EXHIBIT 10.1

 

2003 EQUITY INCENTIVE PLAN

OF

DTS, INC.

 

1.                                  Purpose of this Plan

 

The purpose of this 2003 Equity Incentive Plan is to enhance the long-term
stockholder value of DTS, Inc. by offering opportunities to eligible individuals
to participate in the growth in value of the equity of DTS, Inc.

 

2.                                  Definitions and Rules of Interpretation

 

2.1                            Definitions

 

This Plan uses the following defined terms:

 

(a)                                      “Administrator” means the Board, the
Committee, or any officer or employee of the Company to whom the Board or the
Committee delegates authority to administer this Plan.

 

(b)                                      “Affiliate” means a “parent” or
“subsidiary” (as each is defined in Section 424 of the Code) of the Company and
any other entity that the Board or Committee designates as an “Affiliate” for
purposes of this Plan.

 

(c)                                       “Applicable Law” means any and all
laws of whatever jurisdiction, within or without the United States, and the
rules of any stock exchange or quotation system on which Shares are listed or
quoted, applicable to the taking or refraining from taking of any action under
this Plan, including the administration of this Plan and the issuance or
transfer of Awards or Award Shares.

 

(d)                                      “Award” means a Stock Award, SAR, Cash
Award, or Option granted in accordance with the terms of this Plan.

 

(e)                                       “Award Agreement” means the document
evidencing the grant of an Award.

 

(f)                                          “Award Shares” means Shares covered
by an outstanding Award or purchased under an Award.

 

(g)                                      “Awardee” means: (i) a person to whom
an Award has been granted, including a holder of a Substitute Award, (ii) a
person to whom an Award has been transferred in accordance with all applicable
requirements of Sections 6.5, 7(h), and 17.

 

(h)                                      “Board” means the Board of Directors of
the Company.

 

(i)                                         “Cash Award” means the right to
receive cash as described in Section 8.3.

 

(j)                                          “Change in Control” means any
transaction or event that the Board specifies as a Change in Control under
Section 10.4.

 

(k)                                      “Code” means the Internal Revenue Code
of 1986.

 

(l)                                         “Committee” means a committee
composed of Company Directors appointed in accordance with the Company’s charter
documents and Section 4.

 

(m)                                    “Company” means DTS, Inc., a Delaware
corporation.

 

(n)                                      “Company Director” means a member of
the Board.

 

(o)                                      “Consultant” means an individual who,
or an employee of any entity that, provides bona fide services to the Company or
an Affiliate not in connection with the offer or sale of securities in a
capital-raising transaction, but who is not an Employee.

 

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(p)                                      “Director” means a member of the Board
of Directors of the Company or an Affiliate.

 

(q)                                      “Divestiture” means any transaction or
event that the Board specifies as a Divestiture under Section 10.5.

 

(r)                                        “Domestic Relations Order” means a
“domestic relations order” as defined in, and otherwise meeting the requirements
of, Section 414(p) of the Code, except that reference to a “plan” in that
definition shall be to this Plan.

 

(s)                                        “Effective Date” means the first date
of the sale by the Company of shares of its capital stock in an initial public
offering pursuant to a registration statement on Form S-1 filed with the SEC.

 

(t)                                         “Employee” means a regular employee
of the Company or an Affiliate, including an officer or Director, who is treated
as an employee in the personnel records of the Company or an Affiliate, but not
individuals who are classified by the Company or an Affiliate as: (i) leased
from or otherwise employed by a third party, (ii) independent contractors, or
(iii) intermittent or temporary workers.  The Company’s or an Affiliate’s
classification of an individual as an “Employee” (or as not an “Employee”) for
purposes of this Plan shall not be altered retroactively even if that
classification is changed retroactively for another purpose as a result of an
audit, litigation or otherwise.  An Awardee shall not cease to be an Employee
due to transfers between locations of the Company, or between the Company and an
Affiliate, or to any successor to the Company or an Affiliate that assumes the
Awardee’s Options under Section 10.  Neither service as a Director nor receipt
of a director’s fee shall be sufficient to make a Director an “Employee”.

 

(u)                                      “Exchange Act” means the Securities
Exchange Act of 1934.

 

(v)                                       “Executive” means, if the Company has
any class of any equity security registered under Section 12 of the Exchange
Act, an individual who is subject to Section 16 of the Exchange Act or who is a
“covered employee” under Section 162(m) of the Code, in either case because of
the individual’s relationship with the Company or an Affiliate.  If the Company
does not have any class of any equity security registered under Section 12 of
the Exchange Act, “Executive” means any (i) Director, (ii) officer elected or
appointed by the Board, or (iii) beneficial owner of more than 10% of any class
of the Company’s equity securities.

 

(w)                                    “Expiration Date” means, with respect to
an Award, the date stated in the Award Agreement as the expiration date of the
Award or, if no such date is stated in the Award Agreement, then the last day of
the maximum exercise period for the Award, disregarding the effect of an
Awardee’s Termination or any other event that would shorten that period.

 

(x)                                       “Fair Market Value” means the value of
Shares as determined under Section 18.2.

 

(y)                                       “Fundamental Transaction” means any
transaction or event described in Section 10.3.

 

(z)                                        “Grant Date” means the date the
Administrator approves the grant of an Award.  However, if the Administrator
specifies that an Award’s Grant Date is a future date or the date on which a
condition is satisfied, the Grant Date for such Award is that future date or the
date that the condition is satisfied.

 

(aa)                               “Incentive Stock Option” means an Option
intended to qualify as an incentive stock option under Section 422 of the Code
and designated as an Incentive Stock Option in the Award Agreement for that
Option.

 

(bb)                               “Nonstatutory Option” means any Option other
than an Incentive Stock Option.

 

(cc)                                 “Non-Employee Director” means any person
who is a member of the Board but is not an Employee of the Company or any
Affiliate of the Company and has not been an Employee of the Company or any
Affiliate of the Company at any time during the preceding twelve months. Service
as a Director does not in itself constitute employment for purposes of this
definition.

 

(dd)                               “Objectively Determinable Performance
Condition” shall mean a performance condition (i) that is established (A) at the
time an Award is granted or (B)  no later than the earlier of (1) 90 days after
the beginning of the period of service to which it relates, or (2) before the
elapse of 25% of the period of service to which it relates, (ii) that is
uncertain of achievement at the time it is established, and (iii) the
achievement of which is determinable by a third party with knowledge of the
relevant facts.  Examples of measures that may be used in Objectively
Determinable Performance Conditions include net order dollars, net profit
dollars, net profit growth, net revenue dollars, revenue growth, individual

 

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performance, earnings per share, return on assets, return on equity, and other
financial objectives, objective customer satisfaction indicators and efficiency
measures, each with respect to the Company and/or an Affiliate or individual
business unit.

 

(ee)                                 “Officer” means an officer of the Company
as defined in Rule 16a-1 adopted under the Exchange Act.

 

(ff)                                       “Option” means a right to purchase
Shares of the Company granted under this Plan.

 

(gg)                               “Option Price” means the price payable under
an Option for Shares, not including any amount payable in respect of withholding
or other taxes.

 

(hh)                               “Option Shares” means Shares covered by an
outstanding Option or purchased under an Option.

 

(ii)                                     “Plan” means this 2003 Equity Incentive
Plan of DTS, Inc.

 

(jj)                                       “Prior Plans” means the Company’s
1997 Stock Option Plan and the 2002 Stock Option Plan in effect.

 

(kk)                               “Purchase Price” means the price payable
under a Stock Award for Shares, not including any amount payable in respect of
withholding or other taxes.

 

(ll)                                     “Rule 16b-3” means Rule 16b-3 adopted
under Section 16(b) of the Exchange Act.

 

(mm)                           “SAR” or “Stock Appreciation Right” means a right
to receive cash based on a change in the Fair Market Value of a specific number
of Shares pursuant to an Award Agreement, as described in Section 8.1.

 

(nn)                               “Securities Act” means the Securities Act of
1933.

 

(oo)                               “Share” means a share of the common stock of
the Company or other securities substituted for the common stock under
Section 10.

 

(pp)                               “Stock Award” means an offer by the Company
to sell shares subject to certain restrictions pursuant to the Award Agreement
as described in Section 8.2.

 

(qq)                               “Substitute Award” means a Substitute Option,
Substitute SAR or Substitute Stock Award granted in accordance with the terms of
this Plan.

 

(rr)                                   “Substitute Option” means an Option
granted in substitution for, or upon the conversion of, an option granted by
another entity to purchase equity securities in the granting entity.

 

(ss)                                   “Substitute SAR” means a SAR granted in
substitution for, or upon the conversion of, a stock appreciation right granted
by another entity with respect to equity securities in the granting entity.

 

(tt)                                     “Substitute Stock Award” means a Stock
Award granted in substitution for, or upon the conversion of, a stock award
granted by another entity to purchase equity securities in the granting entity.

 

(uu)                               “Termination” means that the Awardee has
ceased to be, with or without any cause or reason, an Employee, Director or
Consultant.  However, unless so determined by the Administrator, or otherwise
provided in this Plan, “Termination” shall not include a change in status from
an Employee, Consultant or Director to another such status.  An event that
causes an Affiliate to cease being an Affiliate shall be treated as the
“Termination” of that Affiliate’s Employees, Directors, and Consultants.

 

2.2                            Rules of Interpretation

 

Any reference to a “Section,” without more, is to a Section of this Plan. 
Captions and titles are used for convenience in this Plan and shall not, by
themselves, determine the meaning of this Plan.  Except when otherwise indicated
by the context, the singular includes the plural and vice versa.  Any reference
to a statute is also a reference to the applicable rules and regulations adopted
under that statute.  Any reference to a statute, rule or regulation, or to a
section of a statute,

 

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rule or regulation, is a reference to that statute, rule, regulation, or section
as amended from time to time, both before and after the Effective Date and
including any successor provisions.

