EXHIBIT 10.1

 

SRS LABS, INC.

 

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

 

AMENDED AND RESTATED
CHANGE IN CONTROL PROTECTION PLAN
(also functioning as a Summary Plan Description)

 

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

 

As Amended and Restated on August 3, 2009

 

 

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

 

SRS LABS, INC.

 

AMENDED AND RESTATED
CHANGE IN CONTROL PROTECTION PLAN
(also functioning as a Summary Plan Description)

 

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

 

Table of Contents

 

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

 

 

 

 

PAGE

 

 

 

 

1.

BENEFITS PAYABLE UNDER THE PLAN

 

1

 

 

 

 

 

(a)           Change in Control Severance Benefit

 

1

 

 

 

 

 

(b)           Paid Leave in Lieu of Notice

 

1

 

 

 

 

 

(c)           Definition of Change in Control

 

2

 

 

 

 

2.

PLAN ELIGIBILITY

 

3

 

 

 

 

3.

VESTING AND ELIGIBILITY RULES FOR BENEFITS

 

3

 

 

 

 

 

(a)           Covered Terminations

 

3

 

 

 

 

 

(b)           Definitions

 

4

 

 

 

 

 

(c)           Agreements Precedent to Collecting Benefits; Recapture of Benefits

 

5

 

 

 

 

4.

ADDITIONAL BENEFITS

 

6

 

 

 

 

5.

TAXES, AND AUTHORIZATIONS FOR TAX LAW COMPLIANCE

 

7

 

 

 

 

6.

RELATION TO OTHER PLANS AND AGREEMENTS

 

7

 

 

 

 

7.

CLAIMS PROCEDURES

 

8

 

 

 

 

 

(a)           Claims Normally Not Required

 

8

 

 

 

 

 

(b)           Disputes

 

9

 

 

 

 

 

(c)           Time for Filing Claims

 

9

 

 

 

 

 

(d)           Procedures

 

9

 

 

 

 

8.

PLAN ADMINISTRATION

 

11

 

 

 

 

 

(a)           Discretion

 

11

 

 

 

 

 

(b)           Finality of Determinations

 

11

 

 

 

 

 

(c)           Drafting Errors

 

11

 

 

 

 

 

(d)           Scope

 

11

 

 

 

 

9.

COSTS, INDEMNIFICATION, AND REIMBURSEMENT FOR LITIGATION EXPENSES

 

12

 

 

 

 

10.

PLAN AMENDMENT AND TERMINATION; LIMITATION ON EMPLOYEE RIGHTS; CONDITIONS OF
RECEIPT OF BENEFITS

 

12

 

 

 

 

 

(a)           Sponsor May Amend or Terminate the Plan

 

12

 

i

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

 

 

(b)           Application of Amendment or Termination of the Plan

 

12

 

 

 

 

 

(c)           No Right to Continued Employment

 

13

 

 

 

 

11.

PLAN FUNDING

 

13

 

 

 

 

12.

GOVERNING LAW

 

13

 

 

 

 

13.

MISCELLANEOUS

 

13

 

 

 

 

14.

OTHER INFORMATION

 

13

 

 

 

 

 

(a)           Type of Plan

 

13

 

 

 

 

 

(b)           Addresses, etc.

 

13

 

 

 

 

 

(c)           Agent for Service of Legal Process

 

14

 

 

 

 

 

(d)           Funding

 

14

 

 

 

 

 

(e)           Plan Amendment or Termination

 

14

 

 

 

 

 

(f)            Statement of ERISA Rights

 

14

 

 

 

 

 

(g)           Whom to Call for Additional Information

 

15

 

 

 

 

Exhibit A

Form of Participation Agreement – Version 1 (Persons with Employment/Severance
Agreements) and Version 2 (Persons without Employment/Severance Agreements)

 

 

 

 

 

 

Exhibit B

Grantor Trust Agreement

 

 

 

ii

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

 

SRS LABS, INC.

 

AMENDED AND RESTATED
CHANGE IN CONTROL PROTECTION PLAN

 

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

 

Plan Document and Summary Plan Description

 

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

 

SRS Labs, Inc. (the “Company”) recognizes that a corporate change in control may
adversely affect certain employees.  To treat these employees in a fair and
compassionate manner, the Company has adopted this Amended and Restated Change
in Control Protection Plan (the “Plan”).

 

This document is the Plan’s plan document, and also functions as its summary
plan description.  This Plan will control in case of conflict with any other
document.  Throughout this Plan, the term “Sponsor” is used when the Company is
acting in its non-fiduciary capacity as Plan sponsor and settlor.  The term
“Plan Administrator” is used when the Company is acting in the limited capacity
of interpreting the Plan and determining eligibility for benefits (see Section 8
below for detailed information).

 

The Plan became effective on April 27, 2005 and was amended and restated on
August 3, 2009.   Even if the Plan expires or is terminated, the Sponsor will
thereafter honor any vested but unpaid benefits under the Plan (subject to
Section 10 below).  References to Sponsor, the Company, and their affiliates
also refer to any successor to their interests.

 

1.             Benefits Payable Under the Plan

 

(a)           Change in Control Severance Benefit

 

You will become entitled to severance benefits pursuant to this Plan if, while
this Plan is in effect and while you are eligible under Section 2 for Plan
participation, your employment terminates under the circumstances described in
Section 3(a).  The severance benefits (“Change in Control Benefits”) to be paid
to you after your termination date shall be determined pursuant to an agreement,
substantially in the form attached as Exhibit A (the “Participation Agreement”),
that you sign pursuant to Section 2 as a condition for becoming a Plan
participant. The Sponsor will make all decisions relating to who is offered a
Participation Agreement and the terms, conditions, and benefits promised under
the Participation Agreement.

 

(b)           Paid Leave in Lieu of Notice

 

To the extent that the Federal Worker Adjustment and Retraining Notification Act
applies to you, if you become entitled to Change in Control Benefits under the
Plan, to the extent you have been given less than sixty (60) days’ advance
written notice of the date your active services actually terminate, you will be
given a Paid Leave in Lieu of Notice for the balance of that 60-day period, as
follows:

 

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

 

(i)            During your Paid Leave in Lieu of Notice, you will be an inactive
employee but you will be entitled to the same employee benefits and
participation rights to which you would have been entitled under our
company-wide employee benefit plans had your active employment continued.

 

(ii)           If you resign or die during a paid leave, your paid leave will
end and the Change in Control Benefits that you would have received during the
balance of the paid leave will be paid to you (or, if you have died, to your
estate) in a lump sum.  All other paid leave benefits will stop on the day you
resigned or died, except for any group insurance coverage that by its terms
continues until the end of the calendar month in which you terminate.

 

(iii)          This Paid Leave in Lieu of Notice runs concurrently with the
Change in Control Benefits provided for in Section 1(a) hereof and is not in
addition to Change in Control Benefits provided for in this Plan.

 

(c)           Definition of Change in Control

 

The term “Change in Control” shall mean the occurrence of any of the following
events, subject to the Plan Administrator’s absolute discretion to interpret
this definition in a manner that conforms with the requirements of Section 409A
of the Internal Revenue Code of 1986, as amended (the “Code”) and associated
regulations:

 

(i)            The Company is merged, consolidated or reorganized into or with
another corporation or other legal person and as a result of such merger,
consolidation or reorganization less than a majority of the combined voting
power of the then outstanding securities of such corporation or person
immediately after such transaction are held in the aggregate by the holders of
Voting Stock (as that term is defined in subsection (iii) hereof) of the Company
immediately prior to such transaction;

 

(ii)           The Company sells all or substantially all of its assets to any
other corporation or other legal person, less than a majority of the combined
voting power of the then-outstanding voting securities of which are held
directly or indirectly in the aggregate by the holders of Voting Stock of the
Company immediately prior to such sale;

 

(iii)          Any person (as the term “person” is used in Section 13(d)(3) or
Section 14(d)(2) of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), has become the beneficial owner (as the term “beneficial owner”
is defined under Rule 13d-3 or any successor rule or regulation promulgated
under the Exchange Act) of securities representing more than 50%  of the
combined voting power of the then-outstanding securities of the Company entitled
to vote generally in the election of directors of the Company (“Voting Stock”);
or

 

2

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

 

(iv)          The Company files a report or proxy statement with the Securities
and Exchange Commission pursuant to the Exchange Act disclosing in, or in
response to, Form 8-K or Schedule 14A (or any successor schedule, form or report
or item therein) that a  Change in Control of the Company has occurred.

