EXHIBIT 10.1


 


SRS LABS, INC.


 


Nonqualified
Stock Option Agreement


 


Date
of Grant:   March 29, 2005


 


WHEREAS,
                                 ,
(the “Optionee”) is an Employee, Board Director, or Consultant of SRS Labs,
Inc. (the “Company”) or one of its wholly-owned subsidiaries;


 


WHEREAS,
the status of the Optionee as an Employee, Board Director, or Consultant shall
collectively be referred to as “employee” or “employment” herein; however, a
change of status of the Optionee from one position to another (e.g., from
Employee to Consultant) shall be determined to be a cessation of employment for
purposes of this Agreement, unless the Company approves otherwise;


 


WHEREAS,
the execution of a stock option agreement in the form hereof has been
authorized by a resolution of the Compensation Committee (the “Committee”) of
the Board of Directors (the “Board”) of the Company that was duly adopted on
the 29th day of March, 2005 and is incorporated herein by this reference; and


 


WHEREAS,
the option granted hereby is intended to be a nonqualified stock option and
shall not be treated as an “incentive stock option” within the meaning of that
term under Section 422 of the Internal Revenue Code of 1986;


 


NOW,
THEREFORE, pursuant to the Company’s 1996 Long-Term Incentive Plan (the “Plan”)
and subject to the terms and conditions thereof and the terms and conditions
hereinafter set forth, the Company hereby grants to the Optionee, a nonqualified stock option (the “Option”)
to purchase
               shares of the Company’s common stock, par
value $.001 per share (the “Common Shares”), at the exercise price of $4.01 per Common Share (the “Exercise Price”).


 


1.                                       Vesting
of Option.


 


(a)                                  Except
as may otherwise be provided in this Agreement, the options granted hereunder
shall become exercisable according to the following schedule:


 


	
  Vesting Date

  	
   

  	
  Amount of Shares 

  Vested on Vesting Date

  
	
   

  	
   

  	
   

  
	
  March 29,
  2006

  	
   

  	
  100%

  



 


To the extent
exercisable, this Option may be exercised in whole or in part from time to
time. Except as provided in Paragraph 2 hereof, the Option may not be exercised
at any time unless the Optionee shall have been in the continuous employ of the
Company or a subsidiary from the date hereof to the date of the exercise of the
Option.  For the purposes of this
agreement: “subsidiary” shall mean a corporation, partnership, joint venture,
unincorporated association or other entity in which the Company has a direct or
indirect ownership or other equity interest; the continuous employment of the
Optionee with the Company or a subsidiary shall not be deemed to have been
interrupted, and the Optionee shall not be deemed to have ceased to be an
employee of the Company or a subsidiary, by reason of the transfer of his
employment among the Company and its subsidiaries.


 


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(b)                                 Notwithstanding
the provisions of Section 1(a) hereof, the Option shall become immediately
exercisable in full upon any change in control of the Company that shall occur
while the Optionee is an employee of the Company or a subsidiary.  For the purposes of this agreement, the term
“change in control” shall mean the occurrence of any of the following events:


 


(i)                                     all
or substantially all of the assets of the Company are sold or transferred to
another corporation or entity, or the Company is merged, consolidated or
reorganized into or with another corporation or entity, with the result that
upon conclusion of the transaction less than 51 percent of the outstanding
securities entitled to vote generally in the election of directors or other
capital interests of the acquiring corporation or entity is owned, directly or
indirectly, by the shareholders of the Company generally prior to the
transaction; or


 


(ii)                                  there
is a report filed on Schedule 13D or Schedule 14D-1 (or any successor
schedule, form or report thereto), as promulgated pursuant to the Securities
Exchange Act of 1934 (the “Exchange Act”), disclosing that any person (as the
term “person” is used in Section 13(d)(3) or Section 14(d)(2) of the
Exchange Act) has become the beneficial owner (as the term “beneficial owner”
is defined under Rule 13d-3 or any successor rule or regulation thereto
under the Exchange Act) of securities representing 30 percent or more of the
combined voting power of the then-outstanding voting securities of the Company;
or


 


(iii)                               the Company shall file a
report or proxy statement with the Securities and Exchange Commission (the
“SEC”) pursuant to the Exchange Act disclosing in response to Item 1 of Form
8-K thereunder or Item 5(f) of Schedule 14A thereunder (or any successor
schedule, form, report or item thereto) that a change in control of the Company
has or may have occurred, or will or may occur in the future, pursuant to any
then-existing contract or transaction; or


 


(iv)                              the
individuals who constituted the Board at the beginning of any period of two
consecutive calendar years cease for any reason to constitute at least a
majority thereof unless the nomination for election by the Company’s
shareholders of each new member of the Board was approved by a vote of at least
two-thirds of the members of the Board still in office who were members of the
Board at the beginning of any such period.


