EMPLOYMENT AGREEMENT

(ii)           Incentive Payments.

(1)           The Employee shall be entitled to receive a percentage of each of the Employee’s Target Incentives for any on-going calendar period in which such termination occurs.  Such percentage shall equal a fraction, the numerator of which shall be the number of days in such calendar period up to and including the date of such termination and the denominator of which shall be the number of days in such calendar period.  Such amount shall be payable according to the normal practice of the Company with respect to the payment of such compensation.  “Target Incentive” shall mean the maximum amount payable to the Employee at the end of a calendar period under any Company bonus or incentive program if all of such program’s corporate and individual performance objectives for that period are met.  “Target Incentive” does not include amounts payable under the Company’s 3-year bonus program.

(2)           The unvested portion of any bonus accrued for Employee under the Company’s 3-year bonus program shall vest and become payable in full in a lump sum as soon as administratively practicable following the date of termination.

(iii)         Equity Awards.  The unvested portion of any stock option(s) or other equity award(s) held by the Employee under the Company’s equity plans shall vest and become exercisable in full upon the date of such termination.  The Employee shall be entitled to exercise all of the Employee’s vested stock options until the later of (A) the original post-termination exercise period provided in the Employee’s stock option agreement or (B) one year from the date of such termination (but not beyond the original contractual life of the option); provided, however, that notwithstanding the foregoing, with respect to each stock option granted to the Employee before the Effective Date of this Agreement, such stock option shall not remain exercisable beyond the later of the fifteenth (15th) day of the third (3rd) month following the date at which, or December 31 of the calendar year in which, the stock option would otherwise have expired if the stock option had not been extended, based on the terms of the stock option at the original grant date, or such later date that would not cause such option to be treated as deferred compensation under 409A of the Code (as defined below).

(iv)          Medical Benefits.  Assuming the Employee timely and accurately elects to continue his health insurance benefits under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), the Company shall pay the COBRA premiums for the Employee [and

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his or her qualified beneficiaries] until the earliest of (i) the end of the Termination Period, (ii) the expiration of the Employee’s continuation coverage under COBRA and any applicable state COBRA-like statute that provides mandated continuation coverage or (iii) the date the Employee becomes eligible for health insurance benefits of a subsequent employer.

(b)           In the event the Employee voluntarily resigns employment with the Company within the 30-day period beginning one year after a Change of Control, the Employee shall receive the severance and other benefits set forth in Sections 6(a)(i)-(iv) above.

7.             Definition of Terms.  The following terms referred to in this Agreement shall have the following meanings:

(a)           Cause.  “Cause” shall mean any of the following: (i) any act of personal dishonesty taken by the Employee in connection with the Employee’s responsibilities as an employee and intended to result in substantial personal enrichment of the Employee, (ii) conviction of a felony that is injurious to the Company, (iii) a willful act by the Employee which constitutes gross misconduct and which is injurious to the Company, or (iv) continued violations by the Employee of the Employee’s obligations under Section 1 of this Agreement after there has been delivered to the Employee a written demand for performance from the Company which describes the basis for the Company’s belief that the Employee has not substantially performed the Employee’s duties.

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

(i)            The acquisition by any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) (other than the Company or a person that directly or indirectly is controlled by the Company) of the “beneficial ownership” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the total voting power represented by the Company’s then outstanding voting securities; or

(ii)           A change in the composition of the Board occurring within a two-year period, as a result of which fewer than a majority of the directors are Incumbent Directors.  “Incumbent Directors” shall mean directors who either (A) are directors of the Company as of the date hereof, or (B) are elected to the Board with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or (C) are nominated for election to the Board by a committee of the Board, at least a majority of whose members are Incumbent Directors at the time of such nomination (but in each case shall not include an individual not otherwise an Incumbent Director whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Company); or

(iii)         A merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least fifty percent (50%) of

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the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation.

(c)           Disability.  “Disability” shall mean that the Employee has been unable to substantially perform the Employee’s duties under this Agreement as the result of the Employee’s incapacity due to physical or mental illness, and such inability, at least 26 weeks after its commencement, is determined to be total and permanent by a physician selected by the Company or its insurers; and acceptable to the Employee or the Employee’s legal representative (such agreement as to acceptability not to be unreasonably withheld).

