**Exhibit 10.54**

 

May 20, 2005

 

William Neighbors

22243 Craggy View Street

Chatsworth, CA 91311

 

Re:                               EmploymentAgreement

 

Dear Bill:

 

DTS Digital Images, Inc.(“DDI” or the “Company”) is pleased to extend to you the following employmentAgreement.  Unless otherwise set forth inthis Agreement, you acknowledge that your employment with DDI is “at-will”.

 
| **Title:**          | Vice  President, General Manager                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|---------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| **Duties:**         | You agree to  serve the Company as its Vice President,  General Manager. Your duties are as defined in Company’s job  description for the position or as otherwise specified by the President of  the Company or designated representative. For the initial twelve months of  this agreement, you shall report directly to the President. Thereafter, your  reporting relationship may change at the President’s sole discretion to a  designated representative. Except for your activities with  Neighbors & Associates, Inc., V-Log Inc., and M.E.T.A., which  collectively shall require no more than 8 hours per month, during the Term of  this Agreement you will devote full time to, and use your best efforts to  advance, the business and welfare of the Company. |
|                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| **Status:**         | Salary Exempt.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| **Start  Date:**    | May 18,  2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| **Base  Salary:**   | $195,000 per  year payable biweekly and subject to payroll deductions as may be necessary  or customary in respect of the Company’s salaried employees in general.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| **Bonus:**          | Participation in  the bonus plan will be on a level commensurate with other executives, and  subject to completion of mutually agreed upon individual and company  milestone achievements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| **Stock  Options:** | You shall  initially be granted 35,000 stock options in DTS, Inc. (“DTS”). All  Stock options granted to you are conditioned on Board of Directors of DTS  approval and shall vest over four consecutive 12-month periods as per  your **Stock Option Agreement** with the DTS  and administered under the respective DTS’ **Stock  Option Plan**.                                                                                                                                                                                                                                                                                                                                                                                                                                |
|                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| **Vacation:**       | During your  first year of employment with the Company, vacation hours will be prorated  and credited to you as you work up to a maximum of One Hundred sixty (160)  hours of vacation. Following completion of your first year, you shall be  provided with One Hundred Sixty (160) hours of vacation which shall be automatically  replenished upon use. However, vacation hours will not be replenished during  any period where you are not actively working for the Company, until you have  resumed actively working for at least one full workweek.                                                                                                                                                                                                                                            |
|                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| **Holidays:**       | Per  Company’s annual published schedule (commonly 12 days per year); plan is  subject to change. The salary includes holiday pay and you are not entitled  to any additional salary or compensation for work on a holiday.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| **Severance:**      | Upon  the termination of this Agreement by the Company for other than good cause:  (A) the Company shall for a period of twelve (12) months; (I) pay to  Employee in monthly installments, as severance pay, Employee’s full Salary  with a duty to mitigate as set forth in this Agreement, and (II) provide  Employee the same level of benefits Employee was receiving as of the time of  termination of this Agreement, unless otherwise required by law, (B) all  options granted to you (incentive and nonstatutory) shall (I) immediately  vest and (II) be exercisable for three (3) years from such termination  (but not in excess of the specified maximum term of such option).                                                                                       |
|                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| **Benefits:**       | The  following are the Company supplied Benefits as of the date of this Agreement.  Benefit coverage is subject to change at company election that may result in  elimination of benefits or increased co-pay. Unless otherwise set forth  below, eligibility begins the first day of the month after hire date. Please  see the applicable plan documents for additional information. In the event of  any conflict between this description and the plan document, the plan document  will prevail.                                                                                                                                                                                                                                                                                                 |

 

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| Insurance: |
|------------|
| Health     | Blue Cross |
| Dental:    | Aetna |
| Vision:    | Coverage through  VSP |
| Life:      | $50,000 coverage  -Blue Cross |

 
| Disability                                     |                                            |
|------------------------------------------------|-------------------------------------------------|
| Long Term:                                     | Coverage through UNUM.                          |
| Short Term:                                    | Coverage through  UNUM.                         |
| Section 125:                              | Available for  dependent and health care.       |
| 401k Plan:                                     | Enrollment dates  1/1 4/1, 7/1 & 10/1. |
| ESPP:  Enrollment – May and November |

