Document:

E.Digital Corporation 10-Q Exhibit 43.2

	

Exhibit 4.32  

E.DIGITAL
CORPORATION 

12% SECURED
PROMISSORY NOTE AND WARRANT PURCHASE AGREEMENT 

	

E.DIGITAL
CORPORATION 

12% SECURED
PROMISSORY NOTE AND WARRANT PURCHASE AGREEMENT 

     This
12% SECURED PROMISSORY NOTE AND WARRANT PURCHASE AGREEMENT (the
“Agreement”) is entered into by and among E.DIGITAL CORPORATION, a
Delaware corporation (the “Company”), and each of those persons and
entities, severally and not jointly, whose names are set forth on the Schedule
of Purchasers attached hereto as Exhibit A (which persons and entities are
hereinafter collectively referred to as “Purchasers” and each
individually as a “Purchaser”).  

RECITALS 

     Whereas,
the Company has authorized the sale and issuance of an aggregate of up to One
Million Dollars ($1,000,000) of 12% Secured Promissory Notes (the
“Notes”) and warrants to purchase an aggregate of up to Seven Hundred
Fifty Thousand (750,000) shares of its Common Stock (the “Warrants,”
and together with the Notes, the “Securities”);  

     Whereas,
Purchasers desire to purchase the Securities on the terms and conditions set forth
herein; and  

     Whereas,
the Company desires to issue and sell the Securities to Purchasers on the terms
and conditions set forth herein.  

     NOW,
THEREFORE, in consideration of the foregoing recitals and the mutual promises
hereinafter set forth, the parties hereto agree as follows:  

     1.     
AGREEMENT TO SELL AND PURCHASE  

             
1.1.     Authorization
of Shares. On or prior to the Closing (as defined in Section 2 below), the Company
shall have authorized (i) the sale and issuance to Purchasers of the Securities and (ii)
the issuance of such shares of Common Stock to be issued upon exercise of the Warrants
(the “Warrant Shares”). The Securities and the Warrant Shares shall have the
rights, preferences, privileges and restrictions set forth in the respective documents,
herein and in the Company’s Certificate of Incorporation and Bylaws.   

             
1.2.     Sale
and Purchase. Subject to the terms and conditions hereof, at the Closing or Closings
(as hereinafter defined) the Company hereby agrees to issue and sell to each Purchaser,
severally and not jointly, and each Purchaser agrees to purchase from the Company,
severally and not jointly, a Note, in the form attached hereto as Exhibit B, in the
amount set forth opposite such Purchaser’s name on Exhibit A, and a Warrant, in the
form attached hereto as Exhibit C, to purchase the number of shares of Common Stock set
forth opposite such Purchaser’s name on Exhibit A.   

     2.     
CLOSING, DELIVERY AND PAYMENT  

             2.1.     Closing.
The closing of the sale and purchase of the Securities under this Agreement (the “Closing”)
shall take place at 2:00 p.m. on the date hereof, at the offices of the Company at 13114
Evening Creek Drive South, San Diego, California 92128 or at such other time or place as
the Company and Purchasers may mutually agree (such date is hereinafter referred to as
the “Closing Date”).   

             2.2.      Delivery.   

	 	
            
2.2.1.
Each Purchaser shall pay the purchase price for the Securities as set forth next to such
Purchaser's name on Exhibit A hereto by delivering immediately available funds in United
States Dollars to the Company. Promptly following execution of this Agreement by each
party and payment by the Purchaser to the Company of the purchase price for the
Securities as set forth next to such Purchaser's name on Exhibit A, but in no event later
than five business days after such payment, the Company shall deliver a duly executed
Note and Warrant, registered in the name of such Purchaser, to the Purchaser. The Notes
and Warrants shall be dated as of the date the Company is credited with readily available
funds accepted by the Company, irrespective of the Closing Date. The Company may reject
and return any funds received within five business days, in whole or in part, for any
reason in its sole discretion and in the event of over-subscription for the Securities
may prorate the Notes among subscribers in any manner the Company deems necessary or
advisable. 

	

	 	
            
2.2.2. Method of Payment. Payment of the purchase price for the Securities shall be made by
check payable to the Company, in a form acceptable to the Company, or by wire transfer of
funds to:  

	

First National Bank
1004 Rosecrans
Street
Pt. Loma, California 92106
ABA # 1 2 2 2 3 8 9 3 8
For Account of: e.Digital
Corporation
Account # 8 2 2 1 3 4 5 5  

             2.3.     Subsequent
Sales of Securities. Pursuant to the terms of the offering, the Company need not sell
any minimum amount of Securities prior to Closing and the Company may have multiple
closings. At any time on or before September 28, 2001, the Company may sell up to the
balance of the authorized Notes and Warrants not sold at prior Closings to such persons
as may be approved by the Board of Directors of the Company. All such sales shall be made
on the terms and conditions set forth in this Agreement, including, without limitation,
the representations and warranties by such Purchasers as set forth in Section 4 and
agreements provided in Section 7. Any Notes pursuant to this Section 2.3 shall be deemed
to be “Notes”for all purposes under this Agreement, any Warrants sold pursuant
to this Section 2.3 shall be deemed “Warrants”for all purposes under this
Agreement, and any purchasers thereof shall be deemed to be “Purchasers”for all
purposes under this Agreement. For subsequent sales of Notes and Warrants, they shall be
dated as of the date the Company is credited with readily available funds accepted by the
Company, irrespective of the subsequent Closing Date. The Company may reject and return
any funds received within five business days, in whole or in part, for any reason in its
sole discretion and in the event of over-subscription for the Securities may prorate the
Notes among subscribers in any manner the Company deems necessary or advisable.   

     3.     
REPRESENTATIONS AND WARRANTIES OF THE COMPANY  

              The Company
hereby represents and warrants to each Purchaser as of the date of this Agreement as
follows:  

             3.1.      
Organization, Good Standing and Qualification. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. The Company has
all requisite corporate power and authority to own and operate its properties and assets,
to execute and deliver this Agreement and the Notes and Warrants and to issue and sell
the Securities and the Warrant Shares and to carry out the provisions of this Agreement,
the Notes and the Warrants and to carry on its business as presently conducted and as
presently proposed to be conducted. The Company is duly qualified and is authorized to do
business and is in good standing as a foreign corporation in all jurisdictions in which
the nature of its activities and of its properties (both owned and leased) makes such
qualification necessary, except for those jurisdictions in which failure to do so would
not have a material adverse effect on the Company or its business.   

