EMPLOYMENT AGREEMENT

A.           The Company desires assurance of the continued association and services of the Executive in order to retain the Executive’s experience, skills, abilities, background and knowledge, and is willing to engage the Executive’s services on the terms and conditions set forth in this Agreement.

1.1   Term.   The Company hereby employs the Executive, and the Executive hereby accepts employment by the Company, upon the terms and conditions set forth in this Agreement, until the termination of the Executive’s employment in accordance with Section 4 below, as applicable (the “ Term ”).  The Executive shall be employed at will, meaning that either the Company or the Executive may terminate this agreement and the Executive’s employment at anytime, for any reason or no reason, with or without cause, without liability to the other save for wages earned through the effective date of termination and severance compensation and benefits provided in Section 4, as applicable.

1.2   Title.   The Executive shall have the title of Chief Financial Officer (“ CFO ”) of the Company and shall serve in such other capacity or capacities as the Board of Directors of the Company (the “ Board ”) or the Company’s President and Chief Executive Officer (“ CEO ”) may from time to time prescribe with the Executive’s consent.

1.4   Policies and Practices.   The employment relationship between the Parties shall be governed by the policies and practices established from time to time by the Company and the Board.

1.5   Location.   Unless the Parties otherwise agree in writing, during the term of this Agreement, the Executive shall perform the services the Executive is required to perform pursuant to this Agreement at the Company’s offices, located in El Cajon, California, or, with the consent of the Company and the Executive, at any other place at which the Company maintains an office; provided, however, that the Company may from time to time require the Executive to travel temporarily to other locations in connection with the Company’s business.

2.1   Loyalty.   During the Executive’s employment by the Company, the Executive shall devote the Executive’s full business energies, interest, abilities and productive time to the proper and efficient performance of the Executive’s duties under this Agreement.  Notwithstanding the foregoing, the Executive may engage in personal, investment, civic, and charitable activities to the extent they do not unreasonably interfere with the Executive’s performance of his duties under this Agreement or violate paragraphs 2.2 or 2.3 of this Agreement.

2.2   Covenant not to Compete.   Except with the prior written consent of the  Board, the Executive will not, during the Term of this Agreement, engage in competition with the Company and/or any of its Affiliates, either directly or indirectly, in any manner or capacity, as adviser, principal, agent, affiliate, promoter, partner, officer, director, employee, stockholder, owner, co-owner, consultant, or member of any association or otherwise, in any phase of the business of developing, manufacturing and marketing of products or services which are in the same field of use or which otherwise compete with the products or services or proposed products or services of the Company and/or any of its Affiliates.  For purposes of this Agreement, “ Affiliate ” means, with respect to any specific entity, any other entity that, directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with such specified entity.  Ownership by the Executive, as a passive investment, of less than two percent (2%) of the outstanding shares of a capital stock of any corporation with one or more classes of its capital stock listed on a national or foreign securities exchange or publicly traded on the Nasdaq Stock Market or in the over-the-counter market shall not constitute a breach of this paragraph.

2.3   Agreement not to Participate in Company’s Competitors.   During the Term, the Executive agrees not to acquire, assume or participate in, directly or indirectly, any position, investment or interest known by the Executive to be adverse or antagonistic to the Company, its business or prospects, financial or otherwise or in any company, person or entity that is, directly or indirectly, in competition with the business of the Company or any of its Affiliates.  Ownership by the Executive, as a passive investment, of less than two percent (2%) of the outstanding shares of capital stock of any corporation with one or more classes of its capital stock listed on a national or foreign securities exchange or publicly traded on the Nasdaq Stock Market or in the over-the-counter market shall not constitute a breach of this paragraph.

3.1   Base Salary.   The Company shall pay the Executive a base salary of Two Hundred Twenty Five Thousand dollars ($225,000) per year, less payroll deductions and all required withholdings payable in regular periodic payments in accordance with Company policy (the “ Base Salary ”).  Such Base Salary shall be prorated for any partial year of employment on the basis of a 365 day fiscal year.  The Board, or its Compensation Committee will review the Executive’s rate of Base Salary on an annual basis and may, in its sole discretion, increase (but not decrease) the rate then in effect.

