<PAGE>   1
                                                                   EX-10.16

                              EMPLOYMENT AGREEMENT

           This Agreement is made and entered into as of March 2, 1998, by and
between SRS Labs, Inc., a Delaware corporation (the "Company"), Valence
Technology Inc., a British Virgin Islands company ("Valence"), and Thomas Wah
Tong Wan, an individual (the "Employee").

                                    RECITALS

           A. The Company develops, markets and licenses unique, leading-edge,
proprietary audio technologies and has need for management personnel.

           B. The Employee, prior to the date hereof, has been an executive
officer and director of Valence.

           C. Pursuant to two separate stock purchase agreements, the Company
has acquired 100% of the issued and outstanding share capital of Valence.

           D. The Company desires to employ the Employee in the same or similar
capacity as that previously existing between the Employee and Valence upon the
terms and conditions set forth in this Agreement.

           E. The Employee is willing to enter into this Agreement with respect
to the Employee's employment and services upon the terms and conditions set
forth in this Agreement.

                                   AGREEMENT

        In consideration of the provisions set forth in this Agreement, the
parties agree as follows:

        1.     Employment; Duties and Obligations

               1.1 Employment. The Company hereby employs the Employee as a Vice
President of the Company and the Company and Valence hereby employ the Employee
as the President and Chief Executive Officer of Valence for the term of this
Agreement, and the Employee hereby accepts such employment upon the terms and
conditions hereinafter set forth. Notwithstanding anything to the contrary
herein, except


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with the consent of the Employee, the Employee's principal place of employment
during the term of this Agreement or any renewal thereof shall be located in
Hong Kong.

               1.2 Service to the Company and Valence. The Employee shall have
primary responsibility for, among other things, managing and directing the
day-to-day business of Valence, subject to applicable law and the policies of
the Company's Board of Directors and the Executive Committee of the Company's
Board of Directors and the Board of Directors of Valence.

               1.3 Devotion of Time to the Business. The Employee shall devote
his entire professional time and best efforts to the business of the Company and
its subsidiaries, and shall not during the term of this Agreement engage in any
other business activities. This Agreement shall not be construed as preventing
the Employee from investing his assets in such form or manner as will not
require any services on the part of the Employee for or with respect to any of
the entities in which such investments are made, except as otherwise restricted
pursuant to Section 7 herein. This Agreement shall not be interpreted to
prohibit the Employee from making passive personal investments or conducting
private business affairs if those activities do not materially interfere with
the services required under this Agreement. The Employee shall not, directly or
indirectly, acquire, hold, or retain any interest in any business directly
competing with or similar in nature to the business of the Company or any of its
subsidiaries; provided however, that the Employee's beneficial ownership of debt
securities in an amount not exceeding U.S. $500,000 and/or publicly-traded
equity securities in an amount not exceeding 5% of the total outstanding number
of shares of the particular class of such equity securities, which are issued by
any entity engaged in activities which are competitive with the business of the
Company or any of its subsidiaries shall not be deemed to be a breach of any
duty or obligation owed by the Employee to the Company or any of its
subsidiaries hereunder.

        2. Term. The initial term of this Agreement shall commence as of March
3, 1998 (Hong Kong Time), and shall continue in effect until December 31, 2000
(Hong Kong Time). On December 31, 2000 (Hong Kong Time), and on the 31st day of
December (Hong Kong Time) of each year thereafter (unless this Agreement shall
have been previously terminated), the term of this Agreement shall be
automatically extended for an additional term of one year unless either party
shall provide the other with at least 30-days written notice prior to such
December 31st of the party's intent to terminate this Agreement. In the event
that the Company shall provide written notice of termination to the Employee,
the Employee will be entitled to the severance benefits set forth in Section 4.3
herein. Upon the payment of such severance benefits, the Company and Valence
shall be relieved from any liability for the expired term of this Agreement.



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        3.     Compensation

               3.1 Base Salary. For all services rendered by the Employee under
this Agreement, the Company (or its designee) shall pay the Employee an annual
base salary related to the fiscal year of the Company (the "Base Salary"),
payable in accordance with the regular payroll practices of the Company (but at
least once a month), at a rate determined in accordance with this Agreement.