 

**Deathor Disability of Employee.**  If you die or become disabled prior to thetermination of this Agreement, your employment under this Agreement willautomatically terminate upon your death or the determination that you aredisabled.  “Disability” means anyphysical or mental illness that renders you unable to perform your agreed-uponservices under this Agreement for ninety (90) consecutive days or an aggregateof one-hundred twenty (120) days, whether or not consecutive, during anyconsecutive twelve (12)-month period. Disability shall be determined by a licensed physician selected by theCompany that is not affiliated with you or the Company.  In the event of your death or disability, theamounts due you pursuant to this Agreement through the date of your death ordisability will be paid to you or your beneficiaries.

 

# **Termination forCause**.  Your employment under thisAgreement may be terminated immediately by the Company for “good cause”.  Upon such termination you will providednotice specifying the reasons for the termination.  You shall have ten (10) business daysfrom the date such termination to cure such cause.  Absent such cure within the cure period, youremployment shall be deemed terminated for good cause on the date of yourtermination.  The term “good cause” isdefined as any one or more of the following occurrences:

 
| (I)   |   | Negligence or a material violation by you of any  duty or any other material or repetitive  misconduct or failure on your part;                                                                  |
|-------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (II)  |   | Your  conviction by, or entry of a plea of guilty or nolo contendere in, a court of  competent and final jurisdiction for any crime punishable by imprisonment in  the jurisdiction involved; or |
| (III) |   | Your  commission of an act of fraud, prior to or subsequent to the date of this  Agreement, upon the Company.                                                                                    |
| (IV)  |   | Failure to  execute and deliver to the Company any  document(s) required by all employees of the Company, or employees of a  similar position, at the location you are employed.                 |

 

Nothingin this section or the availability of termination for good cause isintended to alter the at-will status of employment with the Company.  Either you or the company may terminate theemployment relationship at any time, with or without cause.

 

**Employee’sConsideration for Severance.**  As consideration for receiving severance payand benefits provided hereunder, during the period that Employee is receiving severancepay or benefits hereunder, Employee shall:

 
| (I)   |   | Mitigation.  (1) In good faith seek new employment at a level commensurate with  Employee’s duties and Salary hereunder, (2) report to the Company on or  before the first day of each month the status of obtaining such subsequent  employment and (3) report on a monthly basis, the amount of compensation  and benefits paid to Employee received from any such subsequent  employment/consultation with others. The Company may deduct from severance  payments due Employee hereunder, the amount of salary and benefits actually  received by Employee as a result of such subsequent employment or  consultation with others.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|-------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (II)  |   | Consulting.  Be available, in person and/or by telephone, as a consultant to the Company  on projects or task as defined by the Company’s CEO or designated  representative. It is agreed that eight (8) hours per week of  consultation, in person and/or by phone, shall be reasonable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| (III) |   | Non-Compete.  You agree that for the period commencing on the date of this Agreement and  ending upon the date of the last severance payment hereunder, Employee shall  not, directly or indirectly, as employee, agent, consultant, stockholder,  director, partner or in any other individual or representative capacity, own,  operate, manage, control, engage in, invest in or participate in any manner  in, act as a consultant or advisor to, render services for (alone or in  association with any person, firm, corporation or entity), or otherwise  assist, for compensation or otherwise, any person or entity that engages in  or owns, invests in, operates, manages or controls any venture or enterprise  that is a direct competitor of DDI; provided, however, that nothing contained  in this Agreement shall be construed to prevent you from investing in the  stock of any competing corporation listed on a national securities exchange  or traded in the over-the-counter market, but only if: (1) you are not  involved in the business of said corporation, and (2) if you and your  affiliates collectively do not own more than an aggregate of 5% of the stock  of such corporation, and (3) such investment does not violate the  Company’s Insider Trading Policy. |
| (IV)  |   | Non-Solicitation.  You agree that you will not interfere with or disrupt or attempt to disrupt  the Company’s business relationship with its customers or suppliers or  solicit any of the employees of the Company to leave the employment of the  Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| (V)   |   | Severance  Agreement. You shall enter into a severance agreement and  general release with the company in the form designated by the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |

 

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**Arbitration. **You and the Company agree that anydispute arising under or in connection with this Agreement, including anydispute involving your employment or the termination of that employment(whether based on contract, tort or statutory duty or prohibition, includingany prohibition against discrimination or harassment), shall be submitted tobinding arbitration in accordance with California Code of Civil Procedure §§ 1280– 1294.2 before a single neutral arbitrator. You and the Company understand that each is waiving its rights to a jurytrial.