 

Notwithstanding the foregoing provisions of (a) subsections (iii) or
(iv) hereof, a “Change in Control” shall not be deemed to have occurred for
purposes of this Agreement solely because the Company, an entity in which the
Company directly or indirectly beneficially owns 50% or more of the voting
securities of such entity (an “Affiliate”), any Company-sponsored employee stock
ownership plan or any other employee benefit plan of the Company either files or
becomes obligated to file a report or a proxy statement under or in response to
Schedule 13D, Schedule 14D-1, Form 8-K or Schedule 14A (or any successor
schedule, form or report or item therein) under the Exchange Act, disclosing
beneficial ownership by it of shares of voting securities of the Company,
whether in excess of 50% or otherwise, or because the Company reports that a
Change in Control of the Company has or may have occurred or will or may occur
in the future by reason of such beneficial ownership; or (b) Subsection
(iii) hereof, a “Change in Control” shall not be deemed to have occurred for
purposes of this Agreement solely because a person who is a holder of five
percent (5%) or more of the Voting Stock and who also is an officer and director
of the Company on the date of this Agreement acquires more than 50% of the
Voting Stock.

 

Notwithstanding the foregoing provisions of subsections (i) and (ii) hereof, a
“Change in Control” shall not be deemed to have occurred for purposes of this
Agreement solely because the Company engages in an internal reorganization,
which may include a transfer of assets to one or more Affiliates, provided that
such transaction has been approved by at least two-thirds of the Directors of
the Company and as a result of such transaction or transactions, at least 80% of
the combined voting power of the then-outstanding securities of the Company or
its successor are held in the aggregate by the holders of Voting Stock
immediately prior to such transactions.

 

2.             Plan Eligibility

 

You are eligible for this Plan only if the Sponsor has provided you with a
Participation Agreement signed by a duly authorized officer of the Company
confirming your eligibility for the Plan.  If you execute the Participation
Agreement and return it to the Company within thirty (30) days after receiving
it, you will be a “Participant”.  If your Participation Agreement expires for
any reason before you become vested in the right to collect Change in Control
Benefits, you will immediately cease to be a Participant.

 

3.             Vesting and Eligibility Rules for Benefits

 

(a)           Covered Terminations

 

If you are a Participant, incur a Covered Termination (as defined below), and
satisfy the conditions set forth in Section 3(c) below, you will become vested
in your right to receive the Change in Control Benefits set forth in your
Participation Agreement.  If you terminate employment for any other reason, you
will not be eligible for any benefits under this Plan.  For example, you will
not be eligible for Change in Control Benefits under the

 

3

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

 

Plan if the Plan Administrator determines, in its sole discretion, that your
Employment (as defined below) has either (i) terminated before a Change in
Control occurs, or (ii) terminated on or after a Change in Control by reason of
—

 

(i)            your resignation without Good Reason (as defined below);

 

(ii)           your death; or

 

(iii)          your discharge for Cause (as defined below), as determined by the
Sponsor in its sole discretion.

 

(b)           Definitions

 

(i)            For purposes of this Plan, a “Covered Termination” shall mean
that, at a time on or two (2) years after a Change in Control either (I) you
have resigned from Employment for Good Reason (as defined below), or (II) your
Employment is involuntarily terminated by the Company without Cause (as defined
below).  A Covered Termination shall not include a transfer of your Employment
to the parent of the Company, if any, or an affiliate of the parent, or an
affiliate of the Company, or any successor to the Company’s obligations under
this Plan, whether through a merger, acquisition of the Company or any related
entity or their assets, or a contractual assumption of the Plan or its
liabilities in anticipation of or after a Change in Control, in which case you
shall continue to be a Participant under the Plan and any reference herein to
“Company” shall refer to the entity that is your employer.

 

(ii)           For  purposes of this Plan, “Employment” shall mean your
employment (I) with the Company, (II) the parent of the Company, if any, or an
affiliate of the parent, or an affiliate of the Company, or (III) any successor
to the Company’s obligations under this Plan, whether through a merger, an
acquisition of the Company or any related entity, or a contractual assumption of
the Plan or its liabilities.

 

(iii)          For purposes of this Plan, “Cause” shall mean (I) your engagement
in fraud, misappropriation or a material breach of the Company’s code of ethics;
(II) your engagement in intentional conduct which is materially injurious,
monetarily or otherwise, to the Company or its affiliates, (III) your commission
of an act of deliberate and material dishonesty; (IV) your failure to follow a
lawful and material directive related to your job responsibilities or otherwise
related to your position at the Company; (V) your commission of a crime or
causing the Company to commit a crime; or (VI) your conviction, guilty plea or
plea of nolo contendere either to any felony, or to any misdemeanor involving
dishonesty or moral turpitude, provided however, in case of (II) and (IV), such
events shall not constitute “Cause” until after you have been given written
notice of such and have failed to cure such within thirty (30) days following
such notice.

 

4

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

 

(iv)          For purposes of this Plan, and unless otherwise stated in a
Participant’s Participation Agreement, “Good Reason” shall mean (I) any material
reduction by the Company in your base salary below the amount in effect
immediately prior to the Change in Control; (II) the requirement that you change
your principal location of work to any location that is in excess of forty (40)
miles from your location of work as of the effective time of the Change in
Control; (III) the substantial curtailment of your rights, duties and
responsibilities as an Employee as compared to those you were performing before
the Change in Control.  In addition, Good Reason shall mean the liquidation,
dissolution, merger, consolidation or reorganization of the Company, or the
transfer of all or substantially all of the Company’s assets, unless the
successor (by liquidation, dissolution, merger, consolidation, reorganization,
transfer or otherwise) to which all or substantially all of its assets have been
transferred (directly or by operation of law) assumes the duties and obligations
of the Company under this Plan.  Notwithstanding the foregoing, “Good Reason”
shall only be found to exist if prior to your resignation for Good Reason, you
have provided written notice to the Company within ninety (90) days following
the existence of such Good Reason event indicating and describing the event
resulting in such Good Reason, and the Company does not cure such event within
thirty (30) days following the receipt of such notice.  In the event the Company
fails to timely cure, you must resign within ninety (90) days following the
expiration of the cure period in order for the resignation to constitute Good
Reason.

 

(c)           Conditions Precedent to Collecting Benefits; Recapture of Benefits

 

As a condition precedent to your vesting in the right to collect any benefits
pursuant to this Plan, the Sponsor may in its discretion require that you
execute any one or more of the following agreements in a form satisfactory to
the Sponsor (provided such agreements if required must be executed and delivered
to the Company within 21 days following your receipt of such agreements) and
comply with the following obligations:

 

(i)            A general release of any and all past, present, or future claims
(whether or not such claims relate to the Plan) that you may have against the
Company, its subsidiaries and affiliates, and their officers, directors,
employees and agents, and a covenant not to bring any action in respect of any
claim so released.

 

(ii)           An agreement not to make disparaging comments (whether orally or
in writing) regarding the Company or its subsidiaries and affiliates, its
officers and employees, its products and services, or any other aspect of the
Company’s business either during or following termination of your employment
with the Company.

 

(iii)          An agreement that you will not, without the prior written consent
of the Company, disclose to any entity or person any information which is
treated as confidential by the Company (“Confidential Information”), and is not
generally known or available to the public, provided, that you may make
disclosures of such Confidential Information to the extent required by law or
legal process.  The term “Confidential Information” shall include:

 

5

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

 

(A)                              information regarding the business methods,
business policies, procedures, techniques, business or strategic plans, trade
secrets, pricing policies, or other processes of or developed by the Company;

 

(B)                                any names and addresses of customers or
clients, and any data on or relating to past, present or prospective customers
or clients;

 

(C)                                formulae, inventions, research or development
projects or results, or other knowledge developed by the Company; and

 

(D)                               any other confidential information relating to
or dealing with the business operations or activities of the Company; made known
to you or learned or acquired by you while in the employ of the Company, which
is not generally known to others outside the Company, whether written or
otherwise, regarding earnings, plans, strategies, prospective and executed
contracts and other business arrangements.