                      3.1.1     Initial Base Salary. The initial Base Salary to
be paid hereunder is H.K. $1,859,000 per year.

                      3.1.2     Adjustments to Base Salary.  The Compensation
Committee of the Board (or in the absence of a compensation committee, the Board
committee performing equivalent functions or the entire Board of Directors of
the Company) shall review the Base Salary of the Employee and determine whether
to adjust it; provided however that the Base Salary for any fiscal year shall
not be less than the initial Base Salary to be paid to the Employee hereunder.
The first such review shall occur prior to July 1, 1998 (California time);
thereafter, such reviews shall occur within three months of the end of each of
the Company's fiscal years, commencing with the Company's fiscal year ending
December 31, 1998.

               3.2 Salary Deferral Plan. The Employee shall be eligible to
participate in the Company's voluntary salary deferral plan and such other
similar plans as the Company may adopt from time to time.

               3.3    Performance Bonus.

                      3.3.1     Initial Bonus. Notwithstanding anything to the
contrary, Employee shall be eligible to receive a bonus relating to Valence's
fiscal year ending March 31, 1998 based upon the performance formula submitted
to and accepted by the Compensation Committee.

                      3.3.2     Subsequent Bonuses. Irrespective of any other
bonus payment payable to the Employee pursuant to this Agreement, the
Compensation Committee (or in the absence of a compensation committee, the Board
committee performing equivalent functions or the entire Board of Directors of
the Company) shall evaluate the Employee's performance at the end of each fiscal
year commencing with the Company's fiscal year ending December 31, 1998 and
determine whether the Employee's performance merits payment of a performance
bonus to the Employee. The performance bonus is wholly discretionary.



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               3.4 Long-Term Incentive Compensation. The Employee shall be
eligible to participate in all of the Company's long-term incentive compensation
plans, including, but not limited to, any Company stock option, restricted stock
or SAR plan (with the exception of those plans only applicable to non-employee
directors).

               3.5 Other Benefits. The Employee shall be eligible to participate
in, and be covered by, all such other employee benefits generally provided to an
executive officer of the Company. Such benefits include but are not limited to,
health (including coverage for family members subject to plan limitations), life
and disability insurance (including tax gross up amounts), vacation and sick
leave.

               3.6 No Prohibition as to Other Compensation. Nothing herein shall
be deemed to preclude the Company, or any of the Company's subsidiaries, if any,
from awarding additional compensation or benefits to the Employee during the
term of this Agreement, upon approval of the Compensation Committee (or in the
absence of a compensation committee, the Board committee performing equivalent
functions or the entire Board of Directors of the Company), whether in the form
of raises, bonuses, additional fringe benefits or otherwise.

               3.7 Expenses. The Company, in accordance with its policy (which
may be modified from time to time) shall promptly reimburse the Employee for all
expenses incurred by the Employee in relation to the business of the Company,
including, without limitation, expenses pertaining to travel, lodging, meals,
entertainment, seminars and periodicals. The Employee shall provide the Company
or the applicable subsidiary of the Company, as the case may be, with reasonable
documentation showing the business purpose and cost of each item of expense
submitted for reimbursement.

               3.8 Tax Withholding. The Company and, to the extent applicable,
any other subsidiary of the Company, shall have the right to deduct and withhold
from the compensation payable to the Employee hereunder such amounts as may be
necessary to satisfy such corporation's obligations to federal, state and local
authorities to withhold taxes from compensation otherwise payable to the
Employee.

        4.     Termination

               4.1 Termination for Cause. The Company or Valence may terminate
this Agreement and discharge the Employee for cause at any time upon written
notice specifying the reasons for such termination. For purposes of this
Agreement, "cause" shall mean (a) the failure to follow the reasonable
instructions of the Board of Directors of the Company or Valence, (b) the
material breach of any term of this Agreement and failure to cure such breach
within ten (10) days after written notice thereof from the Company or Valence,
as the case may be, or (c) the misappropriation of assets of the





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Company or any subsidiary of the Company by the Employee resulting in a material
loss to such entity. The Employee shall not be entitled to receive any further
payments or other benefits under this Agreement after the expiration of 30 days
from the date of such notice, other than benefits which have previously vested
in the Employee.

               4.2 Termination Upon Death. This Agreement shall automatically
terminate upon the death of the Employee, and the Employee shall not be entitled
to receive any further payments or benefits under this Agreement, except that
the Company and/or its subsidiaries, if any, as the case may be, shall pay to
the Employee's legal representative the full salary for the month in which he
dies and such legal representative shall be entitled to receive those benefits
which have previously vested in the Employee.