 

The party demandingarbitration shall submit a written claim to the other party setting out thebasis of the claim.  Demands shall bepresented in the same manner as notices under this Agreement.  You and the Company will attempt to reachagreement on an arbitrator within ten (10) business days of delivery ofthe arbitration demand.  After this ten (10) businessday period, either you or the Company may request a list of seven professionalarbitrators from the American Arbitration Association or another mutuallyagreed service.  You and the Company willalternately strike names until only one person remains and that person shall bedesignated as the arbitrator. The party demanding arbitration shall make thefirst strike.

 

The arbitration shalltake place in or within five miles of Agoura Hills, California, at a time andplace determined by the arbitrator.  Eachparty shall be entitled to discovery of essential documents and witnesses andto deposition discovery, as determined by the arbitrator, taking into accountthe mutual desire to have a fast, cost-effective, dispute-resolutionmechanism.  You and company will attemptto cooperate in the discovery process before seeking the determination of thearbitrator.  Except as otherwisedetermined by the arbitrator, you and the Company will each be limited to nomore than three (3) depositions. The arbitrator shall have the powers provided in California Code ofCivil Procedure §§ 1282.2 – 1284.2 and may provide all appropriateremedies at law or equity.

 

The arbitrator will havethe authority to entertain a motion to dismiss and/or a motion for summaryjudgment by either you or the Company and shall apply the standards governingsuch motions under California law, unless the standards of another judicialforum supercede California law.  TheArbitrator shall render, within sixty (60) days of the completion of thearbitration, an award and a written, reasoned opinion in support of thataward.  Judgment on the award may beentered in any court having jurisdiction.

 

# **The Company will pay the arbitrator’s expenses andfees, all meeting room charges and any other expenses that would not have beenincurred if the case were litigated in the judicial forum having jurisdictionover it.  Unless otherwise ordered by thearbitrator pursuant to law or this Agreement, each party shall pay its ownattorney fees, witness fees and other expenses incurred by the party for his orher own benefit.  Employee’s share of anyfiling, administration or similar fee shall be no more than the then currentfiling or other applicable fee in California Superior Court or, if applicable,other appropriate tribunal with jurisdiction.**

 

## **Modificationand Waiver of Breach****.**  No waiver ormodification of this Agreement shall be binding unless it is in writing signedby you and the Company.  No waiver of abreach of this Agreement shall be deemed to constitute a waiver of a future breach,whether of a similar or dissimilar nature.

##  

## **Notices****.**  All noticesand other communications required or permitted under this Agreement shall be inwriting, served personally on, or mailed by nationally recognized express mailcourier.  Notices and othercommunications served by express mail courier shall be deemed given 72 hoursafter deposit with such express mail courier duly addressed to whom such noticeor communication is to be given.  In thecase of (a) the Company; DTS, Inc., 5171 Clareton Drive, AgouraHills, California 91301, Attention: General Counsel, or (b) to you, at theaddress of record provided by you to the Company’s Human Resourcesdepartment.  Either party may changetheir address for purposes of this Section by giving written notice, inthe manner stated herein.  You agree topromptly update the Company’s Human Resources department with any changes toyour contact information.

##  

## **Counterpartsand Facsimile Signatures****.**  Thisinstrument may be executed in one or more counterparts, each of which shall bedeemed an original, but all of which together shall constitute one and the sameAgreement.  The parties agree that asignature delivered by facsimile transmission will be treated in all respectsas having the same effect as an original signature.