 

(iv)                              Upon termination of your employment, you must
return all property of the Company and reimburse the Company for any personal
telephone calls, credit card charges and other expenses, and pay all amounts due
to the Company.

 

Notwithstanding any other provision of the Plan, you will not be treated as
having satisfied the requirements of this Section 3(c) unless (I) you execute
any one or more of the above agreements that the Sponsor may for any reason
require, (II) you deliver such agreements to the person, and within the time
period above and prescribed in such agreement, and (III) you do not make a
legally valid revocation of such agreement.  In the event the Sponsor determines
that you have breached any of the conditions set forth in this Subsection
3(c) or any agreement referenced hereunder, the Company shall (in addition to
any other remedies it may have) not be required to provide any of Change in
Control Benefits pursuant to the Plan, and you shall be obligated to return to
the Company, upon demand, an amount (plus simple interest) equal to all of the
Change in Control Benefits that you have received under this Plan.

 

4.                                      Additional Benefits

 

(a)                                 If you become entitled to Change in Control
Benefits under this Plan, you will also be reimbursed for COBRA continuation
premiums you pay for yourself, your spouse, and your dependents for the period,
if any, set forth in your Participation Agreement.  For COBRA purposes, however,
the date on which you terminate employment will commence the period for which
you are entitled to continuation coverage under COBRA (meaning that the
Company’s payment of COBRA premiums may not extend the duration of your COBRA
eligibility).  The regular COBRA procedures and rules will apply.

 

(b)                                 Upon the death of a Participant receiving
Change in Control Benefits, the beneficiary(ies) of the Participant (whom he or
she designated for purposes of group life insurance benefits) shall be entitled
to receive such Change in Control Benefits on the same terms that would have
applied if the Participant had survived to collect all benefits.

 

6

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

 

5.                                      Taxes, and Authorizations for Tax Law
Compliance

 

Taxes will be withheld from your Change in Control Benefits to the extent the
Plan Administrator, it its sole discretion, determines that this is appropriate
or is required by law.  You are solely responsible and liable for the
satisfaction of all taxes and penalties, including any taxes arising under
Section 409A of the Code  that may arise in connection with your Plan
participation or your receipt of Change in Control Benefits.  Accordingly,
neither the Sponsor, the Plan Administrator, nor any person associated with them
has any obligation or authority to provide you with tax planning advice, or to
take actions that minimize or eliminate any or all of the taxes or penalties
which you incur or may incur pursuant to the Plan.  The Plan Administrator shall
nevertheless have the discretion to unilaterally modify your rights under this
Plan (including your rights under any Participation Agreement) in a manner that
—

 

(a) voids or modifies any terms of the Plan or your Participation Agreement to
the extent it would violate Section 409A of the Code, and

 

(b) for any payment that would otherwise violate Section 409A of the Code, to
provide Change in Control Benefits only in connection with a distribution event
that is allowable under Section 409A of the Code.  For example, the Plan
Administrator may delay paying your Change in Control Benefits for up to six
months and one day if the Plan Administrator reasonably determines that an
earlier payment will violate Section 409A(a)(2)(B)(i) of the Code.

 

The Plan Administrator has the sole discretion to interpret the requirements of
the Code, including Section 409A, for purposes of determining your rights under
the Plan and your Participation Agreement.

 

6.                                      Relation to Other Plans and Agreements;
280G Limitations

 

By signing your Participation Agreement, you recognize and agree that any prior
severance or similar plan of the Company (including a prior version of this Plan
or a related Participation Agreement) that might apply to you is hereby revoked
and ineffective as to you; provided that, unless specifically provided in your
Participation Agreement, neither this Plan nor your Participation Agreement will
affect any outstanding employment, equity award,  or other written agreement
between you and the Company.  No Change in Control Benefits that you receive
will be taken into account for purposes of determining benefits under other
benefit plans, retirement or pension plans, 401(k) plans, or similar retirement
arrangements.  All such retirement-related plans or similar arrangements, to the
extent inconsistent with this Plan, are hereby so amended.

 

The amount of any cash payment to be received by Participant  pursuant to this
Plan shall be reduced (but not below zero) to the extent required so that no
portion of any payment or benefit in the nature of compensation received or to
be received by Participant (whether payable pursuant to the terms of this Plan
or pursuant to any other plan, contract, agreement or arrangement with the
Employer or any other person) (such payments or benefits are referred to
collectively as the “Total Payments”) shall be treated as an “excess parachute
payment” within the meaning of section 280G(b)(1) of the Code. Only amounts

 

7

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

 

payable under this Plan, and no other payments or benefits included in the Total
Payments, shall be reduced pursuant to this Section 6.  Notwithstanding the
foregoing, Participant may elect in writing to reduce other benefits payable by
the Company to Participant outside of the Plan (in lieu of reducing all or some
of the benefits payable hereunder) in order to avoid having any such “excess
payments;” provided that the written notice of such election must be received by
the Company’s Chief Executive Officer prior to the date on which any payments
are required to be made under the Plan.

 

The determination of whether any reduction in payments is required pursuant to 
Section 6 of this Plan shall be made in writing by the Company’s independent
public accountants, or such other independent accounting firm or tax advisors
selected by the Plan Administrator in its sole discretion (the “Accountants”),
whose determination shall be conclusive and binding upon Participant and the
Company for all purposes under this Plan.  For the purposes of making the
calculations required by this Section 6, the Accountants may make reasonable
assumptions and approximations regarding applicable taxes and applicable tax
rates and may rely on reasonable, good faith interpretations concerning the
application of Sections 280G and 4999 of the Code, applicable regulations and
other authority.  The Plan Administrator and the Participant shall furnish to
the Accountants such information and documents as the Accountants may reasonably
request in order to make a determination under this Section.  The Accountants
shall provide detailed supporting calculations, in writing, to both the Plan
Administrator and the Participant of determinations made pursuant to this
Section 6.  The Company shall bear all costs the Accountants may reasonably
incur in connection with any calculations contemplated by this Section.

 

In the event of any uncertainty as to whether a reduction in payments to a
Participant is required pursuant to Section 6 of this Plan, the Company shall
initially make the payment to Participant, and Participant shall be required to
refund to the Company any amounts ultimately determined not to have been payable
under the terms of this Plan.

 

The Company and the Participant shall promptly deliver to each other copies of
any written communications, and summaries of any verbal communications, with any
taxing authority regarding the applicability of Section 280G or 4999 of the Code
to any portion of the Total Payments.  In the event of any controversy with the
Internal Revenue Service or other taxing authority with regard to the
applicability of Section 280G or 4999 of the Code to any portion of the Total
Payments, the Company shall have the right, exercisable in its sole discretion,
to control the resolution of such controversy at its own expense.  Participant
and the Company shall in good faith cooperate in the resolution of such
controversy.

 

7.                                      Claims Procedures

 

(a)                                 Claims Normally Not Required

 

Normally, you do not need to present a formal claim to receive the Change in
Control Benefits payable under this Plan.

 

8

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

 

(b)                                 Disputes

 

If any person (claimant) believes that benefits are being denied improperly,
that the Plan is not being operated properly, that fiduciaries of the Plan have
breached their duties, or that the claimant’s legal rights are being violated
with respect to the Plan, the claimant must file a formal claim with the Plan
Administrator within the time period set forth in Section 7(c).  The Plan
Administrator will handle all such claims in accordance with the procedures set
forth in Section 7(d).  This requirement applies to all claims that any claimant
has with respect to the Plan, including claims against fiduciaries and former
fiduciaries, except to the extent the Plan Administrator determines, in its sole
discretion, that it does not have the power to grant all relief reasonably being
sought by the claimant.  See Section 14(f) for information about your rights in
the event the Administrator denies your claim.

 

(c)                                  Time for Filing Claims

 

A formal claim must be filed within ninety (90) days after the date the claimant
first knew or should have known of the facts on which the claim is based (or, if
earlier, the date that is 120 days after your employment terminates for any
reason), unless the Sponsor in writing consents otherwise.  The Plan
Administrator will provide a claimant, on request, with a copy of the claims
procedures established under subsection 7(d). If a claimant files an untimely
claim, no benefits of any kind shall be payable under the Plan.