3.2   Annual Discretionary Bonus.   In addition to the Executive’s Base Salary, the Executive will be eligible to receive an annual incentive bonus for each fiscal year.  The Executive’s initial target annual incentive bonus for each fiscal year during the Term shall be 35% of the annual Base Salary amount, subject to any discretionary increase or decrease in such amount by the Board or its Compensation Committee. The incentive bonus amount the Executive will actually receive, if any, shall be determined in the sole discretion of the Compensation Committee of the Board by evaluating the Executive’s and the Company’s performance against milestones and targets established by the Compensation Committee in consultation with the Executive.  Any annual incentive bonus shall be paid to the Executive no later than the fifteenth day of the third month following the fiscal year for which such bonus was earned.

3.3   Reductions to Compensation.   The Executive’s compensation may be reduced only by mutual agreement of the Executive and the Company.

3.4   Employment Taxes.   All of the Executive’s compensation shall be subject to customary withholding taxes and any other employment taxes as are commonly required to be collected or withheld by the Company.

3.5   Benefits.   The Executive shall, in accordance with Company policy and the terms of the applicable plan documents, be eligible to participate in benefits under any executive benefit plan or arrangement that may be in effect from time to time and is made generally available to the Company’s executive or key management employees, including but not limited to paid vacation and medical insurance, provided that, the Executive shall receive not less than four (4) weeks paid vacation per year.

3.6   Stock Awards.   The Company may grant the Executive stock awards at such times and on such terms as may be decided from time to time by the Board or its Compensation Committee, in its sole discretion.  Notwithstanding any contrary provisions of the Executive’s previously granted stock options, in connection with any termination of the Executive’s employment for any reason other than for Cause (as defined in Section 4.3(b) below), the Executive shall have a period of not less than one hundred twenty (120) days following such termination to exercise the Executive’s then outstanding stock options, but in no event beyond the maximum permitted expiration date ( e.g. , expiration of the five (5) year term) of such stock options.

3.7   Legal Expenses.   The Company will directly pay Cooley Godward Kronish LLP all legal fees incurred by the Executive in connection with the preparation and negotiation of this Agreement.

3.8   Deferred Compensation Plan.   At the Executive’s election, the Company shall, subject to the approval of the Compensation Committee of the Board, at its expense establish a non-qualified deferred compensation plan that permits the Executive to elect to defer taxation on his Base Salary and bonus payments and any stock unit awards that may be granted by the Company to the Executive (the “ Deferred Compensation Plan ”).  Any such Deferred Compensation Plan shall be established in accordance with the requirements of Section 409A of the Code, and may, subject to the approval of the Compensation Committee of the Board, permit other highly compensated senior executives of the Company to participate.

3.9   Expenses.

(a)   Ordinary Business Expenses.   The Executive is authorized to incur reasonable expenses in the conduct of the business of the Company, including expenses for meals, travel, and other similar items.  The Company shall prepay or reimburse the Executive for all such expenses.

(b)      Expense Prepayment and Reimbursement Procedures. All prepayments and reimbursements of the Executive’s expenses pursuant to this Section 3.9 are subject to the Executive’s provision of invoices, an itemized accounting or other appropriate documentation evidencing such expenses no later than six (6) months following the date such expenses were incurred.  Any reimbursement payment shall be made by the Company as soon as practicable following its receipt of such documentation, but in no event later than the end of the Executive’s taxable year following the year in which the Executive incurred such expenses.

4.1   Termination.   If the Executive’s employment is terminated (either by the Company or by the Executive) then the Company shall pay to the Executive or the Executive’s heirs the Executive’s Base Salary, any bonus awarded under Section 3.2 not previously paid, and any accrued and unused vacation benefits, each as earned through the date of termination at the rate then in effect, less standard deductions and withholdings, and the Company shall thereafter have no further obligations to the Executive and/or the Executive’s heirs under this Agreement, except as expressly otherwise provided in this Section 4.  If the Executive’s employment terminates due to the Executive’s death or Complete Disability (as defined below), the Company shall provide to the Executive (or the Executive’s beneficiaries, as applicable) the severance benefits described in Section 4.2.