 

3.                                      Shares Subject to this Plan; Term of
this Plan

 

3.1                            Number of Award Shares

 

The Shares issuable under this Plan shall be authorized but unissued or
reacquired Shares, including Shares repurchased by the Company on the open
market. The number of Shares initially reserved for issuance over the term of
this Plan shall not exceed 3,000,000 Shares.  Such reserve shall consist of
(i) the number of Shares available for issuance, as of the Effective Date, under
the Prior Plans as last approved by the Company’s stockholders, including the
Shares subject to outstanding options under the Prior Plans, plus (ii) those
Shares issued under the Prior Plans that are forfeited or repurchased by the
Company or that are issuable upon exercise of options granted pursuant to the
Prior Plans that expire or become unexercisable for any reason without having
been exercised in full after the Effective Date, plus (iii) an additional
increase of approximately 928,949 Shares to be approved by the Company’s
stockholders prior to the Effective Date.  The maximum number of Shares shall be
cumulatively increased on the first January 1 after the Effective Date and each
January 1 thereafter for 10 years, by a number of Shares equal to the least of
(a) 4% of the number of Shares issued and outstanding on the immediately
preceding December 31, (b) 1,500,000 Shares, and (c) a number of Shares set by
the Board.  When an Award is granted, the maximum number of Shares that may be
issued under this Plan shall be reduced by the number of Shares covered by that
Award.  However, if an Award later terminates or expires without having been
exercised in full, the maximum number of shares that may be issued under this
Plan shall be increased by the number of Shares that were covered by, but not
purchased under, that Award.  By contrast, the repurchase of Shares by the
Company shall not increase the maximum number of Shares that may be issued under
this Plan.  Notwithstanding anything in this Plan to the contrary, at no time
during the eighteen (18) months following the Effective Date may the sum of the
number of Shares subject to Awards under this Plan and the number of Shares
subject to options under the Prior Plans exceed 15% of the outstanding Shares on
a “fully diluted” basis.  For the purposes of this Section 3.1, outstanding
Shares on a “fully diluted” basis shall be the number of Shares that is equal to
(x) the number of Shares issued and outstanding plus (y) all Shares subject to
or available for Awards or options under this Plan and the Prior Plans,
respectively, and 50% of the Shares then issuable upon the exercise of warrants
that were outstanding on the Effective Date of the Plan.

 

3.2                            Source of Shares

 

Award Shares may be:  (a) Shares that have never been issued, (b) Shares that
have been issued but are no longer outstanding, or (c) Shares that are
outstanding and are acquired to discharge the Company’s obligation to deliver
Award Shares.

 

3.3                            Term of this Plan

 

(a)                                      This Plan shall be effective on, and
Awards may be granted under this Plan on and after, the earliest the date on
which the Plan has been both adopted by the Board and approved by the Company’s
stockholders.

 

(b)                                      Subject to the provisions of
Section 14, Awards may be granted under this Plan for a period of ten years from
the earlier of the date on which the Board approves this Plan and the date the
Company’s stockholders approve this Plan.  Accordingly, Awards may not be
granted under this Plan after the earlier of those dates.

 

4.                                  Administration

 

4.1                            General

 

(a)                                      The Board shall have ultimate
responsibility for administering this Plan.  The Board may delegate certain of
its responsibilities to a Committee, which shall consist of at least two members
of the Board.  The Board or the Committee may further delegate its
responsibilities to any Employee of the Company or any Affiliate.  Where this
Plan specifies that an action is to be taken or a determination made by the
Board, only the Board may take that action or make that determination.  Where
this Plan specifies that an action is to be taken or a determination made by the
Committee, only the Committee may take that action or make that determination. 
Where this Plan references the “Administrator,” the action may be taken or
determination made by the Board, the Committee, or other Administrator. 
However, only the Board or the Committee may approve grants of Awards to
Executives, and an Administrator other than the Board or the Committee may grant
Awards only within guidelines established by the Board or Committee.  Moreover,
all actions and determinations by any Administrator are subject to the
provisions of this Plan.

 

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(b)                                      So long as the Company has registered
and outstanding a class of equity securities under Section 12 of the Exchange
Act, the Committee shall consist of Company Directors who are “Non-Employee
Directors” as defined in Rule 16b-3 and, after the expiration of any transition
period permitted by Treasury Regulations Section 1.162-27(h)(3), who are
“outside directors” as defined in Section 162(m) of the Code.

 

4.2                            Authority of the Board or the Committee

 

Subject to the other provisions of this Plan, the Board or the Committee shall
have the authority to:

 

(a)                                      grant Awards, including Substitute
Awards;

 

(b)                                      determine the Fair Market Value of
Shares;

 

(c)                                       determine the Option Price and the
Purchase Price of Awards;

 

(d)                                      select the Awardees;

 

(e)                                       determine the times Awards are
granted;

 

(f)                                          determine the number of Shares
subject to each Award;

 

(g)                                      determine the methods of payment that
may be used to purchase Award Shares;

 

(h)                                      determine the methods of payment that
may be used to satisfy withholding tax obligations;

 

(i)                                         determine the other terms of each
Award, including but not limited to the time or times at which Awards may be
exercised, whether and under what conditions an Award is assignable, and whether
an Option is a Nonstatutory Option or an Incentive Stock Option;

 

(j)                                          modify or amend any Award;

 

(k)                                      authorize any person to sign any Award
Agreement or other document related to this Plan on behalf of the Company;

 

(l)                                         determine the form of any Award
Agreement or other document related to this Plan, and whether that document,
including signatures, may be in electronic form;

 

(m)                                    interpret this Plan and any Award
Agreement or document related to this Plan;

 

(n)                                      correct any defect, remedy any
omission, or reconcile any inconsistency in this Plan, any Award Agreement or
any other document related to this Plan;

 

(o)                                      adopt, amend, and revoke rules and
regulations under this Plan, including rules and regulations relating to
sub-plans and Plan addenda;

 

(p)                                      adopt, amend, and revoke special
rules and procedures which may be inconsistent with the terms of this Plan, set
forth (if the Administrator so chooses) in sub-plans regarding (for example) the
operation and administration of this Plan and the terms of Awards, if and to the
extent necessary or useful to accommodate non-U.S. Applicable Laws and practices
as they apply to Awards and Award Shares held by, or granted or issued to,
persons working or resident outside of the United States or employed by
Affiliates incorporated outside the United States;

 

(q)                                      determine whether a transaction or
event should be treated as a Change in Control, a Divestiture or neither;

 

(r)                                        determine the effect of a Fundamental
Transaction and, if the Board determines that a transaction or event should be
treated as a Change in Control or a Divestiture, then the effect of that Change
in Control or Divestiture; and

 

(s)                                        make all other determinations the
Administrator deems necessary or advisable for the administration

 

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of this Plan.

 

4.3                            Scope of Discretion

 

Subject to the provisions of this Section 4.3, on all matters for which this
Plan confers the authority, right or power on the Board, the Committee, or other
Administrator to make decisions, that body may make those decisions in its sole
and absolute discretion.  Those decisions will be final, binding and
conclusive.  In making its decisions, the Board, Committee or other
Administrator need not treat all persons eligible to receive Awards, all
Awardees, all Awards or all Award Shares the same way.  Notwithstanding anything
herein to the contrary, and except as provided in Section 14.3, the discretion
of the Board, Committee or other Administrator is subject to the specific
provisions and specific limitations of this Plan, as well as all rights
conferred on specific Awardees by Award Agreements and other agreements.

 

5.                                      Persons Eligible to Receive Awards

 

5.1                            Eligible Individuals

 

Awards (including Substitute Awards) may be granted to, and only to, Employees,
Directors and Consultants, including to prospective Employees, Directors and
Consultants conditioned on the beginning of their service for the Company or an
Affiliate.  However, Incentive Stock Options may only be granted to Employees,
as provided in Section 7(g).

 

5.2                            Section 162(m) Limitation

 

(a)                                      Options and SARs  Subject to the
provisions of this Section 5.2, for so long as the Company is a “publicly held
corporation” within the meaning of Section 162(m) of the Code: (i) no Employee
may be granted one or more SARs and Options within any fiscal year of the
Company under this Plan to purchase more than 1,500,000 Shares under Options or
to receive compensation calculated with reference to more than that number of
Shares under SARs, subject to adjustment pursuant to Section 10, (ii) Options
and SARs may be granted to an Executive only by the Committee (and,
notwithstanding anything to the contrary in Section 4.1(a), not by the Board). 
If an Option or SAR is cancelled without being exercised or if the Option Price
of an Option is reduced, that cancelled or repriced Option or SAR shall continue
to be counted against the limit on Awards that may be granted to any individual
under this Section 5.2.  Notwithstanding anything herein to the contrary, a new
Employee of the Company or an Affiliate shall be eligible to receive up to a
maximum of 2,000,000 Shares under Options in the calendar year in which they
commence employment, or such compensation calculated with reference to such
number of Shares under SARs, subject to adjustment pursuant to Section 10.

 

(b)                                      Cash Awards and Stock Awards  Any Cash
Award or Stock Award intended as “qualified performance-based compensation”
within the meaning of Section 162(m) of the Code must vest or become exercisable
contingent on the achievement of one or more Objectively Determinable
Performance Conditions.  The Committee shall have the discretion to determine
the time and manner of compliance with Section 162(m) of the Code.

 

6.                                  Terms and Conditions of Option

 

The following rules apply to all Options:

 

6.1                            Price

 

No Nonstatutory Option may have an Option Price less than 85% of the Fair Market
Value of the Shares on the Grant Date.  No Option intended as “qualified
incentive-based compensation” within the meaning of Section 162(m) of the Code
may have an Option Price less than 100% of the Fair Market Value of the Shares
on the Grant Date.  In no event will the Option Price of any Option be less than
the par value of the Shares issuable under the Option if that is required by
Applicable Law.  The Option Price of an Incentive Stock Option shall be subject
to Section 7(f).

 

6.2                            Term

 

No Option shall be exercisable after its Expiration Date.  No Option may have an
Expiration Date that is more than ten years after its Grant Date.  Additional
provisions regarding the term of Incentive Stock Options are provided in
Sections 7(a) and 7(e).

 

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6.3                            Vesting

 

Options shall be exercisable: (a) on the Grant Date, or (b) in accordance with a
schedule related to the Grant Date, the date the Optionee’s directorship,
employment or consultancy begins, or a different date specified in the Option
Agreement.  Additional provisions regarding the vesting of Incentive Stock
Options are provided in Section 7(c).  No Option granted to an individual who is
subject to the overtime pay provisions of the Fair Labor Standards Act may be
exercised before the expiration of six months after the Grant Date.

 

6.4                            Form and Method of Payment

 

(a)                                      The Board or Committee shall determine
the acceptable form and method of payment for exercising an Option.

 

(b)                                      Acceptable forms of payment for all
Option Shares are cash, check or wire transfer, denominated in U.S. dollars
except as specified by the Administrator for non-U.S. Employees or non-U.S.
sub-plans.