             3.2.      
Subsidiaries.
The Company operates through its wholly-owned subsidiary, e.Digital Corporation (a
California corporation) and has no ownership in other companies. The Company is not a
participant in any joint venture, partnership or similar arrangement.   

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             3.3.     Capitalization;
Voting Rights. The authorized capital stock of the Company consists of 200,000,000
shares of Common Stock, par value $.001 per share, and 5,000,000 shares of preferred
stock, par value $.001 per share. As of September 18, 2001 the Company had 74 shares of
convertible voting preferred stock outstanding designated as Series C Preferred Stock. As
of September 18, 2001, the Company had 130,175,406 shares of Common Stock outstanding. An
additional 7,569,632 shares of Common Stock are reserved for future issuance under the
Company’s stock option grants and pursuant to convertible securities, options and
warrants as summarized below:   

	 	 	Authorized Common
Shares Reserved
For Future Issuance 
	  	  	Outstanding Stock Option Grants 	  	5,839,000 	  
	  	  	Stock Purchase Warrants 	  	1,121,429 	  
	  	  	Series C Preferred Stock 	  	609,203 	  
	  	  	Total Unissued but Reserved for Issuance 	  	7,569,632 	  

	

     Accordingly,
the Company has either outstanding or reserved an aggregate of 137,745,038 of
the 200,000,000 authorized shares of Common Stock.  

     All
issued and outstanding shares of the Company’s Common Stock (a) have been
duly authorized and validly issued, and (b) are fully paid and nonassessable.
When issued in compliance with the provisions of this Agreement, the Notes and
the Warrant Shares will be validly issued, fully paid and nonassessable, and
will be free of any liens or encumbrances; provided, however, that the Notes,
Warrants and the Warrant Shares may be subject to restrictions on transfer under
state and/or federal securities laws as set forth herein or as otherwise
required by such laws at the time a transfer is proposed.  

             3.4.     
Reservation
of Shares. The Warrant Shares issuable upon exercise of the Warrants have been duly
authorized and reserved for future issuance.   

             3.5.     Authorization;
Binding Obligations. All corporate action on the part of the Company, its officers,
directors and stockholders necessary for the authorization of this Agreement and the
Notes and the Warrants, the performance of all obligations of the Company hereunder and
thereunder at the Closing or Closings and the authorization, sale, issuance and delivery
of the Securities pursuant hereto and the Warrant Shares on exercise of the Warrants has
been taken or will be taken prior to the Closing. The Agreement and the Notes and the
Warrants, when executed and delivered, will be valid and binding obligations of the
Company enforceable in accordance with their terms, except (a) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general application
affecting enforcement of creditors’rights; and (b) general principles of equity that
restrict the availability of equitable remedies. The sale of the Securities and the
subsequent exercise of the Warrants into Warrant Shares are not and will not be subject
to any preemptive rights or rights of first refusal that have not been properly waived or
complied with.   

             3.6.     SEC
Reports and Filings. The Company has delivered to Purchaser a complete and accurate
copy (excluding copies of exhibits) of its Annual Report on Form 10-KSB for the fiscal
year ended March 31, 2001, the latest Quarterly Report on Form 10-Q for the period ended
June 30, 2001 and definitive proxy statement filed by the Company on September 22, 2000
(the “SEC Documents”). The SEC Documents (i) complied with the requirements of
the Securities Act of 1933, as amended (the “Securities Act”) or the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), as the case may be, at
and as of the times they were filed (or, if amended or superseded by a filing prior to
the date of this Agreement, then on the date of such filing) in all material respects and
(ii) did not at and as of the time they were filed (or, if amended or superseded by a
filing prior to the date of this Agreement, then on the date of such filing) 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.   

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             3.7.     Changes.
Since the date of the last of the SEC Documents, there has been no material adverse
change in the business, operations or financial condition of the Company.   

             3.8.      Title
to Properties and Assets; Liens, etc. The Company has good and marketable title to
its properties and assets, including the properties and assets reflected in the most
recent balance sheet included in the SEC Documents, and good title to its leasehold
estates, in each case subject to no mortgage, pledge, lien, lease, encumbrance or charge,
other than (a) those resulting from taxes which have not yet become delinquent, (b) minor
liens and encumbrances which do not materially detract from the value of the property
subject thereto or materially impair the operations of the Company, and (c) those that
have otherwise arisen in the ordinary course of business. All facilities, machinery,
equipment, fixtures, vehicles and other properties owned, leased or used by the Company
are in good operating condition and repair and are reasonably fit and usable for the
purposes for which they are being used. The Company is in compliance with all material
terms of each lease to which it is a party or is otherwise bound.   

             3.9.     Compliance
with Other Instruments. The Company is not in violation or default of any term of its
Certificate of Incorporation or Bylaws, or of any provision of any mortgage, indenture,
contract, agreement, instrument or contract to which it is party or by which it is bound
or of any judgment, decree, order, writ or, to its knowledge, any statute, rule or
regulation applicable to the Company which would materially and adversely affect the
business, assets, liabilities, financial condition or operations of the Company. The
execution, delivery, and performance of and compliance with this Agreement, the Notes and
the Warrants, and the issuance and sale of the Securities pursuant hereto and of the
Warrant Shares, will not, with or without the passage of time or giving of notice, result
in any such material violation, or be in conflict with or constitute a default under any
such term, or result in the creation of any mortgage, pledge, lien, encumbrance or charge
upon any of the properties or assets of the Company or the suspension, revocation,
impairment, forfeiture or nonrenewal of any permit license, authorization or approval
applicable to the Company, its business or operations or any of its assets or properties.   

             3.10.     Litigation.
There is no action, suit, proceeding or investigation pending or to the Company’s
knowledge currently threatened in writing against the Company that questions the validity
of this Agreement or the Warrants or the right of the Company to enter into any of such
agreements, or to consummate the transactions contemplated hereby or thereby, or which
might result, either individually or in the aggregate, in any material adverse change in
the assets, condition or affairs of the Company, financially or otherwise, or any change
in the current equity ownership of the Company, nor is the Company aware that there is
any basis for the foregoing.   