               4.3 Termination by the Company or Valence Without
Cause/Severance. In the event the Company or Valence shall give written notice
of its intent not to extend the term of this Agreement for an additional term of
one year, as provided in Section 2 herein, or the Company or Valence otherwise
gives written notice of termination without cause during the then current term
of this Agreement, the Employee's term of employment shall terminate effective
on the last day of the month such notice is deemed effective. Thereafter, the
Employee shall be entitled to receive for the remainder of the then current term
of this Agreement, and for a period of twelve months following the end of such
term, the Base Salary then in effect, less the long-term service payment, if
any, referenced in the Employment Ordinance, Cap. 57, Laws of Hong Kong, and the
health, life, disability insurance benefits and the other employee benefits
which the Employee had prior to such termination including, but not limited to
those set forth in Sections 3.3 through 3.7 herein (collectively referred to
herein as the "Termination Benefits"). During the continuation period, the
Employee will provide advisory services from time to time to the Chairman of the
Board of the Company and the Chief Executive Officer of the Company, as
reasonably requested by such individuals and acceptable in timing and scope to
the Employee. The Company anticipates that such advisory services will he
limited to transitional or management continuity matters and market trends in
the Company's primary market segments. During the continuation period (a)
outstanding options shall continue to vest and vesting or performance
restrictions on any stock awards shall continue to lapse according to the
schedules set forth in the respective stock option or stock award agreements and
(b) any bonus amount earned pursuant to the annual incentive bonus plan or such
similar plan and payable during such continuation period shall be paid to the
Employee. If the Employee accepts employment from any other party during the
continuation period, the continuation period cash salary and Termination
Benefits will immediately terminate on the date on which such new employment
commences and the Employee will receive a lump sum severance payment equal to
80% of the balance of the continued salary payable under this Section 4.3. Any
cash bonus amount which would otherwise be payable within the twelve month
period, if not paid on or prior to such acceptance date shall not be paid. In
addition, for




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purposes of options or other awards pursuant to the Company's employee benefit
plans, such acceptance date shall be deemed the termination date under such
plans. For purpose of this Section 4.3 and subject to Section 5 herein,
"employment" shall exclude (a) service as an officer or director of the
Employee's personal investment holding company, (b) service as a director on the
board of a corporation, (c) engagement as a bona fide part-time consultant, or
(d) self-employment or engagement as an officer or director of an operating
corporation or enterprise (as opposed to a personal investment holding company)
founded or controlled by the Employee and which has revenues of less than
$5,000,000 per year.

               4.4 Termination By the Employee. Notwithstanding anything to the
contrary herein, this Agreement may be terminated by the Employee upon 60 days
prior written notice.

        5.     Termination Following Change in Control.

               5.1 Election. If either (a) the Company or Valence elects to
terminate the Employee without cause pursuant to Section 4.3 within 90 days
before or one year after a Change in Control (as hereinafter defined) or (b) the
Employee elects to resign with Good Reason (as hereinafter defined) within one
year after a Change in Control, then as a severance benefit and in lieu of all
compensation or damages, the Company or Valence shall (a) pay the Employee in
one lump sum or in equal monthly installments, at the sole election of the
Employee, an aggregate amount equal to the Base Salary in effect at the time of
such termination or resignation for the remainder of the then current term of
the Agreement plus an additional period of twelve months; (b) pay the Employee
any bonus amount earned pursuant to the Company's annual incentive bonus plan or
such similar plan and which would otherwise be paid if the Employee were
employed by the Company, one of its subsidiaries, if any, or successors thereto
during the twelve month period commencing on the day of such termination or
resignation under this Section 5 (the "Termination Period"); and (c) provide to
the Employee all Termination Benefits (as such term is defined in Section 4.3
herein).

               5.2 Terms of Stock Options or Other Stock-Based Awards. Any stock
option agreement or other stock award agreement heretofore or hereafter granted
under the Company's stock based compensation plans shall have as a term and
condition of such grant or award (in addition to such other provisions and
whether inserted into the applicable agreement or not) the following provision:

                   "Notwithstanding anything to the contrary, if in connection
                   with or as a result of a Change in Control (as defined in the
                   Employment Agreement, hereinafter defined) the Company or
                   Valence elects





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                   to terminate the Employee or the Employee elects to resign
                   under Section 5 of the Employment Agreement by and between
                   the Company or Valence and the Employee dated as of March 2,
                   1998 (the "Employment Agreement"), then the date of
                   exercisability of each outstanding option, and the date on
                   which all vesting or performance restrictions lapse on any
                   award pursuant to the Company's employee benefit plans, shall
                   be immediately accelerated, allowing the Employee to
                   immediately acquire all of the outstanding unvested options
                   or to immediately hold such stock free and clear of any
                   vesting or performance restrictions, as the case may be."