##  

## **Constructionof Agreement****.**  ThisAgreement shall be construed in accordance with, and governed by, the internallaws of the State of California and both parties irrevocably agree to theexclusive jurisdiction and venue of the state and local courts of the County ofLos Angeles, California.

##  

## **LegalFees****.**  If any legalaction, arbitration or other proceeding is brought for the enforcement of thisAgreement, or because of any alleged dispute, breach, default ormisrepresentation in connection with this Agreement, the successful orprevailing party shall be entitled to recover reasonable attorneys’ fees andother costs it incurred in that action or proceeding, in addition to any otherrelief to which it may be entitled.

##  

## **SeverabilityClause****.**  If any provisionof this Agreement or the application thereof is held invalid, the invalidityshall not affect other provisions or applications of the Agreement which can begiven effect without the invalid provisions or applications and to this end theprovisions of this Agreement are declared to be severable.

##  

## **CompleteAgreement****.**  Thisinstrument constitutes and contains the entire agreement and understandingconcerning your employment and the other subject matters addressed in thisAgreement between you and the Company, and supersedes and replaces all priornegotiations and all agreements proposed or otherwise, whether written or oral,concerning the subject matters hereof. This is an integrated document.

##  

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**Third PartyBeneficiaries.**  This Agreement does not create, and shall notbe construed as creating, any rights enforceable by any person not a party tothis Agreement, except as expressly contemplated herein.

 

**Non-transferabilityof Interest.**  None of the rights of Employee to receive anyform of compensation payable pursuant to this Agreement shall be assignable ortransferable except through a testamentary disposition or by the laws ofdescent and distribution upon the death of Employee.  Any attempted assignment, transfer,conveyance, or other disposition (other than as set forth herein) of anyinterest in the rights of Employee to receive any form of compensation to bemade by the Company pursuant to this Agreement shall be void.

 

**OtherAgreements.**  A condition of employment with DDI is asigned Confidentiality and Non-Disclosure Agreement, Employee InventionAgreement, the Worldwide Business Conduct Policy, and receiving satisfactoryconfirmation of an employee background check. Your failure to agree to these conditions and complete these documentsin a timely manner may result in your termination for good cause.  You also understand and agree that, except asexpressly provided in this Agreement, you are subject to all of the Company’sgeneral business and human resources polices and procedures as they presentlyexist or as they may exist in the future and failure to abide by suchprovisions may result in your termination for good cause.  Provided, however, that the at-will status ofemployment may only be changed as provided below.

 

**At-Will.**  Bysigning this letter, you understand and agree that your employment with DDI is “**at-will**.”  Your employment with DDI is voluntarilyentered into and we recognize you are free to resign at any time.  Similarly, it is recognized that DDI is freeto conclude an employment relationship at any time we feel is appropriate.  While other terms of your employment maychange with or without notice, this at-will relationship can be changed only ina written agreement signed by you and the President of DDI.

 
| Sincerely,       |                       |
|------------------|----------------------------|
|             |                       |
|             |                       |
| /s/ Jon Kirchner |                       | /s/ Susan R.  Bauer |   |
| Jon Kirchner     | Susan R. Bauer             |
| President        | Director,  Human Resources |
|                  |                            |  |  |

 

 

Acceptance:

 
| /s/ William  Neighbors |   |   |   |
|------------------------|--------|--------|--------|
| May 18,  2005     |   |   |
| William  Neighbors     | Date   |   |

# ** **

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# **AGREEMENTOF AT WILL EMPLOYMENT**

 

I understand and agreethat my employment with DDI is on an **at-will**basis.  This means that either DDI or Ior may terminate the employment relationship at any time at their solediscretion without cause.

 

I further understand thatwhile other personnel policies, procedures, and benefits of DDI may change fromtime to time in DDI’s discretion, this at-will employment relationship can onlybe changed by an express written employment agreement signed by me and anofficer of DDI.

 

 
| William  Neighbors     |   |
|------------------------|--------|
| Employee Name  (PRINT) |

 

 
| /s/ William  Neighbors |   |   |   |
|------------------------|--------|--------|--------|
| May 18,  2005     |   |   |
| Employee  Signature    | Date   |   |

 

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