 

(c)                                       In addition, the Administrator may
permit payment to be made by any of the following methods:

 

(i)                                           other Shares, or the designation
of other Shares, which (A) are “mature” shares for purposes of avoiding variable
accounting treatment under generally accepted accounting principles (generally
mature shares are those that have been owned by the Optionee for more than six
months on the date of surrender), and (B) have a Fair Market Value on the date
of surrender equal to the Option Price of the Shares as to which the Option is
being exercised;

 

(ii)                                       provided that a public market exists
for the Shares, consideration received by the Company under a procedure under
which a licensed broker-dealer advances funds on behalf of an Optionee or sells
Option Shares on behalf of an Optionee (a “  Cashless Exercise Procedure  ”),
provided that if the Company extends or arranges for the extension of credit to
an Optionee under any Cashless Exercise Procedure, no Officer or Director may
participate in that Cashless Exercise Procedure;

 

(iii)                                   with respect only to Optionees who are
neither Officers nor Directors as of the date of exercise, one or more
promissory notes meeting the requirements of Section 6.4(e) provided, however,
that promissory notes may not be used for any portion of an Award which is not
vested at the time of exercise;

 

(iv)                                     cancellation of any debt owed by the
Company or any Affiliate to the Optionee by the Company including without
limitation waiver of compensation due or accrued for services previously
rendered to the Company; and

 

(v)                                         any combination of the methods of
payment permitted by any paragraph of this Section 6.4.

 

(d)                                      The Administrator may also permit any
other form or method of payment for Option Shares permitted by Applicable Law.

 

(e)                                  The promissory notes referred to in
Section 6.4(c)(iii) shall be full recourse.  Unless the Committee specifies
otherwise after taking into account any relevant accounting issues, the
promissory notes shall bear interest at a fair market value rate when the Option
is exercised.  Interest on the promissory notes shall also be at least
sufficient to avoid imputation of interest under Sections 483, 1274, and 7872 of
the Code.  The promissory notes and their administration shall at all times
comply with any applicable margin rules of the Federal Reserve.  The promissory
notes may also include such other terms as the Administrator specifies.  Payment
may not be made by promissory note by Officers or Directors if Shares are
registered under Section 12 of the Exchange Act.

 

6.5                            Nonassignability of Options

 

Except as determined by the Administrator, no Option shall be assignable or
otherwise transferable by the Optionee except by will or by the laws of descent
and distribution.  However, Options may be transferred and exercised in
accordance with a Domestic Relations Order and may be exercised by a guardian or
conservator appointed to act for the Optionee.  Incentive Stock Options may only
be assigned in compliance with Section 7(h).

 

6.6                            Substitute Options

 

The Board may cause the Company to grant Substitute Options in connection with
the acquisition by the

 

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Company or an Affiliate of equity securities of any entity (including by merger,
tender offer, or other similar transaction) or of all or a portion of the assets
of any entity.  Any such substitution shall be effective on the effective date
of the acquisition.  Substitute Options may be Nonstatutory Options or Incentive
Stock Options.  Unless and to the extent specified otherwise by the Board,
Substitute Options shall have the same terms and conditions as the options they
replace, except that (subject to the provisions of Section 10) Substitute
Options shall be Options to purchase Shares rather than equity securities of the
granting entity and shall have an Option Price determined by the Board.

 

6.7                            Repricings

 

In furtherance of, and not in limitation of the provisions of Section 10,
Options may be repriced, replaced or regranted through cancellation or
modification without stockholder approval.

 

7.                                      Incentive Stock Options

 

The following rules apply only to Incentive Stock Options and only to the extent
these rules are more restrictive than the rules that would otherwise apply under
this Plan.  With the consent of the Optionee, or where this Plan provides that
an action may be taken notwithstanding any other provision of this Plan, the
Administrator may deviate from the requirements of this Section, notwithstanding
that any Incentive Stock Option modified by the Administrator will thereafter be
treated as a Nonstatutory Option.

 

(a)                                      The Expiration Date of an Incentive
Stock Option shall not be later than ten years from its Grant Date, with the
result that no Incentive Stock Option may be exercised after the expiration of
ten years from its Grant Date.

 

(b)                                      No Incentive Stock Option may be
granted more than ten years from the date this Plan was approved by the Board.

 

(c)                                       Options intended to be incentive stock
options under Section 422 of the Code that are granted to any single Optionee
under all incentive stock option plans of the Company and its Affiliates,
including incentive stock options granted under this Plan, may not vest at a
rate of more than $100,000 in Fair Market Value of stock (measured on the grant
dates of the options) during any calendar year.  For this purpose, an option
vests with respect to a given share of stock the first time its holder may
purchase that share, notwithstanding any right of the Company to repurchase that
share.  Unless the administrator of that option plan specifies otherwise in the
related agreement governing the option, this vesting limitation shall be applied
by, to the extent necessary to satisfy this $100,000 rule, treating certain
stock options that were intended to be incentive stock options under Section 422
of the Code as Nonstatutory Options.  The stock options or portions of stock
options to be reclassified as Nonstatutory Options are those with the highest
option prices, whether granted under this Plan or any other equity compensation
plan of the Company or any Affiliate that permits that treatment.  This
Section 7(c) shall not cause an Incentive Stock Option to vest before its
original vesting date or cause an Incentive Stock Option that has already vested
to cease to be vested.

 

(d)                                      In order for an Incentive Stock Option
to be exercised for any form of payment other than those described in
Section 6.4(b), that right must be stated at the time of grant in the Option
Agreement relating to that Incentive Stock Option.

 

(e)                                       Any Incentive Stock Option granted to
a Ten Percent Stockholder, must have an Expiration Date that is not later than
five years from its Grant Date, with the result that no such Option may be
exercised after the expiration of five years from the Grant Date.  A “  Ten
Percent Stockholder  ” is any person who, directly or by attribution under
Section 424(d) of the Code, owns stock possessing more than ten percent of the
total combined voting power of all classes of stock of the Company or of any
Affiliate on the Grant Date.

 

(f)                                          The Option Price of an Incentive
Stock Option shall never be less than the Fair Market Value of the Shares at the
Grant Date.  The Option Price for the Shares covered by an Incentive Stock
Option granted to a Ten Percent Stockholder shall never be less than 110% of the
Fair Market Value of the Shares at the Grant Date.

 

(g)                                      Incentive Stock Options may be granted
only to Employees.  If an Optionee changes status from an Employee to a
Consultant, that Optionee’s Incentive Stock Options become Nonstatutory Options
if not exercised within the time period described in Section 7(i) (determined by
treating that change in status as a Termination solely for purposes of this
Section 7(g)).

 

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(h)                                      No rights under an Incentive Stock
Option may be transferred by the Optionee, other than by will or the laws of
descent and distribution.  During the life of the Optionee, an Incentive Stock
Option may be exercised only by the Optionee.  The Company’s compliance with a
Domestic Relations Order, or the exercise of an Incentive Stock Option by a
guardian or conservator appointed to act for the Optionee, shall not violate
this Section 7(h).

 

(i)                                         An Incentive Stock Option shall be
treated as a Nonstatutory Option if it remains exercisable after, and is not
exercised within, the three-month period beginning with the Optionee’s
Termination for any reason other than the Optionee’s death or disability (as
defined in Section 22(e) of the Code).  In the case of Termination due to death,
an Incentive Stock Option shall continue to be treated as an Incentive Stock
Option if it remains exercisable after, and is not exercised within, the
three-month period after the Optionee’s Termination provided it is exercised
before the Expiration Date.  In the case of Termination due to disability, an
Incentive Stock Option shall be treated as a Nonstatutory Option if it remains
exercisable after, and is not exercised within, one year after the Optionee’s
Termination.

 

(j)                                          An Incentive Stock Option may only
be modified by the Board.

 

8.                                      Stock Appreciation Rights, Stock Awards
and Cash Awards

 

8.1                            Stock Appreciation Rights

 

The following rules apply to SARs:

 

(a)                                      General.  SARs may be granted either
alone, in addition to, or in tandem with other Awards granted under this Plan.
The Administrator may grant SARs to eligible participants subject to terms and
conditions not inconsistent with this Plan and determined by the Administrator.
The specific terms and conditions applicable to the Awardee shall be provided
for in the Award Agreement. SARs shall be exercisable, in whole or in part, at
such times as the Administrator shall specify in the Award Agreement.  The grant
or vesting of a SAR may be made contingent on the achievement of Objectively
Determinable Performance Conditions.

 

(b)                                      Exercise of SARs.  Upon the exercise of
an SAR, in whole or in part, an Awardee shall be entitled to a payment in an
amount equal to the excess of the Fair Market Value of a fixed number of Shares
covered by the exercised portion of the SAR on the date of exercise, over the
Fair Market Value of the Shares covered by the exercised portion of the SAR on
the Grant Date.  The amount due to the Awardee upon the exercise of a SAR shall
be paid in cash, Shares or a combination thereof, over the period or periods
specified in the Award Agreement.  An Award Agreement may place limits on the
amount that may be paid over any specified period or periods upon the exercise
of a SAR, on an aggregate basis or as to any Awardee.  A SAR shall be considered
exercised when the Company receives written notice of exercise in accordance
with the terms of the Award Agreement from the person entitled to exercise the
SAR.  If a SAR has been granted in tandem with an Option, upon the exercise of
the SAR, the number of shares that may be purchased pursuant to the Option shall
be reduced by the number of shares with respect to which the SAR is exercised.

 

(c)                                       Nonassignability of SARs.  Except as
determined by the Administrator, no SAR shall be assignable or otherwise
transferable by the Awardee except by will or by the laws of descent and
distribution.  Notwithstanding anything herein to the contrary, SARs may be
transferred and exercised in accordance with a Domestic Relations Order.

 

(d)                                      Substitute SARs.  The Board may cause
the Company to grant Substitute SARs in connection with the acquisition by the
Company or an Affiliate of equity securities of any entity (including by merger)
or all or a portion of the assets of any entity.  Any such substitution shall be
effective on the effective date of the acquisition.  Unless and to the extent
specified otherwise by the Board, Substitute SARs shall have the same terms and
conditions as the options they replace, except that (subject to the provisions
of Section 10) Substitute SARs shall be exercisable with respect to the Fair
Market Value of Shares rather than equity securities of the granting entity and
shall be on terms that, as determined by the Board in its sole and absolute
discretion, properly reflects the substitution.

 

(e)                                       Repricings.  A SAR may be repriced,
replaced or regranted, through cancellation or modification without stockholder
approval.