4.2   Benefits Upon Termination Without Cause or for Good Reason.   In the event the Executive’s employment with the Company is terminated by the Company without Cause (as defined below) or the Executive terminates his employment for Good Reason (as defined below), then subject to the Executive’s delivery to the Company of a Release and Waiver in the form attached hereto as Exhibit A within the applicable time period set forth therein, but in no event later than forty-five (45) days following termination of the Executive’s employment, and permitting such Release and Waiver to become fully effective in accordance with its terms, (the date the Executive’s Release becomes fully effective, the “ Release Effective Date ”), the Company shall provide the Executive with the following severance benefits hereunder, as applicable:

(a)   the Executive shall be entitled to severance pay in the form of a single lump sum payment equal to seventy-five percent (75%) of “Executive’s Annual Base Compensation Amount” (the “ Cash Severance Benefits ”).  “ Executive’s Annual Base Compensation Amount ” means the Executive’s annual Base Salary then in effect.  For purposes of calculating the Executive’s Annual Base Compensation Amount, the Executive’s Base Salary shall be calculated based on the rate in effect prior to any material reduction in Base Salary that would give the Executive the right to resign for Good Reason, as defined below. Such Cash Severance Benefits payment shall be subject to standard deductions and withholdings and paid in accordance with the Company’s regular payroll policies and practices in the first payroll period following the Release Effective Date.

(b)   should the Executive elect to continue group health and dental insurance benefits in accordance with the provisions of COBRA following the date of termination, the Company shall pay the full premium for such health and dental insurance continuation benefits for the Executive and the Executive’s eligible dependents for a period of nine (9) months after the termination date (the “ Continuation Period ”).  If the Company ceases to provide group health and dental benefits and the Executive converts to an individual policy or policies that provide a substantially similar level of coverage as the Company’s benefit plans did prior to their termination, the Company shall reimburse the Executive’s actual premium costs for such continued health and dental coverage under the individual policy or policies for the duration of the Continuation Period.  If such reimbursement is not exempt from application of Section 409A of the Code, such reimbursement shall occur strictly in accordance with the procedures established under Section 3.9(c).

(c)   notwithstanding any contrary terms of any stock option grants, any outstanding vested stock options held by the Executive at the date of such termination shall continue to be exercisable for a period of up to one hundred twenty (120) days following such termination, but in no event beyond the maximum permitted expiration date ( e.g. , expiration of the five (5) year term) of such stock options..

4.3   Definitions.   For purposes of this Agreement, the following terms shall have the following meanings:

(a)   Good Reason.   “ Good Reason ” for the Executive to terminate the Executive’s employment hereunder shall mean the occurrence of any of the following events without the Executive’s consent; provided however, that any resignation by the Executive due to any of the following conditions shall only be deemed for Good Reason if: (i) the Executive gives the Company written notice of the intent to terminate for Good Reason within ninety (90) days following the first occurrence of the condition(s) that the Executive believes constitutes Good Reason, which notice shall describe such condition(s); (ii) the Company fails to remedy, if remediable, such condition(s) within thirty (30) days following receipt of the written notice (the “ Cure Period ”) of such condition(s) from the Executive; and (iii) the Executive actually resigns his employment within the first ninety (90) days after expiration of the Cure Period.

(i)   a material reduction by the Company of the Executive’s Base Salary or target bonus percentage as initially set forth herein or as the same may be increased from time to time;

(ii)   a material reduction by the Company of the Executive’s authority, duties or responsibilities;

(iii)   the material relocation of the Company’s offices that requires an increase in the Executive’s one-way driving distance by more than fifty (50) miles;

(iv)   a material diminution in the authorities, duties or responsibilities of the supervisor to whom the Executive is required to report;

(v)   a  material breach of this Agreement by the Company; or

(vi)   a material diminution in the budget over which the Executive retains authority (unless such diminution relates to a spin-off, spinout, reorganization, sale of assets or other similar transaction).

(b)   Cause.   “ Cause ” shall mean that one or more of the following has occurred:

(i)          the Executive has been convicted of a felony crime involving fraud, dishonesty or violence (under the laws of the United States or any relevant state, in the circumstances, thereof);

(ii)   the Executive has intentionally and willfully engaged in material acts of fraud, dishonesty or gross misconduct that have a material adverse effect on the Company, unless the Executive believed in good faith that such acts were in the best interests of the Company;

(iii)     the Executive intentionally and willfully refuses to perform his duties under this Agreement after there has been delivered to the Executive a written demand for performance from the Company which describes the basis for the Company’s belief that the Executive has violated his obligation to perform his duties to the Company; or

(iv)   any intentional material breach by the Executive of the Employee Proprietary Information and Inventions Agreement referred to in Section 8.1, any provision of Section 8.2 of this Agreement, or any other confidentiality agreement he is a party to with the Company.