             3.11.      Employees.
The Company has no collective bargaining agreements with any of its employees. There is
no labor union organizing activity pending or, to the Company’s knowledge,
threatened with respect to the Company.   

             3.12.      Compliance
with Laws; Permits. To its knowledge, the Company is not in violation of any
applicable statute, rule, regulation, order or restriction of any domestic or foreign
government or any instrumentality or agency thereof in respect of the conduct of its
business or the ownership of its properties which violation would materially and
adversely affect the business, assets, liabilities, financial condition or operations of
the Company. No governmental orders, permissions, consents, approvals or authorizations
are required to be obtained and no registrations or declarations are required to be filed
in connection with the execution and delivery of this Agreement and the issuance of the
Securities or the Warrant Shares, except such as has been duly and validly obtained or
filed, or with respect to any filings that must be made after the Closing, as will be
filed in a timely manner. The Company has all franchises, permits, licenses and any
similar authority necessary for the conduct of its business as now being conducted by it,
the lack of which could materially and adversely affect the business, properties,
prospects or financial condition of the Company and believes it can obtain, without undue
burden or expense, any similar authority for the conduct of its business as planned to be
conducted.   

     4.     
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.   

	 	     Each
Purchaser hereby represents and warrants to the Company as follows:  

	

4  

	

             4.1.      Requisite
Power and Authority. Purchaser has all necessary power and authority under all
applicable provisions of law to execute and deliver this Agreement and to carry out its
provisions. All action on Purchaser’s part required for the lawful execution and
delivery of this Agreement has been or will be effectively taken prior to the Closing.
Upon its execution and delivery, this Agreement will be a valid and binding obligation of
Purchaser, enforceable in accordance with its terms, except (a) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general application
affecting enforcement of creditors’rights, and (b) general principles of equity that
restrict the availability of equitable remedies.   

             4.2.      Investment
Representations. Purchaser understands that neither the Securities nor the Warrant
Shares have been registered under the Securities Act. Purchaser also understands that the
Securities are being offered and sold pursuant to an exemption from registration
contained in the Securities Act based in part upon Purchaser’s representations
contained in the Agreement. Purchaser hereby represents and warrants as follows:   

	 	
            
4.2.1. Purchaser Bears Economic Risk. Purchaser has substantial experience in evaluating
and investing in private placement transactions of securities in companies similar to the
Company so that it is capable of evaluating the merits and risks of its investment in the
Company and has the capacity to protect its own interests. Purchaser must bear the
economic risk of this investment indefinitely unless the Securities (or the Warrant
Shares) are registered pursuant to the Securities Act, or an exemption from registration
is available. Purchaser understands that other than pursuant to the terms of this
Agreement the Company has no present intention of registering the Securities, the Warrant
Shares or any shares of its Common Stock. Purchaser also understands that there is no
assurance that any exemption from registration under the Securities Act will be available
and that, even if available, such exemption may not allow Purchaser to transfer all or
any portion of the Securities or the Warrant Shares under the circumstances, in the
amounts or at the times Purchaser might propose. 

	 	

            
4.2.2. Acquisition for Own Account. Purchaser is acquiring the Securities and the Warrant Shares
for Purchaser's own account for investment only, and not with a view towards their
distribution.  

	 	            
4.2.3. Purchaser Can Protect Its Interest. Purchaser represents that by reason of its, or of its
management's, business or financial experience, Purchaser has the capacity to protect its
own interests in connection with the transactions contemplated in this Agreement.
Further, Purchaser is aware of no publication of any advertisement or other general
solicitation in connection with the transactions contemplated in the Agreement.  

	 	            
4.2.4. Accredited Investor. Purchaser represents that it is an accredited investor within the
meaning of Section 501(a) of the Securities Act or not a U.S. Person within the
definition set forth in Regulation S and not an affiliate of the Company.  

	 	            
4.2.5. Company Information. Purchaser has received and read the SEC Documents and has had an
opportunity to discuss the Company's business, management and financial affairs with
directors, officers and management of the Company and has had the opportunity to review
the Company's operations and facilities. Purchaser has also had the opportunity to ask
questions of and receive answers from, the Company and its management regarding the terms
and conditions of this investment.  

	 	            
4.2.6. Rule 144. Purchaser acknowledges and agrees that the Securities, and, if issued, the
Warrant Shares must be held indefinitely unless they are subsequently registered under
the Securities Act or an exemption from such registration is available. Purchaser has
been advised or is aware of the provisions of Rule 144 promulgated under the Securities
Act as in effect from time to time, which permits limited resale of shares purchased in a
private placement subject to the satisfaction of certain conditions, including, among
other things: the availability of certain current public information about the Company,
the resale occurring following the required holding period under Rule 144 and the number
of shares being sold during any three-month period not exceeding specified limitations.  

	

5  

	

	 	            
4.2.7. Residence. If the Purchaser is an individual, then the Purchaser resides in the country,
state or province identified in the address of the Purchaser set forth on Exhibit A; if
the Purchaser is a partnership, corporation, limited liability company or other entity,
then the office or offices of the Purchaser in which its investment decision was made is
located at the address or addresses of the Purchaser set forth on Exhibit A.  

	

     5.     
CONDITIONS TO CLOSING.  

             5.1.      
Conditions to Purchasers' Obligations at the Closing. Purchasers' obligations to purchase the
Securities at the Closing are subject to the satisfaction, at or prior to the Closing
Date, of the following conditions:   

	 	            
5.1.1.
Representations and Warranties True; Performance of Obligations. The representations and
warranties made by the Company in Section 3 hereof shall be true and correct in all
material respects as of the Closing Date with the same force and effect as if they had
been made as of the Closing Date, and the Company shall have performed all obligations
and conditions herein required to be performed or observed by it on or prior to the
Closing.  

	 	            
5.1.2.
Legal Investment. On the Closing Date, the sale and issuance of the Securities and the
proposed issuance of the Warrant Shares shall be legally permitted by all laws and
regulations to which Purchasers and the Company are subject.  

	 	            
5.1.3.
Consents, Permits, and Waivers. The Company shall have obtained any and all consents,
permits and waivers necessary or appropriate for consummation of the transactions
contemplated by the Agreement (except for such as may be properly obtained subsequent to
the Closing).  