 

8.2                            Stock Awards

 

The following rules apply to all Stock Awards:

 

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(a)                                      General.  The specific terms and
conditions of a Stock Award applicable to the Awardee shall be provided for in
the Award Agreement. The Award Agreement shall state the number of Shares that
the Awardee shall be entitled to receive or purchase, the terms and conditions
on which the Shares shall vest, the price to be paid and, if applicable, the
time within which the Awardee must accept such offer. The offer shall be
accepted by execution of the Award Agreement.  The Administrator may require
that all Shares subject to a right of repurchase or risk of forfeiture be held
in escrow until such repurchase right or risk of forfeiture lapses.  The grant
or vesting of a Stock Award may be made contingent on the achievement of
Objectively Determinable Performance Conditions.

 

(b)                                      Right of Repurchase.  If so provided in
the Award Agreement, Award Shares acquired pursuant to a Stock Award may be
subject to repurchase by the Company or an Affiliate if not vested in accordance
with the Award Agreement.

 

(c)                                       Form of Payment.  The Administrator
shall determine the acceptable form and method of payment for exercising a Stock
Award.  Acceptable forms of payment for all Award Shares are cash, check or wire
transfer, denominated in U.S. dollars except as specified by the Administrator
for non-U.S. Employees or non-U.S. sub-plans.  In addition, the Administrator
may permit payment to be made by any of the methods permitted with respect to
the exercise of Options pursuant to Section 6.4.

 

(d)                                      Nonassignability of Stock Awards. 
Except as determined by the Administrator, no Stock Award shall be assignable or
otherwise transferable by the Awardee except by will or by the laws of descent
and distribution.  Notwithstanding anything to the contrary herein, Stock Awards
may be transferred and exercised in accordance with a Domestic Relations Order.

 

(e)                                       Substitute Stock Award.  The Board may
cause the Company to grant Substitute Stock Awards in connection with the
acquisition by the Company or an Affiliate of equity securities of any entity
(including by merger) or all or a portion of the assets of any entity.  Unless
and to the extent specified otherwise by the Board, Substitute Stock Awards
shall have the same terms and conditions as the stock awards they replace,
except that (subject to the provisions of Section 10) Substitute Stock Awards
shall be Stock Awards to purchase Shares rather than equity securities of the
granting entity and shall have a Purchase Price that, as determined by the Board
in its sole and absolute discretion, properly reflects the substitution.  Any
such Substituted Stock Award shall be effective on the effective date of the
acquisition.

 

8.3                            Cash Awards

 

The following rules apply to all Cash Awards:

 

Cash Awards may be granted either alone, in addition to, or in tandem with other
Awards granted under this Plan. After the Administrator determines that it will
offer a Cash Award, it shall advise the Awardee, by means of an Award Agreement,
of the terms, conditions and restrictions related to the Cash Award.

 

9.                                  Exercise of Awards

 

9.1                            In General

 

An Award shall be exercisable in accordance with this Plan and the Award
Agreement under which it is granted.

 

9.2                            Time of Exercise

 

Options and Stock Awards shall be considered exercised when the Company
receives: (a) written notice of exercise from the person entitled to exercise
the Option or Stock Award, (b) full payment, or provision for payment, in a form
and method approved by the Administrator, for the Shares for which the Option or
Stock Award is being exercised, and (c) with respect to Nonstatutory Options,
payment, or provision for payment, in a form approved by the Administrator, of
all applicable withholding taxes due upon exercise.  An Award may not be
exercised for a fraction of a Share.  SARs shall be considered exercised when
the Company receives written notice of the exercise from the person entitled to
exercise the SAR.

 

9.3                            Issuance of Award Shares

 

The Company shall issue Award Shares in the name of the person properly
exercising the Award.  If the

 

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Awardee is that person and so requests, the Award Shares shall be issued in the
name of the Awardee and the Awardee’s spouse.  The Company shall endeavor to
issue Award Shares promptly after an Award is exercised or after the Grant Date
of a Stock Award, as applicable.  Until Award Shares are actually issued, as
evidenced by the appropriate entry on the stock register of the Company or its
transfer agent, the Awardee will not have the rights of a stockholder with
respect to those Award Shares, even though the Awardee has completed all the
steps necessary to exercise the Award.  No adjustment shall be made for any
dividend, distribution, or other right for which the record date precedes the
date the Award Shares are issued, except as provided in Section 10.

 

9.4                            Termination

 

(a)                                      In General  Except as provided in an
Award Agreement or in writing by the Administrator, including in an Award
Agreement, and as otherwise provided in Sections 9.4(b), (c), (d) and (e) after
an Awardee’s Termination, the Awardee’s Awards shall be exercisable to the
extent (but only to the extent) they are vested on the date of that Termination
and only during the three months after the Termination, but in no event after
the Expiration Date.  To the extent the Awardee does not exercise an Award
within the time specified for exercise, the Award shall automatically terminate.

 

(b)                                      Leaves of Absence  Unless otherwise
provided in the Award Agreement, no Award may be exercised more than three
months after the beginning of a leave of absence, other than a personal or
medical leave approved by an authorized representative of the Company with
employment guaranteed upon return.  Awards shall not continue to vest during a
leave of absence, unless otherwise determined by the Administrator with respect
to an approved personal or medical leave with employment guaranteed upon return.

 

(c)                                       Death or Disability  Unless otherwise
provided by the Administrator, if an Awardee’s Termination is due to death or
disability (as determined by the Administrator with respect to all Awards other
than Incentive Stock Options and as defined by Section 22(e) of the Code with
respect to Incentive Stock Options), all Awards of that Awardee to the extent
exercisable at the date of that Termination may be exercised for one year after
that Termination, but in no event after the Expiration Date.  In the case of
Termination due to death, an Award may be exercised as provided in Section 17. 
In the case of Termination due to disability, if a guardian or conservator has
been appointed to act for the Awardee and been granted this authority as part of
that appointment, that guardian or conservator may exercise the Award on behalf
of the Awardee.  Death or disability occurring after an Awardee’s Termination
shall not cause the Termination to be treated as having occurred due to death or
disability.  To the extent an Award is not so exercised within the time
specified for its exercise, the Award shall automatically terminate.

 

(d)                                      Divestiture  If an Awardee’s
Termination is due to a Divestiture, the Board may take any one or more of the
actions described in Section 10.3 or 10.4 with respect to the Awardee’s Awards.

 

(e)                                       Termination for Cause  In the
discretion of the Administrator, which may be exercised on the date of grant, or
at a date later in time, if an Awardee’s Termination is due to Cause, all of the
Awardee’s Awards shall automatically terminate and cease to be exercisable at
the time of Termination and the Administrator may rescind any and all exercises
of Awards by the Awardee that occurred after the first event constituting
Cause.  “Cause” means employment-related dishonesty, fraud, misconduct or
disclosure or misuse of confidential information, or other employment-related
conduct that is likely to cause significant injury to the Company, an Affiliate,
or any of their respective employees, officers or directors (including, without
limitation, commission of a felony or similar offense), in each case as
determined by the Administrator.  “Cause” shall not require that a civil
judgment or criminal conviction have been entered against or guilty plea shall
have been made by the Awardee regarding any of the matters referred to in the
previous sentence.  Accordingly, the Administrator shall be entitled to
determine “Cause” based on the Administrator’s good faith belief.  If the
Awardee is criminally charged with a felony or similar offense, that shall be a
sufficient, but not a necessary, basis for such a belief.

 

(f)                                          Administrator Discretion 
Notwithstanding the provisions of Section 9.4 (a)-(e), the Plan Administrator
shall have complete discretion, exercisable either at the time an Award is
granted or at any time while the Award remains outstanding, to:

 

(i)                                           Extend the period of time for
which the Award is to remain exercisable, following the Awardee’s Termination,
from the limited exercise period otherwise in effect for that Award to such
greater period of time as the Administrator shall deem appropriate, but in no
event beyond the Expiration Date; and/or

 

(ii)                                       Permit the Award to be exercised,
during the applicable post-Termination exercise period, not only with respect to
the number of vested Shares for which such Award may be exercisable at the time
of the

 

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Awardee’s Termination but also with respect to one or more additional
installments in which the Awardee would have vested had the Awardee not been
subject to Termination.

 

(g)                                      Consulting or Employment Relationship 
Nothing in this Plan or in any Award Agreement, and no Award or the fact that
Award Shares remain subject to repurchase rights, shall:  (A) interfere with or
limit the right of the Company or any Affiliate to terminate the employment or
consultancy of any Awardee at any time, whether with or without cause or reason,
and with or without the payment of severance or any other compensation or
payment, or (B) interfere with the application of any provision in any of the
Company’s or any Affiliate’s charter documents or Applicable Law relating to the
election, appointment, term of office, or removal of a Director.

 

10.                           Certain Transactions and Events

 

10.1                     In General

 

Except as provided in this Section 10, no change in the capital structure of the
Company, merger, sale or other disposition of assets or a subsidiary, change in
control, issuance by the Company of shares of any class of securities or
securities convertible into shares of any class of securities, exchange or
conversion of securities, or other transaction or event shall require or be the
occasion for any adjustments of the type described in this Section 10. 
Additional provisions with respect to the foregoing transactions are set forth
in Section 14.3.

 

10.2                     Changes in Capital Structure

 

In the event of any stock split, reverse stock split, recapitalization,
combination or reclassification of stock, stock dividend, spin-off, or similar
change to the capital structure of the Company (not including a Fundamental
Transaction or Change in Control), the Board shall make whatever adjustments it
concludes are appropriate to: (a) the number and type of Awards that may be
granted under this Plan, (b) the number and type of Options that may be granted
to any individual under this Plan, (c) the terms of any SAR, (d) the Purchase
Price of any Stock Award, (e) the Option Price and number and class of
securities issuable under each outstanding Option, and (f) the repurchase price
of any securities substituted for Award Shares that are subject to repurchase
rights.  The specific adjustments shall be determined by the Board.  Unless the
Board specifies otherwise, any securities issuable as a result of any such
adjustment shall be rounded down to the next lower whole security.  The Board
need not adopt the same rules for each Award or each Awardee.