 

(d)                                 Procedures

 

The Plan Administrator will adopt procedures for considering claims, which it
may amend from time to time, as it sees fit.  If the Plan Administrator does not
offer a Participant the payment of Plan benefits within 10 days after such
benefits are due and payable, the Participant must file a claim for benefits on
a form prescribed by the Plan Administrator and within the time frame set forth
in subsection (c) above.  If the claimant’s claim for a benefit is wholly or
partially denied, the Plan Administrator will furnish the claimant with a
written notice of the denial.  This written notice must be provided to the
claimant within a reasonable period of time (generally within ninety (90) days,
unless special circumstances require an extension of time for processing the
claim, in which case a period not to exceed one hundred and eighty (180) days)
after the receipt of the claimant’s claim by the Plan Administrator.  (If such
an extension of time is required, written notice of the extension will be
furnished to the claimant prior to the termination of the initial 90-day period,
and will indicate the special circumstances requiring the extension.)  Written
notice of denial of the claimant’s claim must contain the following information:

 

(i)                                     the specific reason or reasons for the
denial;

 

(ii)                                  a specific reference to those provisions
of the Plan on which such denial is based;

 

9

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

 

(iii)                               a description of any additional information
or material necessary to perfect the claimant’s claim, and an explanation of why
such material or information is necessary; and

 

(iv)                              a copy of the appeals procedures under the
Plan and the time limits applicable to such procedures, including a statement of
the claimant’s right to bring a civil action under Section 502(a) of the
Employee Retirement Income Security Act of 1974, as amended (“ERISA”) following
an adverse determination of the claimant’s claim.

 

If the claimant’s claim has been denied, and the claimant wishes to submit his
or her request for a review of his or her claim, the claimant must follow the
following Claims Review Procedure:

 

1.                                       Upon the denial of his or her claim for
benefits, the claimant may file his or her request for review of his or her
claim, in writing, with the Plan Administrator or claims processor;

 

2.                                       The claimant must file the claim for
review not later than sixty (60) days after he or she has received written
notification of the denial of his or her claim for benefits.

 

3.                                       The claimant has the right to review
and obtain copies of all relevant documents relating to the denial of his or her
claim and to submit any issues and comments, in writing, to the Plan
Administrator;

 

4.                                       If the claimant’s claim is denied, the
Plan Administrator must provide the claimant with written notice of this denial
within sixty (60) days after the Plan Administrator’s receipt of the claimant’s
written claim for review.  There may be times when this 60-day period may be
extended.  This extension may only be made, however, where there are special
circumstances which are communicated to the claimant in writing within the
60-day period.  If there is an extension, a decision will be made as soon as
possible, but not later than one hundred and twenty (120) days after receipt by
the Plan Administrator of the claimant’s claim for review; and

 

5.                                       The Plan Administrator’s decision
regarding the claimant’s claim for review will be communicated to the claimant
in writing, and if the claimant’s claim for review is denied in whole or part,
the decision will include:

 

(B)                                the specific reason or reasons for the
denial;

 

(C)                                specific references to the pertinent
provisions of the Plan on which the decision was based;

 

(D)                               a statement that the claimant may receive,
upon request and free of charge, reasonable access to and copies of, all
documents, records and other information relevant to the claimant’s claim for
benefits; and

 

10

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

 

(E)                                 a statement of the claimant’s right to bring
a civil action under Section 502(a) of ERISA.

 

8.                                      Plan Administration

 

(a)                                 Discretion

 

The Plan Administrator is responsible for the general administration and
management of the Plan and shall have all powers and duties that the Plan
Administrator, in its sole discretion, deems necessary to fulfill its
responsibilities, including, but not limited to, the discretion to interpret and
apply the Plan and to determine all questions relating to eligibility for
benefits.  The Plan Administrator and all Plan fiduciaries shall have the
discretion to interpret or construe ambiguous, unclear, or implied (but omitted)
terms in any fashion they deem to be appropriate in their sole and absolute
discretion, and to make any findings of fact needed in the administration of the
Plan.  The validity of any such interpretation, construction, decision, or
finding of fact shall not be given de novo review if challenged in court, by
arbitration, or in any other forum, and shall be upheld unless clearly arbitrary
or capricious.

 

(b)                                 Finality of Determinations

 

Unless arbitrary and capricious, all actions taken and all determinations by the
Plan Administrator or by Plan fiduciaries will be final and binding on all
persons claiming any interest in or under the Plan.  To the extent the Plan
Administrator or any Plan fiduciary has been granted discretionary authority
under the Plan, the Plan Administrator’s or Plan fiduciary’s prior exercise of
such authority shall not obligate it to exercise its authority in a like fashion
thereafter.

 

(c)                                  Drafting Errors

 

If, due to errors in drafting, any provision of the Plan or any Participation
Agreement does not accurately reflect its intended meaning, as demonstrated by
consistent interpretations or other evidence of intent (by the Sponsor or the
Plan Administrator, as the case may be), or as determined by the Plan
Administrator in its sole and absolute discretion, the provision shall be
considered ambiguous and shall be interpreted by the Plan Administrator and all
Plan fiduciaries in a fashion consistent with its intent, as determined in the
sole and absolute discretion of the Plan Administrator (but with regard to the
intent of the Sponsor as settlor).

 

(d)                                 Scope

 

This Section may not be invoked by any person to require the Plan to be
interpreted in a manner inconsistent with its interpretation by the Plan
Administrator or other Plan fiduciaries.

 

11

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

 

9.                                      Costs, Indemnification, and
Reimbursement for Litigation Expenses

 

(a)                                 All costs of administering the Plan and
providing Plan benefits will be paid by the Company.

 

(b)                                 To the extent permitted by applicable law
and in addition to any other indemnities or insurance provided by the Company,
the Company shall indemnify and hold harmless its (and its affiliates’) current
and former officers, directors, employees, and agents against all expenses,
liabilities, and claims (including legal fees incurred to defend against such
liabilities and claims) arising out of their discharge in good faith of their
administrative and fiduciary responsibilities with respect to the Plan. 
Expenses and liabilities arising out of willful misconduct will not be covered
under this indemnity.

 

(c)                                  In the event that, at any time on or after
the date three (3) months before a Change in Control, a Participant
substantially prevails over the Company or any successor to its interests in any
dispute that arises between the Participant and the Company with respect to the
terms or interpretation of the Plan, whether instituted by formal legal
proceeding or otherwise (including any action that the Participant takes to
enforce the terms of his or her Participation Agreement or to defend against any
action taken by the Company), the Company shall reimburse the Participant for
all costs and expenses, include reasonable attorney’s fees, arising from such
dispute, proceedings, or actions.  Such reimbursement will however be subject to
proof of such costs.

 

10.                               Plan Amendment and Termination; Limitation on
Employee Rights; Conditions of Receipt of Benefits

 

(a)                                 Sponsor May Amend or Terminate the Plan

 

The Sponsor, acting through its Board of Directors or its delegate, has the
right in its sole and absolute discretion to amend the Plan, to extend its term,
or to terminate the Plan, prospectively.

 

(b)                                 Application of Amendment or Termination of
the Plan

 

Notwithstanding the foregoing, any amendment or termination of the Plan that
occurs within the three-month period before a Change in Control, in connection
with a Change in Control, or within two years after a Change in Control shall
only apply to those Participants:

 

(i)                                     who consent individually and in writing
to the amendment or termination; or

 

(ii)                                  whose vested Change in Control Benefits,
or rights under the Plan to become entitled to the Change in Control Benefits
set forth in his or her Participation Agreement are not adversely affected by
such amendment or termination.

 

12

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

 

Any decision or interpretation that is made either after a Change in Control or
pursuant to this subparagraph (b) shall be subject to judicial review under a de
novo standard, and not under the arbitrary and capricious standard that is
generally intended to apply (and shall apply) to all other Plan determinations
and interpretations.

 

(c)                                  No Right to Continued Employment

 

This Plan shall not give any employee the right to be retained in the service of
the Company, and shall not interfere with or restrict the right of the Company
to terminate or retire the employee for any lawful reason.

 

11.                               Plan Funding

 

The Company shall pay any Change in Control Benefits from its general assets. 
Notwithstanding the foregoing, in the event of a Change in Control, the Company
shall establish and fund an irrevocable grantor (a/k/a rabbi) trust from which
all Change in Control Benefits shall be paid.  The agreement which shall be used
to establish such trust is attached hereto as Exhibit B.