 


In the event that any
person described in Section 1(b)(ii) hereof files an amendment to any
report referred to in Section 1(b)(ii) hereof that shows the beneficial
ownership described in Section 1(b)(ii) hereof to have decreased to less
than 30 percent, or in the event that any anticipated change in control
referred to in Section 1(b)(iii) hereof does not occur following the
filing with the SEC of any report or proxy statement described in Section 1(b)(iii)
hereof because any contract or transaction referred to in Section 1(b)(iii)
hereof is canceled or abandoned, the Committee may nullify the effect of Section 1(b)(ii)
or 1(b)(iii) hereof, as the case may be, and reinstate the provisions of Section 1(a)
hereof by giving notice thereof to the Optionee; provided, however,
that any such action by the Committee shall not prejudice any exercise of the
Option that may have occurred prior to the nullification and
reinstatement.  The provisions of Section 1(b)(ii)
hereof shall again become automatically effective following any such
nullification of the provisions thereof and reinstatement of the provisions of Section 1(a)
hereof in the event that any person described in Section 1(b)(ii) hereof
that shows the beneficial ownership described in Section 1(b)(ii) hereof
to have again increased to 30 percent or more.


 


(c)                                  Notwithstanding
the provisions of Section 1(a) hereof, the Option shall become immediately
exercisable in full if the Optionee should die or become permanently disabled
(within the meaning of the Company’s long-term disability plan) while in the
employ of the Company or any subsidiary, or if the Optionee should retire under
a retirement plan of the Company or any subsidiary at or after age 62 or at an
earlier age with the consent of the Board.


 


(d)                                 To
the extent that the Option shall have become exercisable in accordance with the
terms of this agreement, it may be exercised in whole or in part from time to
time thereafter.


 


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2.                                       Termination
of Option.  The Option shall
terminate automatically and without further notice on the earliest of the
following dates:


 


(a)                                  three
months after the date upon which the Optionee ceases to be an employee of the
Company or a subsidiary, unless the cessation of his employment (i)  is a result of his death, disability or
retirement with the Company’s consent or (ii) follows a change in control;


 


(b)                                 three
years after the date upon which the Optionee ceases to be an employee of the
Company or a subsidiary (i) as a result of his disability, (ii) as a
result of his retirement with the Company’s consent, unless he is also a
director of the Company who continues to serve as such following his retirement
with the Company’s consent, or (iii) following a change in control, unless the
cessation of his employment following a change in control is a result of his
death;


 


(c)                                  one
year after the date which the Optionee ceases to be a director of the Company,
but not less than three years after the date upon which he ceases to be an
employee of the Company or a subsidiary, if (i) the cessation of his employment
is a result of his retirement with the Company’s consent and (ii) he
continues to serve as a director of the Company following the cessation of his
employment;


 


(d)                                 one
year after the date of the Optionee’s death regardless of whether he ceases to
be an employee of the Company or a subsidiary prior to his death (i)  as a
result of his disability or retirement with the Company’s consent or (ii)
following a change in control;


 


(e)                                  in
the event that the Optionee shall intentionally commit an act that the
Committee determines to be materially adverse to the interests of the Company
or a subsidiary, the Option shall terminate at the time of the determination
notwithstanding any other provision of this agreement; or


 


(f)                                    ten
years after the Date of Grant.


 


For the purposes of this
agreement:  “retirement with the
Company’s consent” shall mean the retirement of the Optionee prior to age 62,
if the Board or the Committee determines that his retirement is for the
convenience of the Company or a subsidiary, or the retirement of the Optionee
at or after age 62 under a retirement plan of the Company or a subsidiary;
“disability” shall mean that the Optionee has qualified for disability benefits
under the Company’s Long-Term Disability Program or any successor disability
plan or program of the Company.


 


3.                                       Payment
of Exercise Price.  The Exercise
Price shall be payable (a) in cash in the form of currency or check or other
cash equivalent acceptable to the Company, (b) by actual or constructive
transfer to the Company of nonforfeitable, unrestricted Common Shares that have
been owned by the Optionee for at least six months prior to the date of
exercise or (c) by any combination of the methods of payment described in
Sections 3(a) and 3(b) hereof.  The
requirement of payment in cash shall be deemed satisfied if the Optionee shall
have made arrangements satisfactory to the Company with a bank or broker who is
a member of the National Association of Securities Dealers, Inc. to sell on the
exercise date a sufficient number of shares being purchased so that the net proceeds
of the sale transaction will at least equal the Option Price plus payment of
any applicable withholding taxes and pursuant to which the bank or broker
undertakes to deliver the full Option Price plus payment of any applicable
withholding taxes to the Company on a date satisfactory to the Company, but not
later than the date on which the sale transaction will settle in the ordinary
course of business.