 

10.3                     Fundamental Transactions

 

Except for grants to Non-Employee Directors pursuant to Section 11 herein, in
the event of (a) a merger or consolidation in which the Company is not the
surviving corporation (other than a merger or consolidation with a wholly-owned
subsidiary, a reincorporation of the Company in a different jurisdiction, or
other transaction in which there is no substantial change in the stockholders of
the Company or their relative stock holdings and the Awards granted under this
Plan are assumed, converted or replaced by the successor corporation, which
assumption shall be binding on all Participants), (b) a merger in which the
Company is the surviving corporation but after which the stockholders of the
Company immediately prior to such merger (other than any stockholder that
merges, or which owns or controls another corporation that merges, with the
Company in such merger) cease to own their shares or other equity interest in
the Company, (c) the sale of all or substantially all of the assets of the
Company, or (d) the acquisition, sale, or transfer of more than 50% of the
outstanding shares of the Company by tender offer or similar transaction (each,
a “  Fundamental Transaction   ”), any or all outstanding Awards may be assumed,
converted or replaced by the successor corporation (if any), which assumption,
conversion or replacement shall be binding on all participants under this Plan. 
In the alternative, the successor corporation may substitute equivalent Awards
or provide substantially similar consideration to participants as was provided
to stockholders (after taking into account the existing provisions of the
Awards).  The successor corporation may also issue, in place of outstanding
Shares held by the participants, substantially similar shares or other property
subject to repurchase restrictions no less favorable to the participant. In the
event such successor corporation (if any) does not assume or substitute Awards,
as provided above, pursuant to a transaction described in this Subsection 10.3,
the vesting with respect to such Awards shall fully and immediately accelerate
or the repurchase rights of the Company shall fully and immediately terminate,
as the case may be, so that the Awards may be exercised or the repurchase rights
shall terminate before, or otherwise in connection with the closing or
completion of the Fundamental Transaction or event, but then terminate. 
Notwithstanding anything in this Plan to the contrary, the Committee may, in its
sole discretion, provide that the vesting of any or all Award Shares subject to
vesting or a right of repurchase shall accelerate or lapse, as the case may be,
upon a transaction described in this Section 10.3. If the Committee exercises
such discretion with respect to Options, such Options shall become exercisable
in full prior to the consummation of such event at such time and on such
conditions as the Committee determines, and if such Options are not exercised
prior to the consummation of the Fundamental Transaction, they shall terminate
at such time as determined by the

 

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Committee.  Subject to any greater rights granted to participants under the
foregoing provisions of this Section 10.3, in the event of the occurrence of any
Fundamental Transaction, any outstanding Awards shall be treated as provided in
the applicable agreement or plan of merger, consolidation, dissolution,
liquidation, or sale of assets.

 

10.4                     Changes of Control

 

The Board may also, but need not, specify that other transactions or events
constitute a “Change in Control ”.  The Board may do that either before or after
the transaction or event occurs.  Examples of transactions or events that the
Board may treat as Changes of Control are: (a) any person or entity, including a
“group” as contemplated by Section 13(d)(3) of the Exchange Act, acquires
securities holding 30% or more of the total combined voting power or value of
the Company, or (b) as a result of or in connection with a contested election of
Company Directors, the persons who were Company Directors immediately before the
election cease to constitute a majority of the Board.  In connection with a
Change in Control, notwithstanding any other provision of this Plan, the Board
may, but need not, take any one or more of the actions described in
Section 10.3.  In addition, the Board may extend the date for the exercise of
Awards (but not beyond their original Expiration Date).  The Board need not
adopt the same rules for each Award or each Awardee.  Notwithstanding anything
in this Plan to the contrary, in the event of a Termination of services for any
reason other than death, disability or Cause, within 18 months following the
consummation of a Fundamental Transaction or Change in Control, any Awards,
assumed or substituted in a Fundamental Transaction or Change in Control, which
are subject to vesting conditions and/or the right of repurchase in favor of the
Company or a successor entity, shall accelerate fully so that such Award Shares
are immediately exercisable upon Termination or, if subject to the right of
repurchase in favor of the Company, such repurchase rights shall lapse as of the
date of Termination. Such Awards shall be exercisable for a period of three
(3) months following termination.

 

10.5                     Divestiture

 

If the Company or an Affiliate sells or otherwise transfers equity securities of
an Affiliate to a person or entity other than the Company or an Affiliate, or
leases, exchanges or transfers all or any portion of its assets to such a person
or entity, then the Board may specify that such transaction or event constitutes
a “  Divestiture   ”.  In connection with a Divestiture, notwithstanding any
other provision of this Plan, the Board may, but need not, take one or more of
the actions described in Section 10.3 or 10.4 with respect to Awards or Award
Shares held by, for example, Employees, Directors or Consultants for whom that
transaction or event results in a Termination.  The Board need not adopt the
same rules for each Award or each Awardee.

 

10.6                     Dissolution

 

If the Company adopts a plan of dissolution, the Board may cause Awards to be
fully vested and exercisable (but not after their Expiration Date) before the
dissolution is completed but contingent on its completion and may cause the
Company’s repurchase rights on Award Shares to lapse upon completion of the
dissolution.  The Board need not adopt the same rules for each Award or each
Awardee.  Notwithstanding anything herein to the contrary, in the event of a
dissolution of the Company, to the extent not exercised before the earlier of
the completion of the dissolution or their Expiration Date, Awards shall
terminate immediately prior to the dissolution.

 

10.7                     Cut-Back to Preserve Benefits

 

If the Administrator determines that the net after-tax amount to be realized by
any Awardee, taking into account any accelerated vesting, termination of
repurchase rights, or cash payments to that Awardee in connection with any
transaction or event set forth in this Section 10 would be greater if one or
more of those steps were not taken or payments were not made with respect to
that Awardee’s Awards or Award Shares, then, at the election of the Awardee, to
such extent, one or more of those steps shall not be taken and payments shall
not be made.

 

11.                               Automatic Option Grants to Non-Employee
Directors and Non-Employee Director Fee Option Grants

 

11.1                     Automatic Option Grants to Non-Employee Directors

 

(a)                                      Grant Dates  Option grants to
Non-Employee Directors shall be made on the dates specified below:

 

(i)                                           Each Non-Employee Director who is
then serving as a member of the Board on the Effective Date (the “  Current
Directors   ”) and each Non-Employee Director who is first elected or appointed
to the Board

 

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at any time after the effective date of this Plan shall automatically be
granted, on the date of such initial election or appointment, a Nonstatutory
Option to purchase 7,500 Shares (the “  Initial Grant   ”).

 

(ii)                                       Commencing in 2004, on the date of
each annual stockholders meeting, each individual who is to continue to serve as
a Non-Employee Director shall automatically be granted a Nonstatutory Option to
purchase 3,750 Shares (the “  Annual Grant  ”), provided, however, that such
individual has served as a Non-Employee Director for at least six (6) months.

 

(b)                                      Exercise Price

 

(i)                                           The Option Price shall be equal to
one hundred percent (100%) of the Fair Market Value of the Shares on the Option
grant date.

 

(ii)                                       The Option Price shall be payable in
one or more of the alternative forms authorized pursuant to Section 6.4.  Except
to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the Option Price must be made on the date of exercise.

 

(c)                                       Option Term   Each Option shall have a
term of ten (10) years measured from the Option grant date.

 

(d)                                      Exercise and Vesting of Options  Except
as otherwise determined by the whole Board, the Shares underlying each Option
granted pursuant to Section 11.1 shall vest and be exercisable as set forth
below.

 

(i)                                           Initial Grant.  The Shares
underlying each Option issued pursuant to the Initial Grant shall vest and be
exercisable as to 4.1666% of the Shares at the end of each full succeeding month
from the date of grant, rounded down to the nearest whole Share, for so long as
the Non-Employee Director continuously remains a Director of, or a Consultant
to, the Company provided, however, that the Shares underlying each Option issued
to Current Directors, pursuant to the Initial Grant, shall be fully vested and
immediately exercisable on the grant date.

 

(ii)                                       Annual Grant.  The Shares underlying
each Option issued pursuant to the Annual Grant shall vest and be exercisable as
to 8.3333% of the Shares at the end of each full succeeding month from the date
of grant, rounded down to the nearest whole Share, for so long as the
Non-Employee Director continuously remains a Director of, or a Consultant to,
the Company.

 

(e)                                       Termination of Board Service  The
following provisions shall govern the exercise of any Options held by the
Awardee at the time the Awardee ceases to serve as a Non-Employee Director:

 

(i)                                           In General  Except as otherwise
provided in Section 11.3, after cessation of service as a Director (the “ 
Cessation Date   ”), the Awardee’s Options shall be exercisable to the extent
(but only to the extent) they are vested on the Cessation Date and only during
the three months after such Cessation Date, but in no event after the Expiration
Date.  To the extent the Awardee does not exercise an Option within the time
specified for exercise, the Option shall automatically terminate.

 

(ii)                                       Death or Disability  If an Awardee’s
cessation of service on the Board is due to death or disability (as determined
by the Board), all Options of that Awardee, to the extent exercisable upon such
Cessation Date, may be exercised for one year after the Cessation Date, but in
no event after the Expiration Date.  In the case of a cessation of service due
to death, an Option may be exercised as provided in Section 17.  In the case of
a cessation of service due to disability, if a guardian or conservator has been
appointed to act for the Awardee and been granted this authority as part of that
appointment, that guardian or conservator may exercise the Option on behalf of
the Awardee.  Death or disability occurring after an Awardee’s cessation of
service shall not cause the cessation of service to be treated as having
occurred due to death or disability.  To the extent an Option is not so
exercised within the time specified for its exercise, the Option shall
automatically terminate.

 

11.2                     Director Fee Option Grants

 

(a)                                      Option Grants.  The Board shall have
the sole and exclusive authority to determine the calendar year or years for
which the Director fee option grant program (the “  Director Fee Option Program 
”) is to be in effect.  For each such calendar year the program is in effect,
each Non-Employee Director may elect to apply all or any portion of the annual
retainer fee otherwise payable in cash, for his or her service on the Board for
that year, to the acquisition

 

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of a special Option grant under this Director Fee Option Program.  Such election
must be filed with the Company’s Chief Financial Officer prior to first day of
the calendar year for which the annual retainer fee which is the subject of that
election is otherwise payable.  Each Non-Employee Director who files such a
timely election shall automatically be granted an Option under this Director Fee
Option Program on the first trading day in January in the calendar year for
which the annual retainer fee which is the subject of that election would
otherwise be payable in cash.

 

(b)                                      Option Terms  Each Option shall be a
Nonstatutory Option governed by the terms and conditions specified below.

 

(i)                                           Exercise Price

 

A.                                                 The Purchase Price shall be
thirty-three and one-third percent (33-1/3%) of the Fair Market Value per Share
on the Option grant date.

 

B.                                                 The Purchase Price shall
become immediately due upon exercise of the Option and shall be payable in one
or more of the alternative forms authorized pursuant to Section 6.4 of this
Plan.  Except to the extent the sale and remittance procedure specified
thereunder is utilized, payment of the Purchase Price must be made on the date
that the Option is exercised.