(d)           Exchange Act.  “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

(e)           Involuntary Termination.  “Involuntary Termination” shall mean (i) without the Employee’s express written consent, the significant reduction of the Employee’s duties or responsibilities relative to the Employee’s duties or responsibilities in effect immediately prior to such reduction; provided, however, that a reduction in duties or responsibilities solely by virtue of the Company being acquired and made part of a larger entity (as, for example, when the Chief Financial Officer of Company remains as such following a Change of Control and is not made the Chief Financial Officer of the acquiring corporation) shall not constitute an “Involuntary Termination”; (ii) without the Employee’s express written consent, a substantial reduction, without good business reasons, of the facilities and perquisites (including office space and location) available to the Employee immediately prior to such reduction; (iii) without the Employee’s express written consent, a material reduction by the Company in the Base Compensation or any Target Incentive of the Employee as in effect immediately prior to such reduction, or the ineligibility of the Employee to continue to participate in any long-term incentive plan of the Company; (iv) a material reduction by the Company in the kind or level of employee benefits to which the Employee is entitled immediately prior to such reduction with the result that the Employee’s overall benefits package is significantly reduced; (v) the relocation of the Employee to a facility or a location more than fifty (50) miles from the Employee’s then present location, without the Employee’s express written consent; (vi) any purported termination of the Employee by the Company which is not effected for death or Disability or for Cause; or (vii) the failure of the Company to obtain the assumption of this Agreement by any Successors contemplated in Section 10 below.

8.             Limitation on Payments.

(a)           In the event that the severance and other benefits provided for in this Agreement or otherwise payable to the Employee (i) constitute “parachute payments” within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”) and (ii) but for this Section 8 would be subject to the excise tax imposed by Section 4999 of the Code, then the Employee’s termination benefits under Section 6 shall be payable either (i) in full, or (ii) as to such lesser amount which would result in no portion of such termination benefits being subject to excise tax under Section 4999 of the Code, whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the excise tax imposed by Section 4999, results in the receipt by the Employee on an after-tax basis, of the greatest amount

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of termination benefits under this Agreement, notwithstanding that all or some portion of such termination benefits may be taxable under Section 4999 of the Code.

(b)           If a reduction in the payments and benefits that would otherwise be paid or provided to the Employee under the terms of this Agreement is necessary to comply with the provisions of Section 8(a), the Employee shall be entitled to select which payments or benefits will be reduced and the manner and method of any such reduction of such payments or  benefits (including but not limited to the number of options that would vest under Section 6(a)(iii)) subject to reasonable limitations (including, for example, express provisions under the Company’s benefit plans) so long as the requirements of Section 8(a) are met.  Within thirty (30) days after the amount of any required reduction in payments and benefits is finally determined in accordance with the provisions of Section 8(c), the Employee shall notify the Company in writing regarding which payments or benefits are to be reduced.  If no notification is given by the Employee, the Company will determine which amounts to reduce.  If, as a result of any reduction required by Section 8(a), amounts previously paid to the Employee exceed the amount to which the Employee is entitled, the Employee will promptly return the excess amount to the Company.

(c)           Any determination required under this Section 8 shall be made in writing by a nationally recognized accounting or consulting firm appointed by the Company, which firm shall not then be serving as accountant or auditor for or consultant to the Company or the person or entity that effected the Change in Control and whose determinations shall be conclusive and binding upon the Employee and the Company for all purposes.  For purposes of making the calculations required by this Section 8, such firm may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code.  The Company and the Employee shall furnish to such firm such information and documents as such firm may reasonably request in order to make a determination under this Section 8.  The Company shall bear all costs such firm may reasonably incur in connection with any calculations contemplated by this Section 8.