 

12.                               Governing Law

 

This Plan is a welfare plan subject to ERISA, and it shall be interpreted,
administered, and enforced in accordance with that law.  To the extent that
state law is applicable, the statutes and common law of the State of Delaware
(excluding its choice of laws principles) shall apply.

 

13.                               Miscellaneous

 

Where the context so indicates, the singular will include the plural and vice
versa.  Titles are provided herein for convenience only and are not to serve as
a basis for interpretation or construction of the Plan.  Unless the context
clearly indicates to the contrary, a reference to a statute or document shall be
construed as referring to any subsequently enacted, adopted, or executed
counterpart.

 

14.                               Other Information

 

(a)                                 Type of Plan

 

This is a welfare plan.

 

(b)                                 Addresses, etc.

 

The Company’s address, telephone number, and employer identification number are
as follows:

 

SRS Labs, Inc.

2909 Daimler Street

Santa Ana, California  92705

Attention: Chair, Compensation Committee of the Board of Directors

Telephone: 949.442.1070

EIN: 33-0714264

 

13

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

 

The Plan’s Plan Year is as follows:

 

Plan Year:                                           Calendar

 

The address for the Plan Administrator shall be the address of the Company set
forth above.

 

(c)                                  Agent for Service of Legal Process

 

The Plan Administrator is the Plan’s agent for service of legal process.

 

(d)                                 Funding

 

The Plan is funded out of the Company’s general assets.

 

(e)                                  Plan Amendment or Termination

 

The Sponsor has reserved the right to amend and terminate the Plan as set forth
in Section 10 herein.

 

(f)                                    Statement of ERISA Rights

 

As a participant in this Plan, you are entitled to certain rights and
protections under a federal law called the Employee Retirement Income Security
Act of 1974 (as noted above, “ERISA”).  ERISA provides that all plan
participants shall be entitled to:

 

·                                          Examine, without charge, at the Plan
Administrator’s office and other specified locations, all documents governing
the Plan, including insurance contracts, and a copy of the latest annual report
(Form 5500 Series) filed by the Plan with the U.S. Department of Labor.

 

·                                          Obtain, upon written request to the
Plan Administrator, copies of documents governing the operation of the Plan,
including copies of the latest annual report (Form 5500 Series) and updated
summary plan description. The administrator may make a reasonable charge for the
copies.

 

·                                          Receive a summary of the Plan’s
annual financial report. The Plan Administrator is required by law to furnish
each participant with a copy of this summary annual report.

 

In addition to creating rights for Plan participants ERISA imposes duties on the
people who are responsible for the operation of this Plan. The people who
operate this Plan are called “fiduciaries,” and have a duty to operate this Plan
prudently and in the interest of you and other Plan participants and
beneficiaries. No one, including your

 

14

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

 

employer or any other person, may fire you or otherwise discriminate against you
in any way to prevent you from obtaining a benefit or exercising your rights
under ERISA. If your claim for a benefit is denied in whole or in part, you must
receive a written explanation of the reason for this denial. You have the right
to have the Plan Administrator review and reconsider your claim, as described
elsewhere in this Summary Plan Description. Under ERISA, there are steps you can
take to enforce the above rights. For instance, if you request certain materials
required to be furnished by the Plan and do not receive them within 30 days, or
if you have any other claim with respect to the Plan, you may file suit in a
federal court. In such a case, the court may require the Plan Administrator to
provide the materials you have requested and that you be paid up to $110 a day
until you receive them, unless the materials were not sent because of reasons
beyond the Plan Administrator’s control.  If you have a claim for benefits which
is denied or ignored, in whole or in part, you should file a claim under the
Plan’s claims procedures or you may file suit in a state or federal court. In
addition, if you disagree with the Plan’s decision or lack thereof concerning
the qualified status of a domestic relations order or a medical child support
order, you may file suit in Federal court. If it should happen that Plan
fiduciaries misuse the Plan’s money, or if you are discriminated against for
asserting your rights, you may seek assistance from the U.S. Department of
Labor, or you may file suit in a federal court. The court will decide who should
pay the court costs and legal fees. If you are successful the court may order
the person you have sued to pay these costs and fees. If you lose, the court may
order you to pay these costs and fees, for example, if it finds that you should
have used the Plan’s claims procedures or that your claim is frivolous.   If you
have any questions about your Plan, you should contact the Plan Administrator.
If you have any questions about this statement or about your rights under ERISA,
you should contact the nearest office of the Pension and Welfare Benefits
Administration, U.S. Department of Labor, listed in your telephone directory or
the Division of Technical Assistance and Inquiries, Pension and Welfare Benefits
Administration, U.S. Department of Labor, 200 Constitution Avenue N.W.,
Washington, D.C. 20210.  You may also obtain certain publications about your
rights and responsibilities under ERISA by calling the publications hotline of
the Employee Benefits Security Administration or by visiting its website
(http://www.dol.gov/ebsa/).

 

(g)                                 Whom to Call for Additional Information

 

If you have any questions, please contact the Plan Administrator.

 

15

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

 

Exhibit A/Version 1

(Persons with Employment/

Severance Agreements)

 

SRS LABS, INC.

 

AMENDED AND RESTATED

CHANGE IN CONTROL PROTECTION PLAN

 

Participation Agreement

 

WHEREAS, SRS Labs, Inc. (the “Company”) sponsors and maintains the SRS
Labs, Inc. Amended and Restated Change in Control Protection Plan (the “Plan”),
and has executed this agreement (the “Participation Agreement”) in order to
offer                                (the “Officer”) the opportunity to
participate in the Plan;

 

WHEREAS, the Officer has received a copy of the Plan (which also serves as its
summary plan description); and

 

WHEREAS, the parties acknowledge that capitalized terms not defined in this
Participation Agreement shall have the meaning assigned to them in the Plan; and

 

WHEREAS, the Officer understands that participation in the Plan requires that
the Participant to agree irrevocably to the terms of the Plan and the terms set
forth below; and

 

WHEREAS, the Employee has had the opportunity to carefully evaluate this
opportunity, and desires to become a “Participant” in the Plan under the
conditions set forth herein.

 

NOW, THEREFORE, the parties hereby AGREE as follows:

 

1.                                       If the Officer incurs a Covered
Termination while the Plan is in effect and the Officer has satisfied all other
conditions precedent to collecting benefits under the Plan, the Officer shall
within sixty (60) days thereafter (subject to Section 5 of the Plan and to
Section 2 of this Participation Agreement) receive the following benefits (the
“Change in Control Benefits”):

 

(i)                                     A lump sum payment in cash equal to
         times the Officer’s “base amount.”  The term “base amount” refers to
(A) the Officer’s base salary in effect immediately preceding the Change in
Control; plus (B) the Officer’s cash bonus and cash commissions paid by the
Company (before deductions for taxes and other withholdings) during the last
completed calendar year immediately preceding the year in which a Change in
Control occurred.  The base amount shall not include perquisites, allowances,
per diem payments, stock options or other equity compensation or fringe
benefits.

 

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

 

(ii)                                  In the event Officer elects COBRA
continuation coverage on a timely basis, and makes the premium payments
therefor, the Company’s shall promptly reimburse the Officer for such premiums
for the Officer’s COBRA coverage for a period of              (    ) months
following the Officer’s Covered Termination.

 

Each of the Officer’s benefits provided under this Section shall be subject to
any reduction or withholding required or permitted under the Plan.

 

2.                                       Notwithstanding Section 1 of this
Participation Agreement, the Officer shall not receive the Change in Control
Benefits set forth in Section 1 above if the Officer is entitled to collect
severance-related benefits (the “Contract Benefits”) pursuant to a separate
written employment agreement or severance agreement that the Officer has entered
into with the Company or any of its affiliates, unless the Officer waives any
and all Contract Benefits in writing within five business days after the Covered
Termination.  If the Officer waives the Contract Benefits, the Officer shall
become entitled to receive the Change in Control Benefits in accordance with the
terms and conditions of the Plan and this Participation Agreement.

 

3.