 

(ii)                                       Number of Option Shares.  The number
of Shares subject to the Option shall be determined pursuant to the following
formula (rounded down to the nearest whole number):

 

X = A ÷ (B x 66-2/3%), where

 

X is the number of Option Shares,

 

A is the portion of the annual retainer fee subject to the Non-Employee
Director’s election, and

 

B is the Fair Market Value of a Share on the option grant date.

 

(iii)                                   Exercise and Term of Options  The Option
shall become exercisable in a series of twelve (12) equal monthly installments
upon the Awardee’s completion of each month of Board service over the twelve
(12)-month period measured from the grant date.  Each Option shall have a
maximum term of ten (10) years measured from the Option grant date.

 

(iv)                                     Termination of Board Service  Should
the Awardee cease Board service for any reason (other than death or permanent
disability) while holding one or more Options under this Director Fee Option
Program, then each such Option shall remain exercisable, for any or all of the
Shares for which the Option is exercisable at the time of such cessation of
Board service, until the earlier of (x) the expiration of the ten (10)-year
Option term or (y) the expiration of the three (3)-year period measured from the
date of such cessation of Board service.  However, each Option held by the
Awardee under this Director Fee Option Program at the time of his or her
cessation of Board service shall immediately terminate and cease to remain
outstanding with respect to any and all Shares for which the Option is not
otherwise at that time exercisable.

 

(v)                                         Death or Permanent Disability 
Should the Awardee’s service as a Board member cease by reason of death or
permanent disability, then each Option held by such Awardee under this Director
Fee Option Program shall immediately become exercisable for all the Shares at
the time subject to that Option, and the Option may be exercised for any or all
of those Shares as fully-vested Shares until the earlier of (x) the expiration
of the ten (10)-year option term or (y) the expiration of the three (3)-year
period measured from the date of such cessation of Board service.

 

Should the Awardee die after cessation of his or her Board service but while
holding one or more Options under this Director Fee Option Program, then each
such Option may be exercised, for any or all of the shares for which the Option
is exercisable at the time of the Awardee’s cessation of Board service (less any
Shares subsequently purchased by the Awardee prior to death), by the personal
representative of the Awardee’s estate or by the person or persons to whom the
Option is transferred pursuant to the Awardee’s will or in accordance with the
laws of descent and distribution or by the designated beneficiary or
beneficiaries of such option.  Such right of exercise shall lapse, and the
Option shall terminate, upon the earlier of (xx) the expiration of the ten
(10)-year Option term or (yy) the three (3)-year period measured from the date
of the Awardee’s cessation of Board service.

 

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11.3                     Certain Transactions and Events

 

(a)                                      In the event of a Fundamental
Transaction while the Awardee remains a Non-Employee Director, the Shares at the
time subject to each outstanding Option held by such Awardee pursuant to
Section 11, but not otherwise vested, shall automatically vest in full so that
each such Option shall, immediately prior to the effective date of the
Fundamental Transaction, become exercisable for all the Shares as fully vested
Shares and may be exercised for any or all of those vested Shares. Immediately
following the consummation of the Fundamental Transaction, each Option shall
terminate and cease to be outstanding, except to the extent assumed by the
successor corporation (or Affiliate thereof).

 

(b)                                      In the event of a Change in Control
while the Awardee remains a Non-Employee Director, the Shares at the time
subject to each outstanding Option held by such Awardee pursuant to Section 11,
but not otherwise vested, shall automatically vest in full so that each such
Option shall, immediately prior to the effective date of the Change in Control,
become exercisable for all the Shares as fully vested Shares and may be
exercised for any or all of those vested Shares. Each such Option shall remain
exercisable for such fully vested Shares until the expiration or sooner
termination of the Option term in connection with a Change in Control.

 

(c)                                       Each Option which is assumed in
connection with a Fundamental Transaction shall be appropriately adjusted,
immediately after such Fundamental Transaction, to apply to the number and class
of securities which would have been issuable to the Awardee in consummation of
such Fundamental Transaction had the Option been exercised immediately prior to
such Fundamental Transaction. Appropriate adjustments shall also be made to the
Option Price payable per share under each outstanding Option, provided the
aggregate Option Price payable for such securities shall remain the same. To the
extent the actual holders of the Company’s outstanding Common Stock receive cash
consideration for their Common Stock in consummation of the Fundamental
Transaction, the successor corporation may, in connection with the assumption of
the outstanding Options granted pursuant to Section 11, substitute one or more
shares of its own common stock with a fair market value equivalent to the cash
consideration paid per share of Common Stock in such Fundamental Transaction.

 

(d)                                      The grant of Options pursuant to
Section 11 shall in no way affect the right of the Company to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.

 

(e)                                       The remaining terms of each Option
granted pursuant to Section 11 shall, as applicable, be the same as terms in
effect for Awards granted under this Plan.  Notwithstanding the foregoing, the
provisions of Section 9.4 and Section 10 shall not apply to Options granted
pursuant to Section 11.

 

11.4                     Limited Transferability of Options

 

Each Option granted pursuant to Section 11 may be assigned in whole or in part
during the Awardee’s lifetime to one or more members of the Awardee’s family or
to a trust established exclusively for one or more such family members or to an
entity in which the Awardee is majority owner or to the Awardee ‘s former
spouse, to the extent such assignment is in connection with the Awardee ‘s
estate or financial plan or pursuant to a Domestic Relations Order. The assigned
portion may only be exercised by the person or persons who acquire a proprietary
interest in the Option pursuant to the assignment. The terms applicable to the
assigned portion shall be the same as those in effect for the Option immediately
prior to such assignment and shall be set forth in such documents issued to the
assignee as the Administrator may deem appropriate. The Awardee may also
designate one or more persons as the beneficiary or beneficiaries of his or her
outstanding Options under Section 11, and those Options shall, in accordance
with such designation, automatically be transferred to such beneficiary or
beneficiaries upon the Awardee ‘s death while holding those Options. Such
beneficiary or beneficiaries shall take the transferred Options subject to all
the terms and conditions of the applicable Award Agreement evidencing each such
transferred Option, including (without limitation) the limited time period
during which the Option may be exercised following the Awardee ‘s death.

 

12.                           Withholding and Tax Reporting

 

12.1                     Tax Withholding Alternatives

 

(a)                                      General  Whenever Award Shares are
issued or become free of restrictions, the Company may require the Awardee to
remit to the Company an amount sufficient to satisfy any applicable tax
withholding requirement, whether the related tax is imposed on the Awardee or
the Company.  The Company shall have no obligation to deliver Award Shares or
release Award Shares from an escrow or permit a transfer of Award Shares until
the Awardee has

 

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satisfied those tax withholding obligations.  Whenever payment in satisfaction
of Awards is made in cash, the payment will be reduced by an amount sufficient
to satisfy all tax withholding requirements.

 

(b)                                      Method of Payment  The Awardee shall
pay any required withholding using the forms of consideration described in
Section 6.4(b), except that, in the discretion of the Administrator, the Company
may also permit the Awardee to use any of the forms of payment described in
Section 6.4(c).  The Administrator, in its sole discretion, may also permit
Award Shares to be withheld to pay required withholding.  If the Administrator
permits Award Shares to be withheld, the Fair Market Value of the Award Shares
withheld, as determined as of the date of withholding, shall not exceed the
amount determined by the applicable minimum statutory withholding rates.

 

12.2                     Reporting of Dispositions

 

Any holder of Option Shares acquired under an Incentive Stock Option shall
promptly notify the Administrator, following such procedures as the
Administrator may require, of the sale or other disposition of any of those
Option Shares if the disposition occurs during:  (a) the longer of two years
after the Grant Date of the Incentive Stock Option and one year after the date
the Incentive Stock Option was exercised, or (b) such other period as the
Administrator has established.

 

13.                               Compliance with Law

 

The grant of Awards and the issuance and subsequent transfer of Award Shares
shall be subject to compliance with all Applicable Law, including all applicable
securities laws.  Awards may not be exercised, and Award Shares may not be
transferred, in violation of Applicable Law.  Thus, for example, Awards may not
be exercised unless:  (a) a registration statement under the Securities Act is
then in effect with respect to the related Award Shares, or (b) in the opinion
of legal counsel to the Company, those Award Shares may be issued in accordance
with an applicable exemption from the registration requirements of the
Securities Act and any other applicable securities laws.  The failure or
inability of the Company to obtain from any regulatory body the authority
considered by the Company’s legal counsel to be necessary or useful for the
lawful issuance of any Award Shares or their subsequent transfer shall relieve
the Company of any liability for failing to issue those Award Shares or
permitting their transfer.  As a condition to the exercise of any Award or the
transfer of any Award Shares, the Company may require the Awardee to satisfy any
requirements or qualifications that may be necessary or appropriate to comply
with or evidence compliance with any Applicable Law.

 

14.                               Amendment or Termination of this Plan or
Outstanding Awards

 

14.1                     Amendment and Termination

 

The Board may at any time amend, suspend, or terminate this Plan.

 

14.2                     Stockholder Approval

 

The Company shall obtain the approval of the Company’s stockholders for any
amendment to this Plan if stockholder approval is necessary or desirable to
comply with any Applicable Law or with the requirements applicable to the grant
of Awards intended to be Incentive Stock Options.  The Board may also, but need
not, require that the Company’s stockholders approve any other amendments to
this Plan.

 

14.3                     Effect

 

No amendment, suspension, or termination of this Plan, and no modification of
any Award even in the absence of an amendment, suspension, or termination of
this Plan, shall impair any existing contractual rights of any Awardee unless
the affected Awardee consents to the amendment, suspension, termination, or
modification.  Notwithstanding anything herein to the contrary, no such consent
shall be required if the Board determines, in its sole and absolute discretion,
that the amendment, suspension, termination, or modification:  (a) is required
or advisable in order for the Company, this Plan or the Award to satisfy
Applicable Law, to meet the requirements of any accounting standard or to avoid
any adverse accounting treatment, or (b) in connection with any transaction or
event described in Section 10, is in the best interests of the Company or its
stockholders.  The Board may, but need not, take the tax or accounting
consequences to affected Awardees into consideration in acting under the
preceding sentence.  Those decisions shall be final, binding and conclusive. 
Termination of this Plan shall not affect the Administrator’s ability to
exercise the powers granted to it under this Plan with respect to Awards granted
before the termination of Award Shares issued under such Awards even if those
Award Shares are issued after the termination.

 

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15.                               Reserved Rights

 

15.1                     Nonexclusivity of this Plan

 

This Plan shall not limit the power of the Company or any Affiliate to adopt
other incentive arrangements including, for example, the grant or issuance of
stock options, stock, or other equity-based rights under other plans.