	 	            
5.1.4.
Reservation of Warrant Shares. The Warrant Shares issuable upon exercise of the Warrants
shall be duly authorized and reserved for issuance upon such exercise.  

	 	            
5.1.5.
Security Agreement. The Company and its wholly-owned subsidiary, e.Digital Corporation, a
California corporation, shall execute and deliver a Security Agreement ("Security
Agreement") in the form attached hereto as Exhibit D, creating a security interest in the
Company's inventory and accounts receivable. The Security Agreement shall be perfected by
filing a Financing Statement on Form UCC-1 ("UCC-1") with such filing or filings to be
made as soon as practicable after the Closing.  

	

             5.2.      Conditions
to Obligations of the Company. The Company's obligation to issue and sell the
Securities at the Closing is subject to the satisfaction, on or prior to such Closing, of
the following conditions:  

	 	            
5.2.1.
Representations and Warranties True. The representations and warranties made by those
Purchasers acquiring Securities in Section 4 hereof shall be true and correct in all
material respects at the date of the Closing, with the same force and effect as if they
had been made on and as of said date.  

	 	            
5.2.2.
Performance of Obligations. Such Purchasers shall have performed and complied with all
agreements and conditions herein required to be performed or complied with by such
Purchasers on or before the Closing.  

	

6  

	

	 	            
5.2.3.
Consents, Permits, and Waivers. The Company shall have obtained any and all consents,
permits and waivers necessary or appropriate for consummation of the transactions
contemplated by the Agreement (except for such as may be properly obtained subsequent to
the Closing).  

	 	            
5.2.4.
Payment. The Company shall have obtained collected funds for the amount of the Notes
purchased by the Purchaser.  

	

     6.     
REGISTRATION RIGHTS AND PUBLIC OFFERING LOCKUP  

             6.1.      
Registration Rights. The Company is providing the following registration rights to the Purchasers in
connection with the Warrant Shares:   

	 	            
6.1.1.
If, at any time from issuance to September 30, 2006 (the "Exercise Period"), the Company
proposes to prepare and file any registration statements covering its Common Stock (in
either case, other than in connection with a merger or acquisition, pursuant to Form S-8
or any successor form, or pursuant to any other form or type of registration in which
Registrable Securities (as defined below) cannot be appropriately included)
(collectively, the "Registration Statements"), it will give written notice as provided
herein at least thirty (30) days prior to the filing of each such Registration Statement
to the then holders of the Warrants ("Holder") and/or Warrant Shares of its intention to
do so. If the Holders of the Warrants and/or Warrant Shares notify the Company within
twenty (20) days after receipt of any such notice of its or their desire to include the
shares of Common Stock issuable upon exercise of the Warrant or the Warrant Shares
(collectively, the "Registrable Securities") in such proposed registration statement, the
Company shall afford the Holders of the Warrant and/or Warrant Shares the opportunity to
have any such Registrable Securities registered under such registration statement at the
Company's sole cost and expense. 

	 	            
6.1.2.
Notwithstanding the provisions hereof, the Company shall have the right at any time after
it shall have given written notice pursuant hereto (irrespective of whether a written
request for inclusion of any such securities shall have been made) to elect not to file
any such proposed registration statement, or to withdraw the same after the filing but
prior to the effective date thereof. 

	 	            
6.1.3.
Notwithstanding any other provision of this Section 6, if the underwriter managing such
registration notifies the Holders in writing that market or economic conditions limit the
amount of securities which may reasonably be expected to be sold, the Holders of such
Registrable Securities will be allowed to register their Registrable Securities pro rata
based on the number of shares of Registrable Securities held by such Holders,
respectively. No Registrable Securities excluded from the underwriting by reason of the
underwriter's marketing limitation shall be included in such registration. 

	 	            
6.1.4.
Each Holder of Warrants and Warrant Shares to be sold pursuant to any Registration
Statement (each, a "Distributing Holder") shall severally, and not jointly, indemnify and
hold harmless the Company, its officers and directors, each underwriter and each person,
if any, who controls the Company and such underwriter, against any loss, claim, damage,
expense or liability, joint or several, as incurred, to which any of them may become
subject under the Securities Act or any other statute or at common law, in so far as such
loss, claim, damage, expense or liability (or actions in respect thereof) arises out of
or is based upon any untrue statement or alleged untrue statement of any material fact
contained in any such Registration Statement, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereto, or any omission or
alleged omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under which they
were made, not misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission was made in
reliance upon and in conformity with written information furnished to the Company by such
Distributing Holder specifically for use therein. Such Distributing Holder shall
reimburse the Company, such underwriter and each such officer, director or controlling
person for any legal or other expenses reasonably incurred by any of them in connection
with investigating or defending any such liability, as incurred. Notwithstanding the
foregoing, such indemnity with respect to such preliminary prospectus or such final
prospectus shall not inure to the benefit of the Company, its officers or directors, or
such underwriter (or such controlling person of the Company or the underwriter) if the
person asserting any such loss, claim, damage, expense or liability purchased the
securities that are the subject thereof and did not receive a copy of the final
prospectus (or the final prospectus as then amended, revised or supplemented) at or prior
to the time such furnishing is required by the Securities Act in any case where any such
untrue statement or omission of a material fact contained in the preliminary prospectus
was corrected in the final prospectus (or, if contained in the final prospectus, was
subsequently corrected by amendment, revision or supplement). 

	

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             6.2.     Public
Offering Lock-Up. In connection with any public registration of this Company’s
securities, the Holder (and any transferee of Holder) agrees, upon the request of the
Company or the underwriter(s) managing such offering of the Company’s securities,
not to sell, make any short sale of, loan, grant any option for the purchase of, or
otherwise dispose of this Warrant, any of the shares of Common Stock issuable upon
exercise of this Warrant without the prior written consent of the Company and such
underwriter(s), as the case may be, for a period of time not to exceed on hundred eighty
(180) days from the effective date of the registration. Upon request by the Company,
Holder (and any transferee of Holder) agrees to enter into any further agreement in
writing in a form reasonably satisfactory to the Company and/or such underwriter(s). The
Company may impose stop-transfer instructions with respect to the securities subject to
the foregoing restrictions until the end of said 180-day period. Any shares issued upon
exercise of this Warrant shall bear an appropriate legend referencing this lock-up
provision.   