               5.3    Definitions

               5.3.1 For purposes of this Section 5 "Change in Control" shall
mean:

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

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

                                (c) There is a report filed on Schedule 13D or
                      Schedule 14D-1 (or any successor schedule, form or
                      report), each 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




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<PAGE>   8

                      owner" is defined under Rule 13d-3 or any successor rule
                      or regulation promulgated under the Exchange Act) of
                      securities representing 30% or more of the combined voting
                      power of the then-outstanding securities of the Company
                      entitled to vote generally in the election of directors of
                      the Company ("Voting Stock");

                                (d) The Company files a report or proxy
                      statement with the Securities and Exchange Commission
                      pursuant to the Exchange Act disclosing in, or in response
                      to, Form 8-K or Schedule 14A (or any successor schedule,
                      form or report or item therein) that a Change in Control
                      of the Company has or may have occurred or will or may
                      occur in the future pursuant to any then-existing contract
                      or transaction;

                                (e) If during any period of two consecutive
                      years, the individuals who constituted the Board at the
                      beginning of any such period cease for any reason to
                      constitute at least a majority thereof unless the election
                      (including, but not limited to, filling of a vacancy by
                      the remaining Board members), or the nomination for
                      election by the Company's stockholders, of new members 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; or

                                (f) Notwithstanding the foregoing provisions of
                      (i) subsections (c) or (d) hereof, a "Change in Control"
                      shall not be deemed to have occurred for purposes of this
                      Agreement solely because the Company, an entity in which
                      the Company directly or indirectly beneficially owns 50%
                      or more of the voting securities of such entity (an
                      "Affiliate"), any Company-sponsored employee stock
                      ownership plan or any other employee benefit plan of the
                      Company either files or becomes obligated to file a report
                      or a proxy statement under or in response to Schedule 13D,
                      Schedule 14D-1, Form 8-K or Schedule 14A (or any successor
                      schedule, form or report or item therein) under the
                      Exchange Act, disclosing beneficial ownership by it of
                      shares of voting securities of the Company, whether in
                      excess of 30% or otherwise, or because the Company reports
                      that a Change in Control of the Company has or may have
                      occurred or will or may occur in the future by reason of
                      such beneficial ownership or (ii) subsection (c) hereof, a
                      "Change in Control" shall not be deemed to have occurred
                      for purposes of




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                      this Agreement solely because a person who is a holder of
                      five percent (5%) or more of the Voting Stock and who also
                      is an officer and director of the Company on the date of
                      this Agreement acquires 30% or more of the Voting Stock.

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

                      5.3.2     For purposes of this Section 5, the Employee
shall be deemed to have resigned "with Good Reason" if he does so following a
Change in Control as a result of the Company or any or its subsidiaries, if any,
having done any or all of the following without the Employee's express written
consent: (a) assigned the Employee different duties or made changes in his
reporting responsibilities, title, or office that are substantially inconsistent
with the Employee's duties, responsibilities, titles, or offices immediately
prior to the Change in Control; (b) reduced the Employee's Base Salary from that
in effect at the time of the Change in Control; (c) failed to continue any bonus
plan in substantially the same form as it existed prior to the Change in
Control; (d) required the Employee to he based more than 50 miles from his
present office location, except for required travel consistent with the
Employee's present business travel obligations; (e) failed to continue any plan
or program for compensation, employee benefits, stock purchase or ownership,
life insurance, group medical, disability, or vacation in substantially the same
form as immediately prior to the Change in Control, or otherwise made any
material reduction in the Employee's fringe benefits including but not limited
to those described in Section 3 herein; or (f) failed to obtain the assumption
of this Agreement by any successor to the Company.

               5.4 Relationship to Other Termination Sections. The Employee
shall not be entitled to the benefits of this Section 5 if this Agreement and
his employment are terminated pursuant to Sections 4.1, 4.2, 4.3 or 4.4.

               5.5 Company's Sole Obligations. In the event of any termination
pursuant to this Section 5, the payment of all compensation owing for services
rendered by the Employee prior to such termination and of the severance benefits
set forth in this



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Section 5 as applicable constitute the sole obligations of the Company and are
in lieu of any damages or other compensation that the Employee may claim in
connection with this Agreement.