 

15.2                     Unfunded Plan

 

This Plan shall be unfunded.  Although bookkeeping accounts may be established
with respect to Awardees, any such accounts will be used merely as a
convenience.  The Company shall not be required to segregate any assets on
account of this Plan, the grant of Awards, or the issuance of Award Shares.  The
Company and the Administrator shall not be deemed to be a trustee of stock or
cash to be awarded under this Plan.  Any obligations of the Company to any
Awardee shall be based solely upon contracts entered into under this Plan, such
as Award Agreements.  No such obligations shall be deemed to be secured by any
pledge or other encumbrance on any assets of the Company.  Neither the Company
nor the Administrator shall be required to give any security or bond for the
performance of any such obligations.

 

16.                               Special Arrangements Regarding Award Shares

 

16.1                     Escrow of Stock Certificates

 

To enforce any restrictions on Award Shares, the Administrator may require their
holder to deposit the certificates representing Award Shares, with stock powers
or other transfer instruments approved by the Administrator endorsed in blank,
with the Company or an agent of the Company to hold in escrow until the
restrictions have lapsed or terminated.  The Administrator may also cause a
legend or legends referencing the restrictions to be placed on the certificates.

 

16.2                     Repurchase Rights

 

(a)                                      General  If a Stock Award is subject to
vesting conditions, the Company shall have the right, during the seven months
after the Awardee’s Termination, to repurchase any or all of the Award Shares
that were unvested as of the date of that Termination.  The repurchase price
shall be determined by the Administrator in accordance with this Section 16.2
which shall be either (i) the Purchase Price for the Award Shares (minus the
amount of any cash dividends paid or payable with respect to the Award Shares
for which the record date precedes the repurchase) or (ii) the lower of (A) the
Purchase Price for the Shares or (B) the Fair Market Value of those Award Shares
as of the date of the Termination.  The repurchase price shall be paid in cash. 
The Company may assign this right of repurchase.

 

(b)                                      Procedure  The Company or its assignee
may choose to give the Awardee a written notice of exercise of its repurchase
rights under this Section 16.2.  However, the Company’s failure to give such a
notice shall not affect its rights to repurchase Award Shares.  The Company
must, however, tender the repurchase price during the period specified in this
Section 16.2 for exercising its repurchase rights in order to exercise such
rights.

 

17.                               Beneficiaries

 

An Awardee may file a written designation of one or more beneficiaries who are
to receive the Awardee’s rights under the Awardee’s Awards after the Awardee’s
death.  An Awardee may change such a designation at any time by written notice. 
If an Awardee designates a beneficiary, the beneficiary may exercise the
Awardee’s Awards after the Awardee’s death.  If an Awardee dies when the Awardee
has no living beneficiary designated under this Plan, the Company shall allow
the executor or administrator of the Awardee’s estate to exercise the Award or,
if there is none, the person entitled to exercise the Option under the Awardee’s
will or the laws of descent and distribution.  In any case, no Award may be
exercised after its Expiration Date.

 

18.                               Miscellaneous

 

18.1                     Governing Law

 

This Plan, the Award Agreements and all other agreements entered into under this
Plan, and all actions taken under this Plan or in connection with Awards or
Award Shares, shall be governed by the laws of the State of Delaware.

 

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18.2                     Determination of Value

 

Fair Market Value shall be determined as follows:

 

(a)                                      Listed Stock.  If the Shares are traded
on any established stock exchange or quoted on a national market system, Fair
Market Value shall be the closing sales price for the Shares as quoted on that
stock exchange or system for the date the value is to be determined (the “ 
Value Date   ”) as reported in    The Wall Street Journal    or a similar
publication.  If no sales are reported as having occurred on the Value Date,
Fair Market Value shall be that closing sales price for the last preceding
trading day on which sales of Shares are reported as having occurred.  If no
sales are reported as having occurred during the five trading days before the
Value Date, Fair Market Value shall be the closing bid for Shares on the Value
Date.  If Shares are listed on multiple exchanges or systems, Fair Market Value
shall be based on sales or bid prices on the primary exchange or system on which
Shares are traded or quoted.

 

(b)                                      Stock Quoted by Securities Dealer  If
Shares are regularly quoted by a recognized securities dealer but selling prices
are not reported on any established stock exchange or quoted on a national
market system, Fair Market Value shall be the mean between the high bid and low
asked prices on the Value Date.  If no prices are quoted for the Value Date,
Fair Market Value shall be the mean between the high bid and low asked prices on
the last preceding trading day on which any bid and asked prices were quoted.

 

(c)                                       No Established Market  If Shares are
not traded on any established stock exchange or quoted on a national market
system and are not quoted by a recognized securities dealer, the Administrator
(following guidelines established by the Board or Committee) will determine Fair
Market Value in good faith.  The Administrator will consider the following
factors, and any others it considers significant, in determining Fair Market
Value: (i) the price at which other securities of the Company have been issued
to purchasers other than Employees, Directors, or Consultants, (ii) the
Company’s stockholder’s equity, prospective earning power, dividend-paying
capacity, and non-operating assets, if any, and (iii) any other relevant
factors, including the economic outlook for the Company and the Company’s
industry, the Company’s position in that industry, the Company’s goodwill and
other intellectual property, and the values of securities of other businesses in
the same industry.

 

18.3                     Reservation of Shares

 

During the term of this Plan, the Company shall at all times reserve and keep
available such number of Shares as are still issuable under this Plan.

 

18.4                     Electronic Communications

 

Any Award Agreement, notice of exercise of an Award, or other document required
or permitted by this Plan may be delivered in writing or, to the extent
determined by the Administrator, electronically.  Signatures may also be
electronic if permitted by the Administrator.

 

18.5                     Notices

 

Unless the Administrator specifies otherwise, any notice to the Company under
any Option Agreement or with respect to any Awards or Award Shares shall be in
writing (or, if so authorized by Section 18.4, communicated electronically),
shall be addressed to the Secretary of the Company, and shall only be effective
when received by the Secretary of the Company.

 

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Amendment to

2003 Equity Incentive Plan

of DTS, Inc.

 

Notwithstanding the provisions of Section 11 of the 2003 Equity Incentive Plan
(the “Plan”) of DTS, Inc. (the “ Company” ), the Plan was amended on May 9, 2005
to provide as follows:

 

Any automatic option grant to newly elected or appointed non-employee directors
under the Plan made during the period from May 19, 2005 to December 31, 2005
shall consist of an option to purchase 30,000 shares of the Company’s common
stock, vesting monthly over a three year period starting on the date of the
grant.

 

Any annual automatic option grant to non-employee directors under the Plan made
during the period from May 19, 2005 to December 31, 2005 shall consist of an
option to purchase 10,000 shares of the Company’s common stock, vesting monthly
over a one year period starting on the date of the grant, provided that such
individual has served as a non-employee director for at least 6 months.

 

Any automatic option grant to newly elected or appointed non-employee directors
under the Plan made at any time on or after January 1, 2006 shall consist of an
option to purchase 15,000 shares of the Company’s common stock, vesting monthly
over a three year period starting on the date of the grant.

 

Any annual automatic option grant to non-employee directors under the Plan made
at any time on or after January 1, 2006 shall consist of an option to purchase
5,000 shares of the Company’s common stock, vesting monthly over a one year
period starting on the date of the grant, provided that such individual has
served as a non-employee director for at least 6 months.

 

Each non-employee director first elected or appointed to the Board at any time
on or after January 1, 2006 shall automatically be granted on the date of such
initial election or appointment, 7,500 shares of restricted stock under the
Plan, which shall vest over a period of three years in equal installments at the
end of each full month from the date of the grant for so long as the
non-employee director continuously remains a director of, or a consultant to,
the Company.

 

On the date of each annual stockholders’ meeting held on or after January 1,
2006, each individual who is to continue to serve as a non-employee director
shall automatically be granted 2,500 shares of restricted stock under the Plan,
provided that such individual has served as a non-employee director for at least
6 months.  Such restricted stock shall vest over a period of one year in equal
installments at the end of each full month from the date of grant for so long as
the non-employee director continuously remains a director of, or a consultant
to, the Company.

 

None of the above-referenced compensation shall be paid to any member of the
Board (or committees thereof) who is an employee of the Company.

 

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Amendment to

2003 Equity Incentive Plan

of DTS, Inc.

 

The 2003 Equity Incentive Plan of DTS, Inc., as amended on May 9, 2005, was
further amended on May 15, 2008, by adding a new Section 5.2(c). The new
Section 5.2(c) reads in its entirety as follows:

 

(c)                                 Cash Awards.  Subject to the provisions of
this Section 5.2, so long as the Company is a “publicly held corporation” within
the meaning of Code Section 162(m), no Employee may be granted one or more Cash
Awards within a single fiscal year of the Company having an aggregate amount of
more than $3,000,000, considered without regard to any number of Options, SARs
or Stock Awards that may have been granted or awarded to such Employee during
the applicable fiscal year. With respect to any Cash Award that is granted with
the intent of having it qualify as “qualified performance-based compensation”
under Code Section 162(m), such Cash Awards may be granted to an Executive only
by the Committee (and, notwithstanding anything to the contrary in
Section 4.1(a), not by the Board). Any Cash Award intended as “qualified
performance-based compensation” within the meaning of Section 162(m) of the Code
must be awarded, vest or become exercisable contingent on the achievement of one
or more Objectively Determinable Performance Conditions. If a Cash Award is
cancelled, the cancelled Cash Award shall continue to be counted toward the
foregoing limitation.

 

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Amendment to

2003 Equity Incentive Plan

of DTS, Inc.

 

Notwithstanding the provisions of Section 11 of the 2003 Equity Incentive Plan
(the “Plan”) of DTS, Inc., as previously amended on May 9, 2005 and May 15,
2008, on February 19, 2009 Section 11 of the Plan was further amended to provide
as follows:

 

Any annual automatic option grant to non-employee directors under the Plan made
at any time after February 19, 2009 shall consist of an option to purchase 7,500
shares of the Company’s common stock, vesting monthly over a one year period
starting on the date of the grant, provided that such individual has served as a
non-employee director for at least 6 months.

 

Each non-employee director first elected or appointed to the Board at any time
after February 19, 2009 shall automatically be granted on the date of such
initial election or appointment, 5,000 shares of restricted stock under the
Plan, which shall vest over a period of three years in equal installments on
each annual anniversary of the date of grant for so long as the non-employee
director continuously remains a director of, or a consultant to, the Company.