 


4.                                       Compliance
with Law.  The Company shall make
reasonable efforts to comply with all applicable federal and state securities
laws; provided, however, notwithstanding any other provisions of
this agreement, the Option shall not be exercisable if the exercise thereof
would result in a violation of any such law.


 


5.                                       Transferability
and Exercisability.  The Option,
including any interest thereof, shall not be transferable by the Optionee
except by will or the laws of descent and distribution, and the Option shall be
exercisable during the lifetime of the Optionee only by him or, in the event of
his legal incapacity to do so, by his guardian or legal representative acting
on behalf of the Optionee in a fiduciary capacity under state law and court
supervision.


 


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6.                                       Adjustments.  The Committee shall make any adjustments in
the Exercise Price and the number or kind of shares of stock or other
securities covered by the Option that the Committee may determine to be
equitably required to prevent any dilution or expansion of the Optionee’s
rights under this agreement that otherwise would result from any (a) stock
dividend, stock split, combination of shares, recapitalization or other change
in the capital structure of the Company, (b) merger, consolidation, spin-off,
spin-out, split-off, split-up, reorganization, partial or complete liquidation
or other distribution of assets involving the Company or (c) other transaction
or event having an effect similar to any of those referred to in Section 6(a)
or 6(b) hereof.  Furthermore, in the
event that any transaction or event described or referred to in the immediately
preceding sentence shall occur, the Committee may provide in substitution of
any or all of the Optionee’s rights under this agreement such alternative
consideration as the Committee may determine in good faith to be equitable
under the circumstances and may require in connection therewith the surrender
of this Option to the extent replaced.


 


7.                                       Withholding
Taxes.  If the Company shall be
required to withhold any federal, state, local or foreign tax in connection with
any exercise of the Option, the Optionee shall pay the tax or make provisions
that are satisfactory to the Company for the payment thereof.


 


8.                                       Right
to Terminate Employment.  No
provision of this agreement shall limit in any way whatsoever any right that
the Company or a subsidiary may otherwise have to terminate the employment of
the Optionee at any time.


 


9.                                       Relation
to Other Benefits.  Any economic or
other benefit to the Optionee under this agreement or the Plan shall not be
taken into account in determining any benefits to which the Optionee may be
entitled under any profit-sharing, retirement or other benefit or compensation
plan maintained by the Company or a subsidiary and shall not affect the amount
of any life insurance coverage available to any beneficiary under any life
insurance plan covering employees of the Company or a subsidiary.


 


10.                                 Amendments.  Any amendment to the Plan shall be deemed to
be an amendment to this agreement to the extent that the amendment is
applicable hereto; provided, however, that no amendment shall
adversely affect the rights of the Optionee with respect to the Option without
the Optionee’s consent.


 


11.                                 Severability.  In the event that one or more of the
provisions of this agreement shall be invalidated for any reason by a court of
competent jurisdiction, any provision so invalidated shall be deemed to be
separable from the other provisions hereof, and the remaining provisions hereof
shall continue to be valid and fully enforceable.


 


12.                                 Governing
Law.  This agreement is made under,
and shall be construed in accordance with, the laws of the State of California.


 


 


	
   

  	
  SRS LABS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
					



 


 


The
undersigned Optionee hereby acknowledges receipt of an executed original of
this agreement and accepts the Option granted hereunder, subject to the terms
and conditions of the Plan and the terms and conditions hereinabove set forth.


 


 


	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ,
  Optionee

  
	
   

  	
   

  
	
   

  	
  Date:

  	
   

  	
   

  
						



 


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SCHEDULE TO
EXHIBIT 10.1


 


SRS
Labs, Inc. entered into Nonqualified Stock Option Agreements on March 29,
2005 with several executive officers, each substantially identical to this
Exhibit 10.1 except that the Optionee and the number of Option Shares were
as follows: 


 


	
  Officer

  	
   

  	
  Number of Shares

  Subject to Option

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Thomas C.K. Yuen

  	
   

  	
  11,250

  	
   

  
	
  Janet M. Biski

  	
   

  	
  7,500

  	
   

  
	
  Alan D. Kraemer

  	
   

  	
  7,500

  	
   

  
	
  Philip Wong

  	
   

  	
  7,500

  	
   

  
	
  Jennifer A. Drescher

  	
   

  	
  7,500

  	
   

  



 


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