        6. Resignation as Director and Officer. In the event of any termination
or resignation pursuant to Sections 4.1, 4.3, 4.4 or 5, the Employee shall be
deemed to have resigned voluntarily as an officer and director of the Company
(and of any subsidiaries of the Company) if he was serving in either of such
capacities at the time of termination.

        7. Non-Competition. The Employee acknowledges that, in connection with
the acquisition of Valence by the Company and the Company's employment of the
Employee hereunder, the Employee has entered into a Non-Competition Agreement
with the Company bearing even date herewith.

        8. Inventions and Improvements.

               (a) The Employee hereby assigns to the Company (or, at the
discretion of the Company, any of its subsidiaries that it designates) an
exclusive right to all inventions, discoveries, ideas and improvements made by
him, whether alone or jointly with others, relevant to the subject matter of his
employment, prior to the date of his employment hereunder.

               (b) In carrying out research, developmental and productive
activities for the Company and its subsidiaries, the Employee shall accurately
record the precise nature thereof and the data derived therefrom, and all such
data and records shall be and remain the sole and exclusive property of the
Company and its subsidiaries.

               (c) The Employee hereby recognizes as the exclusive property of
the Company (and, as appropriate, its subsidiaries) and hereby assigns to the
Company (and, as appropriate, its subsidiaries) without further consideration:

                      (i) all inventions, discoveries, ideas, copyright rights,
maskworks, improvements and any other intellectual property made, conceived or
discovered, by the Employee during the term of this Agreement, whether by
himself or jointly with others (whether or not employees of the Company or its
subsidiaries) and whether or not made at the Company's premises or during
working hours, relating or pertaining in any way to the kind of business or any
tests, research or development carried on by the Company, or any subsidiary or
affiliate of the Company; and

                      (ii) all of his right, title and interest in and to each
application for Letters Patent of the United States or of any foreign country
that he either alone or jointly with others (whether or not employees of the
Company or its subsidiaries), may hereafter


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<PAGE>   11



file with respect to any such invention, discovery, idea or improvement and each
patent that may be issued thereon.

               (d) The Employee agrees to execute any assignments to the Company
or its nominee of his rights, title and interest in any such inventions,
discoveries, ideas, copyright rights, maskworks, improvements, and any other
intellectual property, and any other instruments and documents requisite or
desirable in applying for and obtaining patents, trademarks or copyrights, at
the cost of the Company with respect thereto in the United States and all
foreign countries as and when requested by the Company. The Employee further
agrees, whether in the employ of the Company (or its subsidiaries) or not, to
cooperate to the extent and in the manner requested by the Company in the
prosecution or defense of any patent claims or any litigation or other
proceedings involving any inventions, discoveries or improvements covered by
this Agreement, but all expenses thereof shall be paid by the Company or one of
its subsidiaries. Any invention, discovery, idea or improvement within the scope
of this Section 8 shall be disclosed promptly in writing to the Board of
Directors of the Company.

               (e) In the event the Company is unable to secure the Employee's
signature on any document or documents needed to apply for or prosecute any
patent, copyright or other right or protection relating to an invention,
discovery, idea or improvement, whether because of his physical or mental
incapacity or for any other reason whatsoever, the Employee hereby irrevocably
designates and appoints the Company and its duly authorized officers and agents
as his agent and attorney-in-fact, to act for and in his behalf and stead to
execute and file any such application or applications and to do all other
lawfully permitted acts to further the prosecution and issuance of patents,
copyrights, or similar protections thereon with the same legal force and effect
as if executed by him.

        9. No conflict With Other Employment Agreements. The Employee represents
and warrants that there are no other agreements or duties on the Employee's part
now in existence to assign inventions, discoveries, ideas or improvements to any
party other than the Company or one of its subsidiaries. The Employee will not
disclose to the Company or one of its subsidiaries or induce the Company or one
of its subsidiaries to use any confidential information or material that he is
now or shall become aware of that belongs to a former employer or any party
other than the Company or one of its subsidiaries .

        10. Indemnification. The parties hereto covenant and agree to execute,
contemporaneously herewith, an Indemnification Agreement substantially in the
form attached hereto as Exhibit A.



