if shares of Stock of the same class are not listed or admitted to
unlisted trading privileges as provided in subparagraph (i) and sales prices for
shares of Stock of the same class are not reported by the OTCBB (or a similar
system then in use) as provided in subparagraph (ii), and if bid and asked
prices for shares of Stock of the same class in the over-the-counter market are
reported by OTCBB (or, if not so reported, by the National Quotation Bureau
Incorporated) as of the date of determining the Fair Market Value, then the
average of the high bid and low asked prices on that business day or, if no such
prices are available for that day, the average of the high bid and low asked
prices on the last business day before the date in question; or
 
 
Page 4 of 13

--------------------------------------------------------------------------------

 
 
(ix)  if shares of Stock of the same class are not listed or admitted to
unlisted trading privileges as provided in subparagraph (i) and sales prices or
bid and asked prices therefor are not reported by OTCBB (or the National
Quotation Bureau Incorporated) as provided in subparagraph (ii) or subparagraph
(iii) as of the date of determining the Fair Market Value, then the value
determined in good faith by the Committee, which determination shall be
conclusive for all purposes; orif shares of Stock of the same class are listed
or admitted to unlisted trading privileges as provided in subparagraph (i) or
sales prices or bid and asked prices therefor are reported by OTCBB (or the
National Quotation Bureau Incorporated) as provided in subparagraph (ii) or
subparagraph (iii) as of the date of determining the Fair Market Value, but the
volume of trading is so low that the Board of Directors determines in good faith
that such prices are not indicative of the fair value of the Stock, then the
value determined in good faith by the Committee, which determination shall be
conclusive for all purposes notwithstanding the provisions of subparagraphs (i),
(ii) or (iii).
 
(m) “Incentive Stock Option” means an Option intended to be (as set forth in the
Option Agreement) and which qualifies as an incentive stock option within the
meaning of Section 422(b) of the Code.

(n) “Insider” means an Officer, a Director of the Company or other person whose
transactions in Stock are subject to Section 16 of the Exchange Act.

(o) “Non-Control Affiliate” means any entity in which any Participating Company
has an ownership interest and which the Board shall designate as a Non-Control
Affiliate.

(p) “Officer” means any person designated by the Board as an officer of the
Company.

(q) An “Ownership Change Event” shall be deemed to have occurred if any of the
following occurs with respect to the Company: (i) the direct or indirect sale or
exchange in a single or series of related transactions by the stockholders of
the Company of more than fifty percent (50%) of the voting stock of the Company;
(ii) a merger or consolidation in which the Company is a party; (iii) the sale,
exchange, or transfer of all or substantially all, as determined by the Board in
its discretion, of the assets of the Company; or (iv) a liquidation or
dissolution of the Company.

(r) “Parent Corporation” means any present or future “parent corporation” of the
Company, as defined in Section 424(e) of the Code.

(s) “Participating Company” means the Company or any Parent Corporation or
Subsidiary Corporation or Affiliate.

(t) “Participating Company Group” means, at any point in time, all entities
collectively which are then Participating Companies.
 
 
Page 5 of 13

--------------------------------------------------------------------------------

 
 
(u) “Rule 16b-3” means Rule 16b-3 under the Exchange Act, as amended from time
to time, or any successor rule or regulation.

(v) “Securities Act” means the Securities Act of 1933, as amended.