     7.     
INTERCREDITOR AGREEMENT  

     Each
Note issued to a Purchaser is one of a duly authorized issue of Notes of the
Company designated as its 12% Secured Promissory Notes limited in aggregate
principal amount to $1,000,000. Each Purchaser understands and agrees that a
default is not an Event of Default (as defined in the Note) until the holders of
at least 25% in aggregate principal amount of the Notes then outstanding notify
the Company of such default and the Company does not cure it within sixty (60)
days after receipt of such notice, which must specify the default, demand that
it be remedied and state that it is a “Notice of Default.” If an Event
of Default occurs and is continuing, the Noteholder(s) by notice to the Company,
may declare the principal of and accrued interest on the Notes to be due and
payable immediately; provided, however, that the holders of at least 51% in
aggregate principal amount of the Notes then outstanding, by written notice to
the Company, may rescind and annul such declaration and its consequences.  

     The
Company shall only make principal reductions pro rata among the Noteholders.
Likewise any Noteholder who receives any payments or proceeds from any
enforcement of a security interest or any distribution in connection with a
bankruptcy, liquidation, reorganization, dissolution, winding-up or similar
proceedings, shall be obligated to pro rate such amounts among the other
Noteholders of the series.  

     8.     
MISCELLANEOUS  

             8.1.      
Governing Law. This Agreement shall be governed in all respects by the laws of the State of
California as such laws are applied to agreements between California residents entered
into and performed entirely in California.   

             8.2.     Survival.
The representations, warranties, covenants and agreements made herein shall survive any
investigation made by any Purchaser and the closing of the transactions contemplated
hereby. All statements as to factual matters contained in any certificate or other
instrument delivered by or on behalf of the Company pursuant hereto in connection with
the transactions contemplated hereby shall be deemed to be representations and warranties
by the Company hereunder solely as of the date of such certificate or instrument.   

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             8.3.     
Successors and Assigns. Except as otherwise expressly provided herein, the provisions hereof
shall inure to the benefit of, and be binding upon, the successors, assigns, heirs,
executors and administrators of the parties hereto and shall inure to the benefit of and
be enforceable by each person who shall be a holder of the Securities from time to time.   

             8.4.     
Entire Agreement. This Agreement, the Note, the Exhibits and Schedules hereto, the Warrants and
the other documents delivered pursuant hereto constitute the full and entire
understanding and agreement between the parties with regard to the subjects hereof and no
party shall be liable or bound to any other in any manner by any representations,
warranties, covenants and agreements except as specifically set forth herein and therein.   

             8.5.     Severability.
In case any provision of the Agreement shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.   

             8.6.     
Amendment and Waiver.   

	 	            
8.6.1.
This Agreement may be amended or modified only upon the written consent of the Company
and holders of at least fifty-one percent (51%) in the aggregate principal amount of the
Notes outstanding. 

	 	            
8.6.2.
The obligations of the Company and the rights of the holders of the Notes, the Warrants
and the Warrant Shares under the Agreement may be waived only with the written consent of
the holders of at least fifty-one percent (51%) in the aggregate principal amount of the
Notes outstanding. 

	

             8.7.      Delays
or Omissions. It is agreed that no delay or omission to exercise any right, power or
remedy accruing to any party, upon any breach, default or noncompliance by another party
under this Agreement, shall impair any such right, power or remedy, nor shall it be
construed to be a waiver of any such breach, default or noncompliance, or any
acquiescence therein, or of or in any similar breach, default or noncompliance thereafter
occurring. It is further agreed that any waiver, permit, consent or approval of any kind
or character on any Purchaser’s part of any breach, default or noncompliance under
this Agreement or any waiver on such party’s part of any provisions or conditions of
the Agreement must be in writing and shall be effective only to the extent specifically
set forth in such writing. All remedies, either under this Agreement, or otherwise
afforded to any party, shall be cumulative and not alternative.   

             8.8.      Notices.
All notices required or permitted hereunder shall be in writing and shall be deemed
effectively given: (a) upon personal delivery to the party to be notified; (b) when sent
by confirmed telex or facsimile if sent during normal business hours of the recipient, if
not, then on the next business day; (c) five (5) days after having been sent by
registered or certified mail, return receipt requested, postage prepaid; or (d) one (1)
day after deposit with a nationally recognized overnight courier, specifying next day
delivery, with written verification of receipt. All communications shall be sent to the
Company at the address as set forth on the signature page hereof and to Purchaser at the
address set forth on Exhibit A attached hereto or at such other address as the Company or
Purchaser may designate by ten (10) days advance written notice to the other parties
hereto.   

             8.9.      Expenses.
Each party shall pay all costs and expenses that it incurs with respect to the
negotiation, execution, delivery and performance of this Agreement, the Notes and the
Warrants.   

             8.10.      
Attorneys' Fees. In the event that any dispute among the parties to this Agreement should result in
litigation, the prevailing party in such dispute shall be entitled to recover from the
losing party all fees, costs and expenses of enforcing any right of such prevailing party
under or with respect to this Agreement, including without limitation, such reasonable
fees and expenses of attorneys and accountants, which shall include, without limitation,
all fees, costs and expenses of appeals.   

9  

	

             8.11.      Titles
and Subtitles. The titles of the sections and subsections of the Agreement are for
convenience of reference only and are not to be considered in construing this Agreement.   

             8.12.      Counterparts.
This Agreement may be executed at various dates by the Purchasers through September 28,
2001 in any number of counterparts, by facsimile, or both, each of which shall be an
original, but all of which together shall constitute one instrument. Subsequent sales
after a first Closing, as provided in Section 2.3, shall be added to this agreement to
constitute one instrument binding on all parties thereto.   

             8.13.      Broker’s
Fees. The parties acknowledge that the Company may issue up to 100,000 warrants in
payment of finders’fees in connection with the transactions contemplated herein.
Each party hereto represents and warrants that, except for the foregoing, no agent,
broker, investment banker, person or firm acting on behalf of or under the authority of
such party hereto is or will be entitled to any broker’s or finder’s fee or any
other commission directly or indirectly in connection with the transactions contemplated
herein. Each party hereto further agrees to indemnify each other party for any claims,
losses or expenses incurred by such other party as a result of the representation in this
Section 8.13 being untrue.   