 

(a)  In consideration of becoming eligible to receive the benefits provided
under the terms and conditions of the Plan, the Officer hereby waives any and
all rights, benefits, and privileges (other than the Contract Benefits defined
in Section 2 above) to which the Officer is or would otherwise be entitled to
receive under any plan, program, or arrangement under which the Company or any
of its affiliates provides severance benefits (excluding any retirement plan,
stock option or other equity-based plan or agreement, or other plan that is not
a “welfare plan” within the meaning of ERISA).

 

(b)  Subject to Section 2 of this Participation Agreement, the Officer’s
collection of the Change in Control Benefits pursuant to this Participation
Agreement shall be absolutely contingent on the Officer’s agreement in the
Release (i) to waive any and all rights (including, but not limited to, any
Contract Benefits) under any employment agreement or severance agreement that
the Officer has entered into with the Company or any of its affiliates, and
(ii) that all such agreements shall be terminated and become null and void upon
the Officer’s collection of any portion of the Change in Control Benefits.  The
terms of the Release will be open for acceptance for a period of 21 days, during
which time you may consider whether or not to accept the Release.

 

4.                                       The Officer understands that the waiver
set forth in Section 3(a) above is irrevocable for so long as this Participation
Agreement is in effect.  The Officer further understands that this Participation
Agreement and the Plan set forth the entire agreement between the parties with
respect to any subject matter covered herein.

 

5.                                       This Participation Agreement shall
terminate, and the Officer’s status as a “Participant” in the Plan shall end, on
the first to occur of (i) if before a Change in Control occurs, the Officer’s
termination of employment with the Company and its affiliates, (ii) if

 

2

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

 

after a Change in Control occurs, the Officer’s termination of employment for a
reason other than a “Covered Termination” as defined in Section 3(b)(i) of the
Plan, (iii) the date two years after a Change in Control, and (iv) if before a
Change in Control occurs, the date twelve (12) months after the Company provides
the Officer with written notice that this Participation Agreement is being
terminated by the Company in its discretion as employer and Sponsor.

 

6.                                       The Officer agrees that this
Participation Agreement shall supersede in its entirety any prior Participation
Agreement executed by the Officer under the Plan.  The Officer hereby consents
to the amendment and restatement of the Plan in August 2009, and agrees to be
bound by all of the terms and conditions of the Plan, as amended and restated.

 

7.                                       The Officer recognizes and agrees that
execution of this Participation Agreement results in enrollment and
participation in the Plan, agrees to be bound by the terms and conditions of the
Plan and this Participation Agreement, and understands that this Participation
Agreement may not be amended or modified except pursuant to Section 10 of the
Plan.  The Officer further agrees that to the extent there is any conflict or
ambiguity between the Plan and the Participation Agreement, the Plan prevails.

 

 

ACCEPTED AND AGREED TO this                  day of
                            , 20      .

 

 

The “Officer”:

 

The “Company”:

 

 

 

 

 

 

 

 

By

 

 

 

 

A Duly Authorized Officer

 

3

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

 

Exhibit A/Version 2

(Persons without severance

Agreements)

 

SRS LABS, INC.

AMENDED AND RESTATED

CHANGE IN CONTROL PROTECTION PLAN

 

Participation Agreement

 

WHEREAS, SRS Labs, Inc. (the “Company”) sponsors and maintains the SRS
Labs, Inc. Amended and Restated Change in Control Protection Plan (the “Plan”),
and has executed this agreement (the “Participation Agreement”) in order to
offer                                (the “Employee”) the opportunity to
participate in the Plan;

 

WHEREAS, the Employee has received a copy of the Plan (which also serves as its
summary plan description); and

 

WHEREAS, the parties acknowledge that capitalized terms not defined in this
Participation Agreement shall have the meaning assigned to them in the Plan; and

 

WHEREAS, the Employee understands that participation in the Plan requires that
the Employee agree irrevocably to the terms of the Plan and the terms set forth
below; and

 

WHEREAS, the Employee has had the opportunity to carefully evaluate this
opportunity, and desires to become a “Participant” in the Plan under the
conditions set forth herein.

 

NOW, THEREFORE, the parties hereby AGREE as follows:

 

1.                                       If the Employee incurs a Covered
Termination while the Plan is in effect, the Employee shall within sixty (60)
days thereafter (but subject to Section 5 of the Plan) receive a lump sum
payment in cash (the “Change in Control Benefits”) equal to          times the
Employee’s “base amount” as determined by the Administrator, subject to any
reduction or withholding required or permitted under the Plan.  The term “base
amount” refers to (A) the Employee’s base salary in effect immediately preceding
the Change in Control; plus (B) the Employee’s cash bonus and cash commissions
paid by the Company (before deductions for taxes and other withholdings) during
the last completed calendar year immediately preceding the year in which a
Change in Control occurred.  The base amount shall not include perquisites,
allowances, per diem payments, stock options or other equity compensation or
fringe benefits.  In addition, in the event Employee elects COBRA continuation
coverage on a timely basis, and makes the premium payments therefor, the Company
shall reimburse Employee’s premiums payable for such COBRA coverage for a period
of                (    ) months following the Employee’s Covered Termination. 
All of the Employee’s benefits provided under this Section shall be subject to
any reduction or withholding that is required or permitted under the Plan.

 

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

 

2.                                       In consideration of becoming eligible
to receive the benefits provided under the terms and conditions of the Plan, the
Employee hereby waives any and all rights, benefits, and privileges to which the
Employee is or would otherwise be entitled to receive under —

 

(a)                                  any employment agreement or severance
agreement that the Employee has entered into with the Company or any of its
affiliates; and

 

(b)                                 any plan, program, or arrangement under
which the Company or any of its affiliates provides severance benefits
(excluding any retirement plan, stock option or other equity-based plan or
agreement, or other plan that is not a “welfare plan” within the meaning of
ERISA).

 

3.                                       The Employee understands that the
waiver set forth in Section 2 above is irrevocable for so long as this
Participation Agreement is in effect, and that this Participation Agreement and
the Plan set forth the entire agreement between the parties with respect to any
subject matter covered herein.

 

4.                                       This Participation Agreement shall
terminate, and the Employee’s status as a “Participant” in the Plan shall end,
on the first to occur of (i) if before a Change in Control occurs, the
Employee’s termination of employment with the Company and its affiliates,
(ii) if after a Change in Control occurs, the Employee’s termination of
employment for a reason other than a “Covered Termination” as defined in
Section 3(b)(i) of the Plan, (iii) the date two years after a Change in Control,
and (iv) if before a Change in Control occurs, the date twelve (12) months after
the Company provides the Employee with written notice that this Participation
Agreement is being terminated by the Company in its discretion as employer and
Sponsor.

 

5.                                       The Employee agrees that this
Participation Agreement shall supersede in its entirety any prior Participation
Agreement executed by Employee under the Plan.  The Employee hereby consents to
the amendment and restatement of the Plan in August 2009, and agrees to be bound
by all of the terms and conditions of the Plan, as amended and restated.

 

6.                                       The Employee recognizes and agrees that
execution of this Participation Agreement results in enrollment and
participation in the Plan, agrees to be bound by the terms and conditions of the
Plan and this Participation Agreement, and understands that this Participation
Agreement may not be amended or modified except pursuant to Section 10 of the
Plan.  The Employee further agrees that to the extent there is any conflict or
ambiguity between the Plan and the Participation Agreement, the Plan prevails.

 

2

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

 

ACCEPTED AND AGREED TO this                  day of
                            , 20      .

 

The “Employee”:

 

The “Company”:

 

 

 

 

 

 

 

 

By

 

 

 

 

A Duly Authorized Officer

 

3

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

 

Exhibit B

 

SRS LABS, INC.

GRANTOR TRUST AGREEMENT

 

PREAMBLE.  This Grantor Trust Agreement (the “Trust Agreement”) made this
           day of                       , 20        (the “Effective Date”), by
and between SRS Labs, Inc. and any successor to its interest (the “Company”) as
creator and grantor, and                                      as trust (the
“Trustee”).