(w) “Service” means

(i) the Optionee’s employment or service with the Participating Company Group,
whether in the capacity of an Employee, a Director or a Consultant. The
Optionee’s Service shall not be deemed to have terminated merely because of a
change in the capacity in which the Optionee renders Service to the
Participating Company Group or a change in the Participating Company for which
the Optionee renders such Service, provided that there is no interruption or
termination of the Optionee’s Service. Furthermore, only to such extent as may
be provided by the Company’s leave policy, the Optionee’s Service with the
Participating Company Group shall not be deemed to have terminated if the
Optionee takes any military leave, sick leave, or other leave of absence
approved by the Company. Notwithstanding the foregoing, a leave of absence shall
be treated as Service for purposes of vesting only to such extent as may be
provided by the Company’s leave policy. The Optionee’s Service shall be deemed
to have terminated either upon an actual termination of Service or upon the
entity for which the Optionee performs Service ceasing to be a Participating
Company; except that if the entity for which Optionee performs Service is a
Subsidiary Corporation and ceases to be a Participating Company as a result of
the distribution of the voting stock of such Subsidiary Corporation to the
stockholders of the Company, Service shall not be deemed to have terminated as a
result of such distribution. Subject to the foregoing, the Company, in its
discretion, shall determine whether the Optionee’s Service has terminated and
the effective date of such termination.

(ii) Notwithstanding any other provision of this Section, an Optionee’s Service
shall not be deemed to have terminated merely because the Participating Company
for which the Optionee renders Service ceases to be a member of the
Participating Company Group by reason of a Spinoff Transaction, nor shall
Service be deemed to have terminated upon resumption of Service from the Spinoff
Company to a Participating Company. For all purposes under this Agreement, the
Optionee’s Service shall include Service, whether in the capacity of an
Employee, Director or a Consultant, for the Spinoff Company provided the
Optionee was employed by the Participating Company Group immediately prior to
the Spinoff Transaction. Notwithstanding the foregoing, if the Company’s
auditors determine that the provisions or operation of the preceding two
sentences would cause the Company to incur a compensation expense and provided
further that in the absence of the preceding two sentences no such compensation
expense would be incurred, then the two preceding sentences shall be without
force or effect, and the vesting and exercisability of each outstanding Option
and any shares acquired upon the exercise thereof shall be determined under any
other applicable provision of this Agreement.

(x) “Spinoff Company” means a Participating Company which ceases to be such as a
result of a Spinoff Transaction.

(y) “Spinoff Transaction” means a transaction in which the voting stock of an
entity in the Participating Company Group is distributed to the shareholders of
a parent corporation as defined by Section 424(e) of the Code, of such entity.
 
 
Page 6 of 13

--------------------------------------------------------------------------------

 
 
(z) “Stock” means the common stock of the Company, as adjusted from time to time
in accordance with Section 9.

(aa) “Subsidiary Corporation” means any present or future “subsidiary
corporation” of the Company, as defined in Section 424(f) of the Code.

(bb) “Successor” means a corporation into or with which the Company is merged or
consolidated or which acquires all or substantially all of the assets of the
Company and which is designated by the Board as a Successor for purposes of this
Agreement.

1.2 Construction. Captions and titles contained herein are for convenience only
and shall not affect the meaning or interpretation of any provision of this
Agreement. Except when otherwise indicated by the context, the singular shall
include the plural and the plural shall include the singular. Use of the term
“or” is not intended to be exclusive, unless the context clearly requires
otherwise.

2. Vesting. Except as otherwise provided in this Agreement, this option will
vest as provided in the Grant Notice.

3. Exercise Of The Option.

3.1 Method Of Exercise. You may exercise the vested portion of this Option at
any time prior to the expiration of the Option by delivering a notice of
exercise in such form as may be designated by the Company from time to time
together with the exercise price to the Secretary of the Company, or to such
other person as the Company may designate, during regular business hours and
prior to the expiration of the Option, together with such additional documents
as the Company may then require.

3.2 Method Of Payment. Payment of the exercise price may be by cash (or check),
or pursuant to a program developed under Regulation T as promulgated by the
Federal Reserve Board which, prior to the issuance of Stock, results in either
the receipt of cash (or check) by the Company or the receipt of irrevocable
instructions to a broker which provides for the payment of the aggregate
exercise price to the Company, or a combination of the above methods, as the
Company may designate from time to time. The Company reserves, at any and all
times, the right, in the Company’s sole and absolute discretion, to establish,
decline to approve or terminate any program or procedures for the exercise of
Options by means of a Cashless Exercise.