             8.14.      Exculpation
Among Purchasers. Each Purchaser acknowledges that it is not relying upon any person,
firm, or corporation, other than the Company and its officers and directors, in making
its investment or decision to invest in the Company. Each Purchaser agrees that no
Purchaser nor the respective controlling persons, officers, directors, partners, agents,
or employees of any Purchaser shall be liable for any action heretofore or hereafter
taken or omitted to be taken by any of them in connection with the Securities, Notes and
Warrant Shares.  

             8.15.      Pronouns.
All pronouns contained herein, and any variations thereof, shall be deemed to refer to
the masculine, feminine or neutral, singular or plural, as to the identity of the parties
hereto may require.  

             8.16.      Arbitration.
Any controversy or claim relating to this Agreement or investment in the Notes, Warrants
or Warrant Shares shall be resolved before a panel of three arbitrators selected pursuant
to and run in accordance with the rules then prevailing of the American Arbitration
Association. Any such arbitration shall be held in San Diego, California. The prevailing
party in the arbitration shall be entitled to an award of all expenses and reasonable
attorneys’fees incurred in bringing or defending the arbitration.   

(The Remainder of
this Page is Intentionally Blank; Individual Signature Page(s) Follow)   

10  

	

In Witness Whereof, the parties
hereto have executed the 12% Secured Promissory Note and Warrant Purchase
Agreement as of September 27, 2001.  

	Company:

E.DIGITAL CORPORATION

13114 Evening Creek Drive South

San Diego, California  92128

By:  

            Alfred H. Falk

            President and CEO
  	 	
Purchaser:  

Name  

By:  

Title:  

Address:  

Tax ID#:  

	

E.DIGITAL CORPORATION
SIGNATURE PAGE TO PURCHASE AGREEMENT 

	

Exhibit 4.32   

LIST OF
EXHIBITS 

	 	 
	Schedule of Purchasers 	  	Exhibit A 	  
	  
	12% Secured Promissory Note 	  	Exhibit B 	  
	  
	Warrant Agreement 	  	Exhibit C 	  
	  
	Security Agreement 	  	Exhibit D 	  

	

Exhibit 4.32   

12% SECURED
PROMISSORY NOTE AND WARRANT PURCHASE AGREEMENT 

Exhibit A 

SCHEDULE OF PURCHASERS 

	 	 	 
	Name and Address 	  	Aggregate
Purchase Price and Note
Principal 	  	Shares of Common
Stock Underlying
WarrantE. Digital Corporation 10-Q Exhibit 43.3

	

Exhibit 4.33 

WARRANT SERIES
01W-A 

THE SECURITIES
REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE UPON EXERCISE
THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE “ SECURITIES ACT ”), OR UNDER ANY STATE SECURITIES LAWS, AND MAY
NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE ACT OR AN OPINION
OF COUNSEL SATISFACTORY TO THE COMPANY THAT AN EXEMPTION FROM SUCH REGISTRATION
IS AVAILABLE.  

THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER
SET FORTH HEREIN AND IN THAT CERTAIN 12% SECURED PROMISSORY NOTE AND WARRANT
PURCHASE AGREEMENT (“ PURCHASE AGREEMENT ”) THEREFOR BETWEEN THE COMPANY
AND THE ORIGINAL HOLDER HEREOF.  

E.DIGITAL
CORPORATION 

STOCK
PURCHASE WARRANT 

     THIS
CERTIFIES THAT, for value received, E.DIGITAL CORPORATION, a Delaware
corporation (the “ Company ”), hereby grants to                                         (“ Holder ”) the
right to purchase from the Company up to                                          (          ) shares of the Common Stock of the Company (the “ Warrant Shares ”),
subject to the following terms and conditions:  

     1.      Series.
This Warrant is one of a duly authorized series of warrants of the Company (which are
identical except for the variations necessary to express the identification numbers,
names of the holder, number of shares of Common Stock issuable upon exercise thereof and
warrant issue dates) designated as its “ 2001 Series A Warrants. ”  

     2.      Term.
This Warrant may be exercised in whole at any time during the period from the date of
issuance of this Warrant until 5:00 p.m., California time, on September 30, 2006 (the
“ Exercise Period ”).   

     3.      Purchase
Price. The purchase price for each Warrant Share purchasable hereunder shall be One
Dollar and 40/100‘s (U.S. $1.40), as adjusted from time-to-time pursuant to Section
10 hereof (the “ Warrant Exercise Price ”).   

     4.      Exercise
of Warrant. The purchase rights represented by this Warrant may be exercised by the
Holder, in whole or in part, at any time and from time to time before the end of the
Exercise Period by surrender of this Warrant at the principal office of the Company in
San Diego, California (or such other office or agency of the Company as may be designated
by notice in writing to the Holder at the address of the Holder appearing on the books of
the Company), together with the Notice of Exercise annexed hereto duly completed and
executed on behalf of the Holder accompanied by payment in full of the amount of the
aggregate Warrant Exercise Price in immediately available funds in United States Dollars.
Certificates for shares purchased hereunder shall be delivered to the Holder within
thirty (30) business days after the date on which this Warrant shall have been exercised
as aforesaid, but Holder shall be deemed the record owner of such Warrant Shares as of
and from the close of business on the date on which this Warrant shall be surrendered.
The Holder may also designate that the Company apply any note obligation balance owed
Holder by the Company towards the exercise price of this Warrant.   

     5.      Net
Issuance Option. At the option of the Holder, in lieu of payment of the Warrant
Exercise Price, the Holder may request in writing that the Company issue to it the net
Warrant Shares issuable determined in accordance with the following formula:   

	  	  	NS 	  	= 	  	WS - [EP/CMP x WS] 	  
	  	  	NS 	  	= 	  	New Shares 	  
	  	  	WS 	  	= 	  	No. of Warrant Shares issuable upon exercises of the warrants 	  
	  	  	EP 	  	= 	  	Exercise Price 	  
	  	  	CMP 	  	= 	  	Current Market Price (defined as the closing bid price on
                                                                          the date of the request) 	  

	

     6.      Fractional
Interest. The Company shall not be required to issue any fractional shares on the
exercise of this Warrant.  