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        11. Confidential Information. The parties hereto covenant and agree to
execute, contemporaneously herewith, a Confidentiality Agreement substantially
in the form attached hereto as Exhibit B.

        12. Insurance. The Company shall purchase and keep in full force and
effect for the Employee a policy of directors' and officers' liability insurance
at coverage levels consistent with other executive officers of the Company.

        13. Authority. The individual executing this Agreement on behalf of the
Company represents and warrants to the Employee that the performance of this
Agreement and consummation of the transactions contemplated hereby have been
duly authorized by all requisite action and that he has the power and authority
to execute this Agreement.

        14. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be given by hand delivery, facsimile,
telecopy, overnight courier service, or by United States certified or registered
mail, return receipt requested. Each such notice, request, demand or other
communication shall be effective (a) if delivered by hand or by overnight
courier service, when delivered at the address specified in this Section; (b) if
given by facsimile or telecopy, when such facsimile or telecopy is transmitted
to the facsimile or telecopy number specified in this Section and confirmation
is received; and (c) if given by certified or registered mail, ten days after
the mailing thereof.

               Address for notices (unless and until written notice is given of
any other address):

               If to the Company:

               SRS Labs, Inc.
               2909 Daimler Street
               Santa Ana, California 92705
               Attention: Ms. Janet M. Biski,
                          Chief Financial Officer and Secretary
               Fax:  (714) 852-1099



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<PAGE>   13



               If to the Employee:

               Valence Technology Inc.
               Unit 413 4th Floor
               Hong Kong Industrial Technology Centre
               72 Tat Chee Avenue
               Kowloon Ton, Hong Kong
               Attention: Thomas Wah Tong Wan,
                          President and Chief Executive Officer
               Fax: (852) 2776-7770

        15. Further Documents and Acts. Each of the parties hereto agrees to
cooperate in good faith with the other and to execute and deliver such further
instruments and perform such other acts as may be reasonably necessary or
appropriate to consummate and carry into effect the transactions contemplated
under this Agreement.

        16. Financial Reporting. Any computation pertaining to the Company's
financial affairs to be made hereunder or referenced herein shall be based on
generally accepted accounting principles, applied on a consistent basis.

        17. Attorneys' Fees. In any action, litigation or proceeding between the
parties arising out of or in relation to this Agreement, the prevailing party in
such action shall be awarded, in addition to any damages, injunctions or other
relief, and without regard to whether or not such matter be prosecuted to final
judgment, such party's costs and expenses, including reasonable attorneys' fees.

        18. Governing Law. This Agreement will be governed by and construed in
accordance with the laws of the State of Delaware without regard to the
conflicts of law principles thereof.

        19. Venue. The parties hereby irrevocably and unconditionally consent to
submit to the exclusive jurisdiction of the courts of the State of California,
County of Orange, and/or the United States District Court for the Central
District of California (Southern Division) for any actions, suits, controversies
or proceedings arising out of or relating to this agreement and the transactions
contemplated hereby (and the parties agree not to commence any action, suit or
proceeding relating thereto except in such courts), and further agree that
service of any process, summons, notice or document by U.S. registered mail to
the respective addresses set forth above shall be effective service of process
for any action, suit or proceeding brought against the parties in any such
court. The parties hereby irrevocably and unconditionally waive any objection to
the laying of venue of any action, suit, controversies or proceeding arising out
of this agreement or the transactions contemplated hereby, in the courts of the
State of California, County of Orange and/or the United States District Court
for the Central District of California



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<PAGE>   14



(Southern Division), and hereby further irrevocably and unconditionally waive
and agree not to plead or claim in any such court that any such action, suit or
proceeding brought in any such court has been brought in an inconvenient or
improper forum.

        20. Amendments/Waiver. This Agreement may be amended, supplemented,
modified and/or rescinded only through an express written instrument signed by
all the parties or their respective successors and assigns. Any party may
specifically and expressly waive in writing any portion of this Agreement or any
breach hereof, but no such waiver shall constitute a further or continuing
waiver of any preceding or succeeding breach of the same or any other provision.
The consent by one party to any act for which such consent was required shall
not be deemed to imply consent or waiver of the necessity of obtaining such
consent for the same or similar acts in the future.

        21. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.

        22. Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity
and enforceability of any such provision in every other respect and of the
remaining provisions hereof shall not be in any way impaired or affected, it
being intended that all of the rights and privileges shall be enforceable to the
fullest extent permitted by law.