3.3 Tax Withholding. By exercising this Option you agree that as a condition to
any exercise of this Option, the Company may withhold from your pay and any
other amounts payable to you, or require you to enter an arrangement providing
for the payment by you to the Company of any tax withholding obligation of the
Company arising by reason of (1) the exercise of this Option; or (2) the
disposition of Stock acquired upon such exercise.

3.4 Responsibility For Exercise. You are responsible for taking any and all
actions as may be required to exercise this Option in a timely manner and for
properly executing any such documents as may be required for exercise in
accordance with such rules and procedures as may be established from time to
time. By signing this Agreement you acknowledge that information regarding the
procedures and requirements for this exercise of the Option is available to you
on request. The Company shall have no duty or obligation to notify you of the
expiration date of this Option.
 
 
Page 7 of 13

--------------------------------------------------------------------------------

 
 
4. Securities Law Compliance. Notwithstanding anything to the contrary contained
herein, this Option may not be exercised unless the Stock issuable upon exercise
of this Option is then registered under the Securities Act or, if such Stock is
not then so registered, the Company has determined that such exercise and
issuance would be exempt from the registration requirements of the Securities
Act.

5. Termination Of The Option. The term of this Option commences on the Date of
Grant (as specified in the Grant Notice) and expires and shall no longer be
exercisable upon the earliest of:

5.1 the Expiration Date indicated in the Grant Notice;

5.2 the last day for exercising the Option following termination of your Service
as described in Section 6 below; or

5.3 a Change of Control, to the extent provided in Section 7 below.

6. Effect Of Termination Of Service.

6.1 Option Exercisability. Subject to earlier termination of the Option as
otherwise provided herein, the Option shall be exercisable after the Optionee’s
termination of Service only during the applicable time period determined in
accordance with this Section 6 and thereafter shall terminate.

(a) Disability. If the Optionee’s Service terminates because of the Disability
of the Optionee, the Option shall continue for a period of one year from
termination of employment resulting from such Disability and may be exercised by
the Optionee at any time during the one year period but in any event no later
than the Expiration Date.

(b) Death. If the Optionee’s Service terminates because of the death or because
of the Disability of the Optionee and such termination is subsequently followed
by the death of the Optionee, (A) the exercisability and vesting of the Option
shall be accelerated effective upon the Optionee’s death, and (B) the Option, to
the extent unexercised and exercisable on the date of the Optionee’s death, may
be exercised by the Optionee’s legal representative or other person who acquired
the right to exercise the Option by reason of the Optionee’s death at any time
prior to the expiration of twelve (12) months after the date of the Optionee’s
death, but in any event no later than the Expiration Date.

(c) Termination After Change In Control. If the Optionee’s Service ceases as a
result of Termination After Change in Control (as defined below), then (A) the
exercisability and vesting of the Option shall be accelerated effective as of
the date on which the Optionee’s Service terminated, and (B) the Option, to the
extent unexercised and exercisable on the date on which the Optionee’s Service
terminated, may be exercised by the Optionee (or the Optionee’s guardian or
legal representative) at any time prior to the expiration of six (6) months
after the date on which the Optionee’s Service terminated, but in any event no
later than the Expiration Date.
 
 
Page 8 of 13

--------------------------------------------------------------------------------

 
 
(e) Other Termination Of Service. If the Optionee’s Service with the
Participating Company Group terminates for any reason except Disability, death,
Transfer to a Non-Control Affiliate, or Termination after Change in Control, the
Option, to the extent unexercised and exercisable by the Optionee on the date on
which the Optionee’s Service terminates, may be exercised by the Optionee at any
time prior to the expiration of one month after the date on which the Optionee’s
Service terminates, but in any event no later than the Expiration Date.

6.2 Extension If Exercise Prevented By Law. Notwithstanding the foregoing, other
than termination for Cause, if the exercise of an Option within the applicable
time periods set forth in Section 6.1 is prevented by the provisions of Section
4 above, the Option shall remain exercisable until three (3) months after the
date the Optionee is notified by the Company that the Option is exercisable, but
in any event no later than the Expiration Date.