 

WHEREAS, the Company has adopted the SRS Labs, Inc. Amended and Restated Change
in Control Protection Plan attached as Exhibit A (the “Plan”) under which the
Company has current or potential liability to individuals (the “Beneficiaries”)
who are either Participants in the Plan or are the designated beneficiary for
any benefits payable under the Plan in the event of the death of an individual
who is a participant in the Plan;

 

WHEREAS, it is the intention of the Company to establish, upon a Change in
Control as defined in Section 1(c) of the Plan (a “Change in Control”), this
trust (the “Trust”) and to contribute assets to the Trust that shall be held
therein, subject to the claims of the Company’s general creditors in the event
of the Company’s Insolvency, as defined in Section 3(a) hereof, until paid to
Beneficiaries of this Trust in such manner and at such times as specified in the
Plan;

 

WHEREAS, it is the intention of the parties hereto that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the Plan
as being unfunded for purposes of Title I of the Employee Retirement Income
Security Act of 1974; and

 

WHEREAS, it is the intention of the Company to make contributions to the Trust
following a Change in Control to enable the Trust to fully fund its liabilities
under the Plan.

 

NOW, THEREFORE, the parties do hereby establish this Trust and agree that the
Trust shall be established and administered as set forth herein:

 

15.                               Establishment of Trust

 

(a)                                 Upon a Change in Control, the Company shall,
as soon as possible but in no event later than ten business days after the
Change in Control, make an irrevocable contribution to this Trust in an amount
that is projected to provide the Trust with sufficient liquid assets (meaning
assets readily convertible into cash) to pay (i) each Beneficiary the benefits
to which he or she is entitled pursuant to the Plan as in effect on the date of
the Change in Control, and (ii) all fees associated with maintaining the Trust
for the maximum period over which Beneficiaries are reasonably expected to be
receiving payments from the Trust.  Any amendment to the Plan’s definition of
Change in Control shall be deemed to apply with equal force, effect, and timing
to the definition of Change in Control for purposes of this Trust, except that a
modification that does or may adversely affect a Beneficiary shall be
ineffectual as to the Beneficiary unless he or she consents in writing to be
bound by the modification.

 

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

 

(b)                                 Within 75 days following each December 31st
after a Change in Control occurs, the Company shall, if the Trustee deems
necessary, be required to irrevocably deposit additional cash or other liquid
assets to the Trust in an amount sufficient to pay each Beneficiary the benefits
to which he or she is entitled pursuant to the Plan.  The Trustee shall have the
right to monitor, enforce and/or collect any amounts due and owing from the
Company or to give notice of any default in the payment of benefits to
Participants.

 

(c)                                  The Trust hereby established shall be
irrevocable.

 

(d)                                 The Trust is intended to be a grantor trust,
of which the Company is the grantor, within the meaning of subpart E, part I,
subchapter J, chapter 1, subtitle A of the Internal Revenue Code of 1986, as
amended (the “Code”), and shall be construed accordingly.

 

(e)                                  The principal of the Trust, and any
earnings thereon, shall be held separate and apart from other funds of the
Company, and shall be used exclusively for the uses and purposes of
Beneficiaries and general creditors as herein set forth.  Beneficiaries shall
have no preferred claim on, or any beneficial ownership interest in, any Trust
assets.  Any rights created under the Plan and this Trust Agreement shall be
unsecured contractual rights of the Beneficiaries, as provided for in this Trust
Agreement.  Any assets held by the Trust will be subject to the claims of the
Company’s general creditors under federal and state law in the event of
Insolvency, as defined in Section 3(a) herein.

 

16.                               Payments to Beneficiaries

 

(a)                                 Upon a Change in Control, the Company shall,
as soon as possible but in no event later than ten business days after the
Change in Control, deliver to the Trustee a schedule (the “Payment Schedule”)
which reflects the benefits payable with respect to each Beneficiary on account
of the Change in Control.  Except as otherwise provided herein, the Trustee
shall make payments to Beneficiaries in accordance with such Payment Schedule. 
The Trustee shall make provisions for the reporting and withholding of any
federal, state or local taxes that may be required to be withheld with respect
to the payment of benefits pursuant to the terms of the Plan and shall pay
amounts withheld to the appropriate taxing authorities or determine that such
amounts have been reported, withheld, and paid by the Company.

 

(b)                                 The entitlement of a Beneficiary to benefits
under the Plan shall be determined by the Company or such party as may be
designated under the Plan, and any claim for such benefits shall be considered
and reviewed under the procedures set forth in the Plan.

 

(c)                                  The Company may make payment of benefits
directly to Beneficiaries as such benefits become due under the terms of the
Plan.  The Company shall notify the Trustee of its decision to make such payment
of benefits prior to the time benefits are payable to Beneficiaries.  In
addition, if the principal of the Trust, and any earnings thereon, are not
sufficient to make payments of benefits in accordance with the terms of the
Plan, the Company shall make the balance of each such payment as due.  The
Trustee shall notify the Company when existing principal and earnings are
insufficient under the Payment Schedule.

 

2

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

 

(d)                                 The Trustee shall make distributions from
the Trust in a manner reasonably intended to provide each Beneficiary with all
of his or her benefits payable under the Plan.

 

17.                               Trustee Responsibility Regarding Payments to
Trust Beneficiary When the Company Is Insolvent

 

(a)                                 The Trustee shall cease payment of benefits
to Beneficiaries if the Company is Insolvent.  The Company shall be considered
“Insolvent” for purposes of this Trust Agreement if (i) the Company is unable to
pay its debts when the same become due, or (ii) the Company files a voluntary
petition under Chapter 11 of the Federal Bankruptcy Code, or (iii) an
involuntary petition under Chapter 11 of the Federal Bankruptcy Code is filed
with respect to the Company.

 

(b)                                 At all times during the existence of this
Trust, as provided in Section 1(d) hereof, the principal and income of the Trust
shall be subject to claims of general creditors of the Company under federal and
state law as set forth below.

 

(c)                                  The Board of Directors and the Chief
Executive Officer of the Company shall have the duty to inform the Trustee in
writing of the Company’s Insolvency.  If a person claiming to be a creditor of
the Company alleges in writing to the Trustee that the Company has become
Insolvent, the Trustee shall determine whether the Company is Insolvent and,
pending such determination, the Trustee shall discontinue payment of benefits to
Beneficiaries.

 

(i)                                     Unless the Trustee has actual knowledge
of the Company’s Insolvency, or has received notice from the Company or a person
claiming to be a creditor alleging that the Company is Insolvent, the Trustee
shall have no duty to inquire whether the Company is Insolvent.  The Trustee may
in all events rely on such evidence concerning the Company’s solvency as may be
furnished to the Trustee and that provides the Trustee with a reasonable basis
for making a determination concerning the Company’s solvency.

 

(ii)                                  If at any time the Trustee has determined
that the Company is Insolvent, the Trustee shall discontinue payments to
Beneficiaries, shall liquidate the Trust’s investment, if any, in common stock
(“Common Stock”) of the Company, and shall hold the assets of the Trust for the
benefit of the Company’s general creditors.  Nothing in this Trust Agreement
shall in any way diminish any rights of Beneficiaries as general creditors of
the Company with respect to benefits due under the Plan or otherwise.

 

(iii)                               The Trustee shall resume the payment of
benefits to Beneficiaries in accordance with Section 2 of this Trust Agreement
only after the Trustee has determined that the Company is not Insolvent or is no
longer Insolvent.

 

(d)                                 If the Trustee discontinues the payment of
benefits from the Trust pursuant to Section 3(a) hereof and subsequently resumes
such payments, the first payment following such discontinuance shall include the
aggregate amount of all payments due to Beneficiaries under the terms of the
Plan for the period of such discontinuance, provided that there are sufficient
assets to make such payments.  The aggregate amount of any payments to
Beneficiaries by the Company, in lieu of the payments provided for hereunder
during any such period of discontinuance, shall be deducted from any payments
made by the Trustee hereunder.

 

3

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

 

18.                               Payments to the Company

 

After the Trust has become irrevocable, the Company shall have no right or power
to direct the Trustee to return to the Company or to divert to others any of the
Trust assets before all payment of benefits have been made to Beneficiaries
pursuant to the terms of the Plan, except as provided for in Section 3 hereof.

 

19.                               Investment Authority

 

(a)                                 The Trustee shall have the sole discretion
as to the investment of Trust assets, provided that the Trustee shall invest
Trust assets in a manner reasonably anticipated to provide the Trust with assets
sufficient to fund the Company’s obligations under the Plan.