     7.      Warrant
Confers No Rights of Shareholder. Holder shall not have any rights as a shareholder
of the Company with regard to the Warrant Shares prior to actual exercise resulting in
the purchase of the Warrant Shares.  

     8.      Investment
Representation. Neither this Warrant nor the Warrant Shares issuable upon the
exercise of this Warrant have been registered under the Securities Act, or under any
applicable state securities laws. Holder acknowledges by acceptance of this Warrant that
(a) it has acquired this Warrant for investment and not with a view toward distribution;
(b) it has a pre-existing personal or business relationship with the Company, or its
executive officers, or by reason of its business or financial experience it has the
capacity to protect its own interests in connection with the transaction; and (c) except
as so notified to the Company in writing, it is an accredited investor as that term is
defined in Regulation D promulgated under the Securities Act or not a U.S. Person within
the definition set forth in Regulation S and not an affiliate of the Company. Holder
agrees that any Warrant Shares issuable upon exercise of this Warrant will be acquired
for investment and not with a view toward distribution; and acknowledges that to the
extent such Warrant Shares will not be registered under the Securities Act and applicable
state securities laws, that such Warrant Shares may have to be held indefinitely unless
they are subsequently registered or qualified under the Securities Act and applicable
state securities laws; or, based on an opinion of counsel reasonably satisfactory to the
Company, an exemption from such registration and qualification is available. Holder, by
acceptance hereof, consents to the placement of the following restrictive legends, or
similar legends, on each certificate to be issued to Holder by the Company in connection
with the issuance of such Warrant Shares:   

	 	
THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER ANY STATE SECURITIES LAWS, AND MAY NOT BE
OFFERED, SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE CORPORATION THAT AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.  

	 	
THE
SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON
TRANSFER SET FORTH IN THAT CERTAIN PURCHASE AGREEMENT THEREFOR BETWEEN THE CORPORATION
AND THE ORIGINAL HOLDER HEREOF.  

	

     9.      Reservation
of Shares. The Company agrees at all times during the Exercise Period to take all
reasonable steps to have authorized and reserved, for the exclusive purpose of issuance
and delivery upon exercise of this Warrant, a sufficient number of shares of its Common
Stock to provide for the exercise of the rights represented hereby.   

     10.    Adjustments.
If the Company at any time during the Exercise Period shall, by subdivision, combination
or re-classification of securities, change any of the securities to which purchase rights
under this Warrant exist under the same or different number of securities of any class or
classes, this Warrant shall thereafter entitle the Holder to acquire such number and kind
of securities as would have been issuable as a result of such change with respect to the
Warrant Shares immediately prior to such subdivision, combination or re-classification.
If shares of the Company’s Common Stock are subdivided into a greater number of
shares of Common Stock, the purchase price for the Warrant Shares upon exercise of this
Warrant shall be proportionately reduced and the Warrant Shares shall be proportionately
increased; and conversely, if shares of the Company’s Common Stock are combined into
a smaller number of Common Stock shares, the price shall be proportionately increased,
and the Warrant Shares shall be proportionately decreased. If the Company at any time
during the Exercise Period shall sell shares of Common Stock (or securities convertible
into shares of Common Stock) at a price per share (or having a conversion price per
share, if a security convertible into Common Stock) which is less than the Warrant
Exercise Price specified in Section 3, then the Warrant Exercise Price shall be reduced
to equal the lower offering price. Holder expressly acknowledges that no adjustment shall
occur hereunder as a result of the sale or issuance of Common Stock (or securities
convertible into shares of Common Stock) by the Company pursuant to (i) presently
outstanding convertible securities, (ii) employee benefit plans, (iii) stock option
plans, (iv) mergers or acquisitions and/ or (v) other non-cash transactions.   

	

     11.    Public
Offering Lock-Up. In connection with any public registration of this Company’s
securities, the Holder (and any transferee of Holder) agrees, upon the request of the
Company or the underwriter(s) managing such offering of the Company’s securities,
not to sell, make any short sale of, loan, grant any option for the purchase of, or
otherwise dispose of this Warrant, any of the shares of Common Stock issuable upon
exercise of this Warrant without the prior written consent of the Company and/or such
underwriter(s), as the case may be, for a period of time not to exceed on hundred eighty
(180) days from the effective date of the registration. Upon request by the Company,
Holder (and any transferee of Holder) agrees to enter into any further agreement in
writing in a form reasonably satisfactory to the Company and such underwriter(s). The
Company may impose stop-transfer instructions with respect to the securities subject to
the foregoing restrictions until the end of said 180-day period. Any shares issued upon
exercise of this Warrant shall bear an appropriate legend referencing this lock-up
provision.   

     12.    Registration
Rights.  

              
a.      If,
at any time during the Exercise Period, the Company proposes to prepare and file any
registration statements covering its Common Stock (in either case, other than in
connection with a merger or acquisition, pursuant to Form S-8 or any successor form, or
pursuant to any other form or type of registration in which Registrable Securities (as
defined below) cannot be appropriately included) (collectively, the “ Registration
Statements ”), it will give written notice as provided herein at least thirty (30)
days prior to the filing of each such Registration Statement to the Holders of the
Warrants and/or Warrant Shares of its intention to do so. If the Holders of the Warrants
and/or Warrant Shares notify the Company within twenty (20) days after receipt of any
such notice of its or their desire to include the shares of Common Stock issuable upon
exercise of the Warrant or the Warrant Shares (collectively, the “ Registrable
Securities ”) in such proposed registration statement, the Company shall afford the
Holders of the Warrant and/or Warrant Shares the opportunity to have any such Registrable
Securities registered under such registration statement at the Company’s sole cost
and expense.   

              
b.      Notwithstanding the provisions hereof, the Company shall have the right at any time after
it shall have given written notice pursuant hereto (irrespective of whether a written
request for inclusion of any such securities shall have been made) to elect not to file
any such proposed registration statement, or to withdraw the same after the filing but
prior to the effective date thereof.   

              
c.      Notwithstanding
any other provision of this Section, if the underwriter managing such registration
notifies the Holders in writing that market or economic conditions limit the amount of
securities which may reasonably be expected to be sold, the Holders of such Registrable
Securities will be allowed to register their Registrable Securities pro rata based on the
number of shares of Registrable Securities held by such Holders, respectively. No
Registrable Securities excluded from the underwriting by reason of the underwriter’s
marketing limitation shall be included in such registration.   