6.3 Extension If Optionee Subject To Section 16(b). Notwithstanding the
foregoing, other than termination for Cause, if a sale within the applicable
time periods set forth in Section 6.1 of shares acquired upon the exercise of
the Option would subject the Optionee to suit under Section 16(b) of the
Exchange Act, the Option shall remain exercisable until the earliest to occur of
(i) the tenth (10th) day following the date on which a sale of such shares by
the Optionee would no longer be subject to such suit, (ii) the one hundred and
ninetieth (190th) day after the Optionee’s termination of Service, or (iii) the
Expiration Date.

6.4 Certain Definitions.

(a) “Cause” shall mean any of the following: (1) the Optionee’s theft,
dishonesty, or falsification of any Participating Company documents or records;
(2) the Optionee’s improper use or disclosure of a Participating Company’s
confidential or proprietary information; (3) any action by the Optionee which
has a detrimental effect on a Participating Company’s reputation or business;
(4) the Optionee’s failure or inability to perform any reasonable assigned
duties after written notice from a Participating Company of, and a reasonable
opportunity to cure, such failure or inability; (5) any material breach by the
Optionee of any employment or service agreement between the Optionee and a
Participating Company, which breach is not cured pursuant to the terms of such
agreement; (6) the Optionee’s conviction (including any plea of guilty or nolo
contendere) of any criminal act which impairs the Optionee’s ability to perform
his duties with a Participating Company; or (7) violation of a material Company
policy.

(b) “Good Reason” shall mean any one or more of the following:

(i) without the Optionee’s express written consent, the assignment to the
Optionee of any duties, or any limitation of the Optionee’s responsibilities,
substantially inconsistent with the Optionee’s positions, duties,
responsibilities and status with the Participating Company Group immediately
prior to the date of the Change in Control;

(ii) without the Optionee’s express written consent, the relocation of the
principal place of the Optionee’s employment or service to a location that is
more than fifty (50) miles from the Optionee’s principal place of employment or
service immediately prior to the date of the Change in Control, or the
imposition of travel requirements substantially more demanding of the Optionee
than such travel requirements existing immediately prior to the date of the
Change in Control;
 
 
Page 9 of 13

--------------------------------------------------------------------------------

 
 
(iii) any failure by the Participating Company Group to pay, or any material
reduction by the Participating Company Group of, (A) the Optionee’s base salary
in effect immediately prior to the date of the Change in Control (unless
reductions comparable in amount and duration are concurrently made for all other
employees of the Participating Company Group with responsibilities,
organizational level and title comparable to the Optionee’s), or (B) the
Optionee’s bonus compensation, if any, in effect immediately prior to the date
of the Change in Control (subject to applicable performance requirements with
respect to the actual amount of bonus compensation earned by the Optionee);

(iv) any failure by the Participating Company Group to (A) continue to provide
the Optionee with the opportunity to participate, on terms no less favorable
than those in effect for the benefit of any employee or service provider group
which customarily includes a person holding the employment or service provider
position or a comparable position with the Participating Company Group then held
by the Optionee, in any benefit or compensation plans and programs, including,
but not limited to, the Participating Company Group’s life, disability, health,
dental, medical, savings, profit sharing, stock purchase and retirement plans,
if any, in which the Optionee was participating immediately prior to the date of
the Change in Control, or their equivalent, or (B) provide the Optionee with all
other fringe benefits (or their equivalent) from time to time in effect for the
benefit of any employee group which customarily includes a person holding the
employment or service provider position or a comparable position with the
Participating Company Group then held by the Optionee;

(v) any breach by the Participating Company Group of any material agreement
between the Optionee and a Participating Company concerning Optionee’s
employment; or

(vi) any failure by the Company to obtain the assumption of any material
agreement between the Optionee and the Company concerning the Optionee’s
employment by a successor or assign of the Company.