 

(b)                                 All rights associated with assets of the
Trust shall be exercised by the Trustee or the person designated by the Trustee,
and shall in no event be exercisable by or through Beneficiaries.  The Company
shall have the continuing obligation to substitute liquid assets of equal fair
market value for any illiquid assets held by the Trust, and the Trustee shall
have full authority to convert any illiquid assets into liquid assets.

 

20.                               Disposition of Income

 

During the term of this Trust, all income received by the Trust, net of expenses
and taxes, shall be reinvested.

 

21.                               Accounting by Trustee

 

The Trustee shall keep accurate and detailed records of all investments,
receipts, disbursements of all transactions, including such specific records as
shall be agreed upon in writing between the Company and the Trustee.  Within 75
days following each December 31 after the execution of this Agreement, and
within 20 days after the removal or resignation of the Trustee, the Trustee
shall deliver to the Company a written account of its administration of the
Trust during such year or during the period from the close of the last preceding
year to the date of such removal or resignation, reflecting all investments,
receipts, disbursements and other transactions effected by it, including a
description of all securities and investments purchased and sold with the cost
or net proceeds of such purchases or sales (accrued interest paid or receivable
recorded separately), and reflecting all cash, securities and other property
held in the Trust at the end of such year or as of the date of such removal or
resignation, as applicable.

 

22.                               Responsibility of Trustee

 

(a)                                 The Trustee shall act with the care, skill,
prudence and diligence under the circumstances then prevailing that a prudent
person acting in like capacity and familiar with such matters would use in the
conduct of an enterprise of a like character and with like objectives,

 

4

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

 

provided, however, that the Trustee shall incur no liability to any person for
any action taken pursuant to a direction, request or approval given by the
Company which is contemplated by, and in conformity with, the terms of the Plan
or this Trust Agreement and is given in writing by the Company.  In the event of
a dispute between the Company and a party, the Trustee may apply to a court of
competent jurisdiction to resolve the dispute.

 

(b)                                 If the Trustee undertakes or defends any
litigation arising in connection with this Trust, the Company agrees to
indemnify the Trustee against Trustee’s costs, expense and liabilities
(including, without limitation, attorneys’ fees and expenses) relating thereto
and to be primarily liable for such payments, except in those cases where the
Trustee shall have been found by a court of competent jurisdiction to have acted
with negligence or willful misconduct.  If the Company does not pay such costs,
expenses and liabilities in a reasonably timely manner, the Trustee may obtain
payment from the Trust.

 

(c)                                  The Trustee may consult with legal counsel
with respect to any of its duties or obligations hereunder.

 

(d)                                 The Trustee may hire agents, accountants,
actuaries, investment advisors, financial consultants or other professionals to
assist it in performing any of its duties or obligations hereunder.

 

(e)                                  The Trustee shall have, without exclusion,
all powers conferred on trustees by applicable law, unless expressly provided
otherwise herein, provided, however, that if an insurance policy is held as an
asset of the Trust, the Trustee shall have no power to name a beneficiary of the
policy other than the Trust, to assign the policy (as distinct from conversion
of the policy to a different form) other than to a successor Trustee, or to loan
to any person the proceeds of any borrowing against such policy.

 

(f)                                    Notwithstanding any powers granted to the
Trustee pursuant to this Trust Agreement or to applicable law, the Trustee shall
not have any power that may accord the Trust the authority to engage in a
business and to receive the gains therefrom, within the meaning of section
301.7701-2 of the Procedure and Administrative Regulations promulgated pursuant
to the Code.

 

23.                               Compensation and Expenses of Trustee

 

The Company shall pay all administrative expenses and the Trustee’s fees and
expenses relating to the Plan and this Trust.  If not so paid, the fees and
expenses shall be paid from the Trust.

 

24.                               Resignation and Removal of Trustee

 

The Trustee may resign at any time by written notice to the Company, which
resignation shall be effective 30 days after the Company receives such notice
(unless the Company and the Trustee agree otherwise).  The Trustee may be
removed by the Company on 30 days notice, or upon shorter notice accepted by the
Trustee; provided that if such removal occurs on or after a Change in Control,
or within 90 days beforehand, the removal will be ineffective unless it is done
with the written consent of Beneficiaries who are entitled to at least 75% of
the Trust’s assets.

 

5

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

 

If the Trustee resigns or is removed, a successor shall be appointed, in
accordance with Section 11 hereof, by the effective date or resignation or
removal under this section.  If no such appointment has been made, the Trustee
may apply to a court of competent jurisdiction for appointment of a successor or
for instructions.  All expenses of the Trustee in connection with the proceeding
shall be allowed as administrative expenses of the Trust.  Upon resignation or
removal of the Trustee and appointment of a Successor Trustee, all assets shall
subsequently be transferred to the Successor Trustee.  The transfer shall be
completed within 60 days after receipt of a notice of resignation, removal or
transfer, unless the Company extends the time for such transfer.

 

25.                               Appointment of Successor

 

If the Trustee resigns or is removed in accordance with Section 10 hereof, the
Company may appoint any other party as a successor to replace the Trustee upon
such resignation or removal.  The appointment shall be effective when accepted
in writing by the new trustee, who shall have all of the rights and powers of
the former trustee, including ownership rights in the Trust assets.  The former
trustee shall execute any instrument necessary or reasonably requested by the
Company or the Successor Trustee to evidence the transfer.  Notwithstanding the
foregoing, if the Trustee resigns or is removed in connection with or following
a Change in Control, the Trustee that has resigned or is being removed shall
appoint as its successor a third party financial institution that has trust
powers, is independent of and unrelated to the Company, its affiliates, or their
successors, and is agreed to in writing by Beneficiaries who are entitled to at
least 75% of the Trust’s assets.

 

A Successor Trustee need not examine the records and acts of any prior trustee
and may retain or dispose of existing Trust assets, subject to Sections 7 and 8
hereof.  The Successor Trustee shall not be responsible for, and the Company
shall indemnify and defend the Successor Trustee from, any claim or liability
resulting from any action or inaction of any prior trustee or from any other
past event, or any condition existing at the time it becomes Successor Trustee.

 

26.                               Amendment or Termination

 

(a)                                 This Trust Agreement may be amended by a
written instrument executed by the Trustee and the Company, provided that no
such amendment shall either conflict with the terms of the Plan.

 

(b)                                 Notwithstanding subsection (a) hereof, the
provisions of this Trust Agreement and the Trust created thereby may not be
amended, within six months before or at any time on or after a Change in Control
occurs, without the written consent of Beneficiaries who are entitled to at
least 75% of the Trust’s assets.

 

(c)                                  The Trust shall not terminate until the
date on which no Beneficiary is entitled to benefits pursuant to the terms
hereof or of the Plan.  Upon termination of the Trust, the Trustee shall return
any assets remaining in the Trust to the Company.

 

6

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

 

(d)                                 The Company may terminate this Trust prior
to the payment of all benefits under the Plan only upon written approval of all
Beneficiaries entitled to payment of such benefits.

 

27.                               Miscellaneous

 

(a)                                 Any provision of this Trust Agreement
prohibited by law shall be ineffective to the extent of any such prohibition,
without invalidating the remaining provisions hereof.

 

(b)                                 Benefits payable to Beneficiaries under this
Trust Agreement may not be anticipated, assigned (either at law or in equity),
alienated, pledged, encumbered or subjected to attachment, garnishment, levy,
execution or other legal or equitable process, except pursuant to the terms of
the Plan and this Trust Agreement.

 

(c)                                  This Trust Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware without
reference to the principles of conflicts of laws.

 

(d)                                 The Trustee agrees to be bound by the terms
of the Plan, as in effect from time to time.

 

28.                               Effective Date

 

The Effective Date of this Trust Agreement shall be the date referenced in the
Preamble.

 

IN WITNESS WHEREOF, the Company, by its duly authorized officer, has caused this
Trust Agreement to be executed, and its corporate seal affixed, and the Trustee
has executed this Trust Agreement, on the date referenced in the Preamble.

 

 

Witnessed by:

 

SRS LABS, INC.

 

 

 

 

 

 

 

 

By

 

 

 

 

 

 

 

 

Its

 

 

 

 

 

 

 

Witnessed by:

 

TRUSTEE

 

 

 

 

 

 

 

 

 

 

7

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