 

Each restricted stock award automatically granted to a non-employee director on
the date of each annual stockholders’ meeting shall vest in a single installment
on the one-year anniversary of the date of grant so long as the non-employee
director continuously remains a director of, or a consultant to, the Company.

 

Except as set forth above, the terms and conditions of Section 11 of the Plan,
as amended on May 9, 2005, shall remain in effect.

 

The above-referenced equity compensation shall not be paid to any member of the
Board (or committees thereof) who is an employee of the Company.

 

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Amendment to

2003 Equity Incentive Plan

of DTS, Inc.

 

The 2003 Equity Incentive Plan of DTS, Inc., as amended on May 9, 2005, May 15,
2008 and February 19, 2009 (as amended, the “Plan”), was further amended on
February 15, 2010 to provide as follows:

 

1.  Section 2.1(d) shall be amended in its entirety to read as follows:

 

(d)     “Award” means a Stock Award, SAR, Cash Award, Option, or Restricted
Stock Unit granted in accordance with the terms of this Plan.

 

2.  Section 2.1 shall be amended by the addition of a new Section 2.11(vv) as
follows:

 

(vv)   “Restricted Stock Unit” means a right granted to a Participant pursuant
to Section 8.4 to receive on a future date a Share.

 

3.  Section 8 of the Plan shall be amended by the addition of a new Section 8.4
as follows:

 

8.4       The following rules apply to Restricted Stock Units Awards:

 

Restricted Stock Units may be granted under this Plan.  Restricted Stock Unit
Awards shall be evidenced by Award Agreements specifying the number of
Restricted Stock Units subject to the Award, in such form as the Administrator
shall from time to time establish.  Award Agreements evidencing Restricted Stock
Units may incorporate all or any of the terms of the Plan by reference and shall
comply with and be subject to the following terms and conditions:

 

(a)    Grant of Restricted Stock Unit Awards

 

Restricted Stock Unit Awards may be granted upon such conditions as the
Administrator shall determine, including, without limitation, upon the
attainment of one or more Objectively Determinable Performance Conditions.

 

(b)   Purchase Price

 

No monetary payment (other than applicable tax withholding, if any) shall be
required as a condition of receiving a Restricted Stock Unit Award, the
consideration for which shall be services actually rendered to the Company or an
Affiliate.  Notwithstanding the foregoing, if required by applicable state
corporate law, the Participant shall furnish consideration in the form of cash
or past services having a value not less than the par value of the Shares issued
upon settlement of the Restricted Stock Unit Award.

 

(c)    Vesting

 

Restricted Stock Unit Awards may (but need not) be made subject to vesting
conditions based upon the satisfaction of such service requirements, conditions,
restrictions or performance criteria set forth in the Award Agreement evidencing
such Award.

 

(d)   Voting Rights, Dividend Equivalent Rights and Distributions

 

Participants shall have no voting rights with respect to Shares represented by
Restricted Stock Units until the date of the issuance of such Shares (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company).  However, the Award Agreement
evidencing any Restricted Stock Unit Award may provide that the Participant
shall be entitled to dividend equivalent rights with respect to the payment of
cash dividends on Shares during the period beginning on the date such Award is
granted and ending, with respect to each Share subject to the Award, on the
earlier of the date the Award is settled or the date on which it is terminated. 
Such dividend equivalent rights, if any, shall be paid by crediting the
Participant with additional whole Restricted Stock Units as of the date of
payment of such cash dividends on Shares.  The number of additional Restricted
Stock Units (rounded to the nearest whole number) to be so credited shall be
determined by dividing (i) the amount of cash dividends paid on such date with
respect to the number of Shares represented by the Restricted Stock Units
previously credited to the Participant by (ii) the Fair Market Value per Share
on such date. 

 

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Such additional Restricted Stock Units shall be subject to the same terms and
conditions and shall be settled in the same manner and at the same time as the
Restricted Stock Units originally subject to the Restricted Stock Unit Award. 
In the event of a dividend or distribution paid in Shares or other property or
any other adjustment made upon a change in the capital structure of the Company
as described in Section 10.2, appropriate adjustments shall be made in the
Participant’s Restricted Stock Unit Award so that it represents the right to
receive upon settlement any and all new, substituted or additional securities or
other property (other than regular, periodic cash dividends) to which the
Participant would be entitled by reason of the Shares issuable upon settlement
of the Award, and all such new, substituted or additional securities or other
property shall be immediately subject to the same vesting conditions as are
applicable to the Award.

 

(e)    Effect of Termination of Service

 

Unless otherwise set forth in the Award Agreement evidencing a Restricted Stock
Unit Award, if a Participant’s service terminates for any reason, whether
voluntary or involuntary (including the Participant’s death or disability), then
the Participant shall forfeit to the Company any Restricted Stock Units pursuant
to the Award which remain subject to vesting conditions as of the date of the
Participant’s termination of service.

 

(f)      Settlement of Restricted Stock Unit Awards

 

The Company shall issue to a Participant on the date on which Restricted Stock
Units subject to the Participant’s Restricted Stock Unit Award vest or on such
other date set forth in the Award Agreement one (1) Share (and/or any other new,
substituted or additional securities or other property pursuant to an adjustment
described above) for each Restricted Stock Unit then becoming vested or
otherwise to be settled on such date, subject to the withholding of applicable
taxes, if any.  If permitted by the Administrator, the Participant may elect,
consistent with the requirements of Section 409A of the Code, to defer receipt
of all or any portion of the Shares or other property otherwise issuable to the
Participant, and such deferred issuance date(s) and amount(s) elected by the
Participant shall be set forth in the Award Agreement.

 

(g)   Nontransferability of Restricted Stock Unit Awards

 

The right to receive Shares pursuant to a Restricted Stock Unit Award shall not
be subject in any manner to anticipation, alienation, sale, exchange, transfer,
assignment, pledge, encumbrance, or garnishment by creditors of the Participant
or the Participant’s beneficiary, except transfer by will or by the laws of
descent and distribution.  All rights with respect to a Restricted Stock Unit
Award granted to a Participant hereunder shall be exercisable during his or her
lifetime only by such Participant or the Participant’s guardian or legal
representative.

 

Except as set forth above, the terms and conditions of the Plan, as
amended hereby, shall remain in effect.

 

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Amendment to

2003 Equity Incentive Plan

of DTS, Inc.

 

Notwithstanding the provisions of Section 11 of the 2003 Equity Incentive Plan
(the “Plan”) of DTS, Inc., as previously amended on May 9, 2005, May 15, 2008,
February 19, 2009 and February 15, 2010, on June 3, 2010 Section 11 of the Plan
was further amended to provide as follows:

 

Any annual automatic option grant to non-employee directors under the Plan made
at any time after May 31, 2010 shall consist of an option to purchase 6,000
shares of the Company’s common stock, vesting monthly over a one year period
starting on the date of the grant, provided that such individual has served as a
non-employee director for at least 6 months.  In addition, any such non-employee
director shall receive a grant of 2,000 shares of restricted stock.   Each
restricted stock award automatically granted to a non-employee director on the
date of each annual stockholders’ meeting shall vest in a single installment on
the one-year anniversary of the date of grant so long as the non-employee
director continuously remains a director of, or a consultant to, the Company.

 

Each non-employee director first elected or appointed to the Board at any time
on or after May 31, 2010 shall automatically be granted on the date of such
initial election or appointment, 3,000 shares of restricted stock under the
Plan, which shall vest over a period of three years in equal installments on
each annual anniversary of the date of grant for so long as the non-employee
director continuously remains a director of, or a consultant to, the Company. 
Further, such a non-employee director shall also receive an option to purchase
9,000 shares of the Company’s common stock, vesting monthly over a three year
period starting on the date of the grant.

 

Except as set forth above, the terms and conditions of Section 11 of the Plan,
as amended prior to the date hereof, shall remain in effect.

 

The above-referenced equity compensation shall not be paid to any member of the
Board (or committees thereof) who is an employee of the Company.

 

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Amendments to

2003 Equity Incentive Plan

of DTS, Inc.

 

The 2003 Equity Incentive Plan of DTS, Inc. (the “Plan”), as amended on May 9,
2005, May 15, 2008, February 19, 2009, February 15, 2010, and June 3, 2010 is
further amended as of October 8, 2010 as follows:

 

1.                                       Existing Section 6.4(c)(v) is hereby
redesignated as Section 6.4(c)(vi) and the following shall be added to the Plan
as follows:

 

(v)           through a “Net Exercise” procedure which shall be defined as
delivery of a properly executed exercise notice followed by a procedure pursuant
to which (1) the Company will reduce the number of Shares otherwise issuable to
an Awardee upon the exercise of an Option by the largest whole number of Shares
having a Fair Market Value that does not exceed the aggregate Option Price for
the Shares with respect to which the Option is exercised, and (2) the Awardee
shall pay to the Company in cash the remaining balance of such aggregate Option
Price not satisfied by such reduction in the number of whole Shares to be
issued.

 

2.                                       Section 10.2 of the Plan shall be
deleted in its entirety and the following substituted in its place:

 

10.2        Changes in Capital Structure

 

Subject to any required action of the stockholders of the Company and Sections
409A and 424 of the Code to the extent applicable, in the event of any stock
split, reverse stock split, recapitalization, combination or reclassification of
stock, stock dividend, spin-off or similar change to the capital structure of
the Company (not including a Fundamental Transaction or Change in Control),
(a) the number and type of Awards that may be granted under this Plan, (b) the
number and type of Options that may be granted to any individual under this
Plan, (c) the terms of any SAR, (d) the Purchase Price of any Stock Award,
(e) the Option Price and number and class of securities issuable under each
outstanding Option, and (f) the repurchase price of any securities substituted
for Award Shares that are subject to repurchase rights, shall, without further
action of the Board, be proportionately adjusted to reflect such event.  Unless
the Board specifies otherwise, any securities issuable as a result of any such
adjustment shall be rounded down to the next lower whole security and the Option
Price or Purchase Price of any security subject to an Award shall be rounded up
to the nearest whole cent and in no event may the Option Price or Purchase Price
under any Award by decreased to an amount less than the par value.

 

3.                                       Section 11.2 of the Plan shall be
deleted in its entirety.

 

4.                                       Section 18.2(c) of the Plan shall be
deleted in its entirety and the following substituted in its place:

 

(c)           No Established Market.  If Shares are not traded on any
established stock exchange or quoted on a national market system and are not
quoted by a recognized securities dealer, the Administrator (following
guidelines established by the Board or Committee) will determine Fair Market
Value in good faith and in accordance with the provisions of Section 409A of the
Code.

 

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