(c) “Termination After Change In Control” shall mean either of the following
events occurring within twenty-four (24) months after a Change in Control:

(i) termination by the Participating Company Group of the Optionee’s Service
with the Participating Company Group for any reason other than for Cause; or

(ii) the Optionee’s resignation for Good Reason from all capacities in which the
Optionee is then rendering Service to the Participating Company Group within a
reasonable period of time following the event constituting Good Reason.

Notwithstanding any provision herein to the contrary, Termination After Change
in Control shall not include any termination of the Optionee’s Service with the
Participating Company Group which (1) is for Cause; (2) is a result of the
Optionee’s death or Disability; (3) is a result of the Optionee’s voluntary
termination of Service other than for Good Reason; or (4) occurs prior to the
effectiveness of a Change in Control.
 
 
Page 10 of 13

--------------------------------------------------------------------------------

 
 
7. Change In Control. In the event of a Change in Control, the surviving,
continuing, successor, or purchasing corporation or other business entity or
parent thereof, as the case may be (the “Acquiring Corporation”), may, without
the consent of the Optionee, either assume the Company’s rights and obligations
the Option or substitute for the Option substantially equivalent options for the
Acquiring Corporation’s stock. In the event the Acquiring Corporation elects not
to assume or substitute for the Option in connection with a Change in Control,
the exercisability and vesting of the Option shall be accelerated, effective as
of the date ten (10) days prior to the date of the Change in Control. The
exercise or vesting of this Option that was permissible solely by reason of this
Section shall be conditioned upon the consummation of the Change in Control. To
the extent this Option is neither assumed or substituted for by the Acquiring
Corporation in connection with the Change in Control nor exercised as of the
date of the Change in Control, it shall terminate and cease to be outstanding
effective as of the date of the Change in Control. Notwithstanding the
foregoing, shares acquired upon exercise of the Option prior to the Change in
Control and any consideration received pursuant to the Change in Control with
respect to such shares shall continue to be subject to all applicable provisions
of the Agreement. Furthermore, notwithstanding the foregoing, if the corporation
the stock of which is subject to the Option immediately prior to an Ownership
Change Event described in Section 1.1(q)(i) constituting a Change in Control is
the surviving or continuing corporation and immediately after such Ownership
Change Event less than fifty percent (50%) of the total combined voting power of
its voting stock is held by another corporation or by other corporations that
are members of an affiliated group within the meaning of Section 1504(a) of the
Code without regard to the provisions of Section 1504(b) of the Code, the Option
shall not terminate unless the Board otherwise provides in its discretion.

8. Option Not A Service Contract. This Option is not an employment or service
contract and nothing in this Agreement or the Grant Notice shall be deemed to
create in any way whatsoever any obligation on your part to continue in the
service of the Company, or of the Company to continue your service with the
Company. In addition, nothing in your Option shall obligate the Company, its
stockholders, Board, Officers or Employees to continue any relationship which
you might have as a Director or Consultant for the Company.

9. Adjustments For Changes In Capital Structure. In the event of any stock
dividend, stock split, reverse stock split, recapitalization, combination,
reclassification or similar change in the capital structure of the Company,
appropriate adjustments shall be made in the number and class of shares subject
to the Option and in the exercise price per share of the Option. If a majority
of the shares of Stock are exchanged for, converted into, or otherwise become
(whether or not pursuant to an Ownership Change Event) shares of another
corporation (the “New Shares”), the Board may unilaterally amend this Agreement
to provide that the Option is exercisable for New Shares. In the event of any
such amendment, the number of shares subject to, and the exercise price per
share of, the Option shall be adjusted in a fair and equitable manner as
determined by the Board, in its discretion. Notwithstanding the foregoing, any
fractional share resulting from an adjustment pursuant to this Section shall be
rounded down to the nearest whole number, and in no event may the exercise price
of the Option be decreased to an amount less than the par value, if any, of the
Stock subject to the Option.
 