9.             Application of Code Section 409A.  If the Company determines that any termination benefit provided in Section 6 fails to satisfy the distribution requirement of Section 409A(a)(2)(A) of the Code as a result of Section 409A(a)(2)(B)(i) of the Code, the payment of such benefit shall be accelerated to the minimum extent necessary so that the benefit is not subject to the provisions of Section 409A(a)(1) of the Code.  (It is the intention of the preceding sentence to apply the short-term deferral provisions of Section 409A of the Code, and the regulations and other guidance thereunder, to the termination benefits, and the payment schedule as revised after the application of the preceding sentence shall be referred to as the “Revised Payment Schedule.”)  If there is no Revised Payment Schedule that would avoid the application of Section 409A(a)(1) of the Code, the payment of such benefits shall not be paid pursuant to a Revised Payment Schedule and instead shall be delayed to the minimum extent necessary so that such benefits are not subject to the provisions of Section 409A(a)(l) of the Code (e.g., payments to which Employee would otherwise be entitled during the first six months following separation from service shall accumulate and be paid at the expiration of such period, unless a permitted distribution event occurs during such period).  The Board or the Compensation Committee of the Board may attach conditions to or adjust the amounts paid pursuant to this Section 9 to preserve, as closely as possible, the economic consequences that

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would have applied in the absence of this Section 9; provided, however, that no such condition or adjustment shall result in the payments being subject to Section 409A(a)(1) of the Code.

10.          Successors.

(a)           Company’s Successors.  Any successor to the Company (whether direct or indirect and whether by purchase, lease, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company’s business and assets shall assume the obligations under this Agreement and agree expressly to perform the obligations under this Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession.  For all purposes under this Agreement, the term “Company” shall include any Successor to the Company’s business and assets which executes and delivers the assumption agreement described in this Section 10(a) or which becomes bound by the terms of this Agreement by operation of law.

(b)           Employee’s Successors.  The terms of this Agreement and all rights of the Employee hereunder shall inure to the benefit of, and be enforceable by, the Employee’s personal or legal representatives, executors, administrators, successors, heirs, devisees and legatees.

11.          Notice.  Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by U.S. registered or certified mail, return receipt requested and postage prepaid. In the case of the Employee, mailed notices shall be addressed to him at the home address which he most recently communicated to the Company in writing.  In the case of the Company, mailed notices shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of its Secretary.

12.          Miscellaneous Provisions.

(a)           Waiver.  No provision of this Agreement shall be modified, waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by the Employee and by an authorized officer of the Company (other than the Employee).  No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time.

(b)           Whole Agreement.  No agreements, representations or understandings (whether oral or written and whether express or implied) which are not expressly set forth in this Agreement have been made or entered into by either party with respect to the subject matter hereof.  This Agreement represents the Company’s and the Employee’s entire understanding with respect to the subject matter contained herein and supersedes all previous understandings, written or oral between the Company and the Employee concerning the subject matters of this Agreement.

(c)           Choice of Law.  The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of California.

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(d)           Severability.  The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision hereof, which shall remain in full force and effect.

(e)           Arbitration.  Any dispute or controversy arising out of, relating to or in connection with this Agreement shall be settled exclusively by binding arbitration in San Diego, California, in accordance with the National Rules for the Resolution of Employment Disputes of the American Arbitration Association then in effect.  Judgment may be entered on the arbitrator’s award in any court having jurisdiction.  The arbitrator shall: (i) have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be permitted by law; and (ii) issue a written arbitration decision including the arbitrator’s essential findings and conclusions and a statement of the award.  Both the Employee and the Company shall be entitled to all rights and remedies they would have in a court of law.  The Company shall pay all fees in excess of those which will be required if the dispute were decided in a court of law.

(f)            No Assignment of Benefits.  The rights of any person to payments or benefits under this Agreement shall not be made subject to option or assignment, either by voluntary or involuntary assignment or by operation of law, including (without limitation) bankruptcy, garnishment, attachment or other creditor’s process, and any action in violation of this Section 12(f) shall be void.

(g)           Assignment by Company.  The Company may assign its rights under this Agreement to an affiliate, and an affiliate may assign its rights under this Agreement to another affiliate of the Company or to the Company; provided, however, that no assignment shall be made if the net worth of the assignee is less than the net worth of the Company at the time of assignment.  In the case of any such assignment, the term “Company” when used in a section of this Agreement shall mean the corporation that actually employs the Employee.

(h)           Counterparts.  This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument.

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