(c)   Complete Disability.   “ Complete Disability ” shall mean the inability of the Executive to perform the Executive’s duties under this Agreement because the Executive has become permanently disabled within the meaning of any policy of disability income insurance covering employees of the Company then in force.  In the event the Company has no policy of disability income insurance covering employees of the Company in force when the Executive becomes disabled, the term Complete Disability shall mean the inability of the Executive to perform the Executive’s duties under this Agreement by reason of any incapacity, physical or mental, which the Board, based upon medical advice or an opinion provided by a licensed physician acceptable to the Board, determines to have incapacitated the Executive from satisfactorily performing the Executive’s usual services for the Company for a period of at least one hundred eighty (180) consecutive days during any 12-month period.

5.1   Change of Control Severance.   In the event that within twelve (12) months following a Change of Control either: (A) the Executive’s employment with the Company is terminated by the Company without Cause (as defined in Section 4.3), or (B) a condition arises that triggers the Executive’s right to give notice of resignation for Good Reason (as defined in Section 4.3), and the Executive actually terminates his employment for Good Reason , within the applicable time periods thereafter as provided under Section 4.3, in either case subject to fulfillment of the Release and Waiver requirements of Section 4.2, the Company shall provide the Executive with the following severance benefits:

(a)   In addition to the cash severance payable under Section 4.2(a), the Executive shall be entitled to severance pay in the form of a single lump sum payment equal to (A) one hundred percent (100%) of Executive’s Annual Base Compensation Amount, plus (B) the average annual bonus actually payable for the last two (2) fiscal years of the Company (with the target bonus used in lieu of the actual bonus if less than two (2) years of bonus history are in existence).

(b)   Notwithstanding any vesting terms of any stock option grants, the vesting of all outstanding stock options held by the Executive will automatically accelerate and any outstanding stock options held by the Executive as of the date of such termination shall continue to be exercisable for twelve (12) months (rather than one hundred twenty (120) days) following such termination, but in no event beyond the maximum permitted expiration date ( e.g. , expiration of the five (5) year term) of such stock options.

5.2   Definitions.   For purposes of this Section 5, the following definitions shall apply:

(a)   Change of Control.   “ Change of Control ” shall mean the occurrence of any of the following events:

(i)   the closing of the sale, transfer or other disposition of all or substantially all of the Company’s assets or the exclusive license of substantially all of the intellectual property of the Company material to the business of the Company resulting in the Company being unable to continue its business as in effect prior to such license; provided, however, that a mortgage, pledge or grant of a security interest to a bona fide lender shall not by itself constitute a Change of Control;

(ii)   the consummation of a merger or consolidation of the Company with or into another entity in which the stockholders of the Company exchange their shares of capital stock of the Company for cash, stock, property or other consideration (except one in which the stockholders of the Company as constituted immediately prior to such transaction continue to hold after the transaction at least 70% of the voting power of the capital stock of the Company or the surviving or acquiring entity or parent entity of the surviving or acquiring entity);

(iii)   the closing of the acquisition, in one transaction or a series of related transactions by a person or group of affiliated persons (other than an underwriter of the Company’s securities), of beneficial ownership of 30% or more of the outstanding voting stock of the Company;

(iv)   individuals who, on the Effective Date of this Agreement are members of the Board (the “ Incumbent Board” ) cease for any reason to constitute at least a majority of the members of the Board; provided, however, that if the appointment or election (or nomination for election) of any new Board member was approved or recommended by a majority vote of the members of the Incumbent Board then still in office, such new member shall, for purposes of this Plan, be considered as a member of the Incumbent Board;

(v)   provided, however, that a transaction under clauses (ii) or (iii) above shall not constitute a Change of Control: (A) if its primary purpose is to change the state of the Company’s incorporation, (B) if its primary purpose is to create a holding company that will be owned in substantially the same proportions by the persons who held the Company’s securities immediately prior to such transaction, or (C) if it is a bona fide equity financing in which the Company is the surviving corporation.

6.1   Notwithstanding anything contained in this Agreement to the contrary, to the extent that any payment or benefit (within the meaning of Section 280G(b)(2) of the Code to the Executive or for the Executive’s benefit, paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise in connection with, or arising out of, the Executive’s employment with the Company or a Change of Control (a “ Payment ” or “ Payments ”), would be subject to the excise tax imposed under Code Section 4999, or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the “ Excise Tax ”), the Payments shall be reduced (but not below zero) if and to the extent that a reduction in the Payments would result in the Executive retaining a larger amount, on an after-tax basis (taking into account federal, state and local income taxes and the Excise Tax), than if the Executive received all of the Payments (any such reduced amount is hereinafter referred to