              
d.      Each
Holder of Warrants and Warrant Shares to be sold pursuant to any Registration Statement
(each, a “ Distributing Holder ”) shall severally, and not jointly, indemnify and
hold harmless the Company, its officers and directors, each underwriter and each person,
if any, who controls the Company and such underwriter, against any loss, claim, damage,
expense or liability, joint or several, as incurred, to which any of them may become
subject under the Securities Act or any other statute or at common law, in so far as such
loss, claim, damage, expense or liability (or actions in respect thereof) arises out of
or is based upon any untrue statement or alleged untrue statement of any material fact
contained in any such Registration Statement, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereto, or any omission or
alleged omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under which they
were made, not misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission was made in
reliance upon and in conformity with written information furnished to the Company by such
Distributing Holder specifically for use therein. Such Distributing Holder shall
reimburse the Company, such underwriter and each such officer, director or controlling
person for any legal or other expenses reasonably incurred by any of them in connection
with investigating or defending any such liability, as incurred. Notwithstanding the
foregoing, such indemnity with respect to such preliminary prospectus or such final
prospectus shall not inure to the benefit of the Company, its officers or directors, or
such underwriter (or such controlling person of the Company or the underwriter) if the
person asserting any such loss, claim, damage, expense or liability purchased the
securities that are the subject thereof and did not receive a copy of the final
prospectus (or the final prospectus as then amended, revised or supplemented) at or prior
to the time such furnishing is required by the Securities Act in any case where any such
untrue statement or omission of a material fact contained in the preliminary prospectus
was corrected in the final prospectus (or, if contained in the final prospectus, was
subsequently corrected by amendment, revision or supplement).   

	

     13.    Assignment.
With respect to any offer, sale or other disposition of this Warrant or any underlying
securities, the Holder will give written notice to the Company prior thereto, describing
briefly the manner thereof, together with a written opinion of such Holder’s
counsel, to the effect that such offer, sale or other distribution may be effected
without registration or qualification (under any applicable federal or state law then in
effect). Furthermore, no such transfer shall be made unless the transferee meets the same
investor suitability standards set forth in Section 7 of this Warrant. Upon receiving
such written notice and reasonably satisfactory opinion, if so requested, the Company, as
promptly as practicable, shall notify such Holder that such Holder may sell or otherwise
dispose of this Warrant or the underlying securities, as the case may be, all in
accordance with the terms of the written notice delivered to the Company. If a
determination has been made pursuant to this Section 12 that the opinion of counsel for
the Holder is not reasonably satisfactory to the Company, the Company shall so notify the
Holder promptly after such determination has been made. Each Warrant thus transferred
shall bear the same legends appearing on this Warrant, and underlying securities thus
transferred shall bear the legends required by Section 7. The Company may impose
stop-transfer instructions in connection with such restrictions. Subject to any
restrictions on transfer described elsewhere herein, the rights and obligations of the
Company and the Holder of this Warrant shall be binding upon and benefit the successors,
assigns, heirs, administrators and transferees of the parties hereto.   

     14.    Notice.
Any notice, demand, consent or other communication hereunder shall be in writing
addressed to the other party at its principal office or, in respect of Holder, as its
address as shown on the books of the Company, or to such other address as such party
shall have theretofore furnished by like notice, and either served personally, sent by
express, registered or certified first class mail, postage prepaid, sent by facsimile
transmission, or delivered by reputable commercial courier. Such notice shall be deemed
given (i) when so personally delivered, or (ii) if mailed as aforesaid, five (5) days
after the same shall have been posted, or (iii) if sent by facsimile transmission, as
soon as sender receives written or telephonic confirmation that the message has been
received and such facsimile is followed the same day by mailing by prepaid first class
mail, or (iv) if delivered by commercial courier, upon receipt.   

     15.    
Governing Law. This Warrant shall be governed by and construed in accordance with the
laws of the State of California, applicable to contracts between California residents
entered into and to be performed entirely within the State of California.   

     16.    
Fees. If any action at law or in equity is necessary to enforce or interpret the terms of
this Warrant, the prevailing party shall be entitled to reasonable attorneys’ fees, costs
and disbursements in addition to any other relief to which such party may be entitled.   

     17.    
Descriptive Headings. The headings used herein are descriptive only and for the
convenience of identifying provisions, and are not determinative of the meaning or effect
of any such provisions.   

     IN
WITNESS WHEREOF, the Company has caused this Warrant to be executed by its
duly authorized officer this day of September, 2001.  

	 	 	E.DIGITAL CORPORATION

By: /s/ ALFRED H. FALK
——————————————

ALFRED H. FALK
Authorized Officer  

	

NOTICE OF
EXERCISE

COMMON STOCK PURCHASE WARRANT 

	To:  	 	E.DIGITAL
CORPORATION  

	

            (1)            
The undersigned hereby elects to purchase                      shares
of Common Stock of e.Digital Corporation, pursuant to the terms of the attached Warrant,
and either tenders herewith payment in full of the purchase price for such shares or $                     or,   

            (2)            
Requests the Company reduce the amount of 12% Secured Promissory Notes due to the
undersigned in the amount of $                     as
the Warrant Exercise Price; or   

            (3)            
Requests the Company to issue to the undersigned                      shares
of Common Stock of e.Digital Corporation, pursuant to the terms of Section 5 of the
attached Warrant on a net issuance basis.   

            (4)            
In exercising this Warrant, the undersigned hereby confirms and acknowledges that the shares
of Common Stock are being acquired solely for the account of the undersigned and not as a
nominee for any other party, for investment, and that the undersigned will not offer,
sell or otherwise dispose of any such shares of Common Stock except under circumstances
that will not result in a violation of the Securities Act of 1933, as amended, or any
state securities laws.   

            (5)            
Please issue a certificate representing said shares of Common Stock in the name of the
undersigned.  

            (6)            
Please issue a new Warrant for the unexercised portion of the attached Warrant in the
name of the undersigned.   

	Date:                     , 20         	 	
————————————————————
(Name)

————————————————————
(Signature)

————————————————————

————————————————————
(Print Address)

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