 
Page 11 of 13

--------------------------------------------------------------------------------

 
 
10. Representations. By executing this Agreement, you hereby warrant and
represent that you are acquiring this Option for your own account and that you
have no intention of distributing, transferring or selling all or any part of
this Option except in accordance with the terms of this Agreement and Section
25102(f) of the California Corporations Code. You also hereby warrant and
represent that you have either (i) preexisting personal or business
relationships with the Company or any of its officers, directors or controlling
persons, or (ii) the capacity to protect your own interests in connection with
the grant of this Option by virtue of the business or financial expertise of you
or any of your professional advisors who are unaffiliated with and who are not
compensated by the Company or any of its affiliates, directly or indirectly.

11. Notices. Any notices provided for in this Agreement or the Grant Notice
shall be given in writing and shall be deemed effectively given upon receipt or,
in the case of notices delivered by the Company to you, five (5) days after
deposit in the United States mail, postage prepaid, addressed to you at the last
address you provided to the Company.

12. Transferability. This Option shall not be transferable in any manner
(including without limitation, sale, alienation, anticipation, pledge,
encumbrance, or assignment) other than, (i) by will or by the laws of descent
and distribution, (ii) by written designation of a beneficiary, in a form
acceptable to the Company, with such designation taking effect upon the death of
the Optionee, (iii) by delivering written notice to the Company, in a form
acceptable to the Company (including such representations, warranties and
indemnifications as the Company shall require the Optionee to make to protect
the Company’s interests and ensure that this Option has been transferred under
the circumstances approved by the Company), by gift to the Optionee’s spouse,
former spouse, children, stepchildren, grandchildren, parent, stepparent,
grandparent, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law,
daughter-in-law, brother-in-law, or sister-in-law, persons having one of the
foregoing types of relationship with the Optionee due to adoption, any person
sharing the Optionee’s household (other than a tenant or employee), a foundation
in which these persons or the Optionee control the management of assets, and any
other entity in which these persons (or the Optionee) own more than fifty
percent of the voting interests. A transfer to an entity in which more than
fifty percent of the voting interests are owned by these persons (or the
Optionee) in exchange for an interest in that entity is specifically included as
a permissible type of transfer. In addition, a transfer to a trust created
solely for the benefit (i.e., the Optionee and/or any or all of the foregoing
persons hold more than 50 percent of the beneficial interest in the trust) of
the Optionee and/or any or all of the foregoing persons is also a permissible
transferee, or (iv) such other transferees as may be authorized by the Board in
its sole and absolute discretion. During the Optionee’s life this Option is
exercisable only by the Optionee or a transferee satisfying the above
conditions. Except in the event of the Optionee’s death, upon transfer of this
Option to any or all of the foregoing persons, the Optionee is liable for any
and all taxes due upon exercise of this transferred Option. At no time will a
transferee who is considered an affiliate under Rule 144(a)(1) be able to sell
any or all such Stock without complying with Rule 144. The right of a transferee
to exercise the transferred portion of this Option shall terminate in accordance
with the Optionee’s right of exercise under this Option and is further subject
to such representations, warranties and indemnifications from the transferee
that the Company requires the transferee to make to protect the Company’s
interests and ensure that this Option has been transferred under the
circumstances approved by the Company. Once a portion of this Option is
transferred, no further transfer may be made of that portion of this Option.
 
 
Page 12 of 13

--------------------------------------------------------------------------------

 
 
13. Arbitration. Any dispute or claim concerning the Option, the Grant Notice or
this Agreement shall be fully, finally and exclusively resolved by binding
arbitration conducted by the American Arbitration Association pursuant to the
commercial arbitration rules in San Diego, California. By accepting the Option,
the Optionee and the Company waive their respective rights to have any such
disputes or claims tried by a judge or jury.

14. Amendment. The Board may amend your Option at any time, provided no such
amendment may adversely affect the Option or any unexercised portion of your
Option, without your consent unless such amendment is necessary to comply with
any applicable law or government regulation. No amendment or addition to this
Agreement shall be effective unless in writing or, in such electronic form as
may be designated by the Company.
 
 
Page 13 of 13

--------------------------------------------------------------------------------