        23. Entire Agreement. This Agreement contains the entire and complete
understanding between the parties concerning its subject matter and all
representations, agreements, arrangements and understandings between or among
the parties, whether oral or written have been fully merged herein and are
superseded hereby.

        24. Remedies. All rights, remedies, undertakings, obligations, options,
covenants, conditions and agreements contained in this Agreement shall be
cumulative and no one of them shall be exclusive of any other.

        25. Successors. This Agreement shall be binding upon and inure to the
benefit of the parties and their respective heirs, legatees, legal
representatives, personal representatives, successors and assigns.

        26. Interpretation. The language in all parts of this Agreement shall be
in all cases construed simply according to its fair meaning and not strictly for
or against any party. Whenever the context requires, all words used in the
singular will be construed to have been used in the plural, and vice versa, and
each gender will include any other




                                      -14-


<PAGE>   15

gender. The captions of the Sections of this Agreement are for convenience only
and shall not affect the construction or interpretation of any of the provision
herein.

        27. Arbitration of Certain Disputes. Any controversy or claim arising
out of or relating to (a) the location of the Employee's principal place of
employment as provided in Section 1.1, (b) the scope of the Employee's duties as
provided in Section 1.2, (c) the termination of the Employee for cause under
Section 4.1, or (d) the resignation of the Employee for Good Reason under
Section 5.3.2 shall be resolved by arbitration. Arbitration proceedings shall be
commenced by the delivery by any party to a dispute to the other of written
notice requesting arbitration. The matter shall be submitted to such
disinterested arbitrator as shall be agreed upon by the parties to the dispute,
which arbitrator shall determine the rules to govern the arbitration
proceedings. Each party shall bear its own costs and expenses incurred by it in
connection with the arbitration; all other costs, including arbitrators' fees
and expenses, shall be borne equally by the parties. Notwithstanding the
foregoing, if the arbitrator determines that one party acted unreasonably and
not in good faith, the arbitrator shall have authority to assess the costs and
expenses of the arbitration, including the arbitrator's fee and reasonable
attorneys' fees, against that party. In the event the parties are unable to
agree upon an arbitrator within ten (10) business days of the date a notice
requesting arbitration is delivered, the arbitration shall be conducted in
accordance with the Labor Arbitration Rules of the American Arbitration
Association ("AAA"). If arbitration is conducted pursuant to the rules of the
AAA, then the controversy or claim shall be decided by a board of three (3)
arbitrators. The Employee, on the one hand, and the Company and Valence, on the
other hand, shall select one (1) arbitrator within ten (10) business days of a
demand for arbitration being made or, in the event of a party's failure to so
select, an arbitrator shall be named for that party by the AAA. Within ten (10)
business days of their selection, the two (2) arbitrators so selected shall
select a third arbitrator from the National Panel of Arbitrators maintained by
the AAA or as they otherwise shall agree. All arbitrators, however selected,
shall possess such experience in, and knowledge of, the subject area of the
controversy or claim so as to qualify as an "expert" with respect to such
subject matter. Any arbitration hearing shall be held in Orange County,
California, unless the parties to the dispute agree otherwise. The governing law
for the purposes of any arbitration arising hereunder shall be as set forth in
Section 18 hereof. Any award rendered by arbitration shall be final and binding
on the parties, and judgment thereon may be entered in any court of competent
jurisdiction. Notwithstanding any arbitration rules to the contrary, the award
of the arbitrator must be made no later than three (3) months following the date
on which the arbitrator or arbitrators are appointed.

        28. Miscellaneous. Each provision of this Agreement to be performed by a
party hereto shall be deemed both a covenant and condition, and shall be a
material consideration for the other party's performance hereunder, and any
breach thereof by the party shall be deemed a material default hereunder. The
recitals and all other documents



                                      -15-


<PAGE>   16

referenced in this Agreement are fully incorporated into this Agreement by
reference. Unless expressly set forth otherwise, all references herein to a
"day" shall be deemed to be a reference to a calendar day. Unless expressly
stated otherwise, cross-reference herein shall refer to provisions within this
Agreement, and shall not be deemed to be references to the overall transaction
or to any other document. Time is of the essence in the performance of this
Agreement.

        EMPLOYEE ACKNOWLEDGES THAT HE HAS READ THIS AGREEMENT AND UNDERSTANDS
ITS CONTENTS. EMPLOYEE ALSO ACKNOWLEDGES THAT THE COMPANY HAS INFORMED HIM THAT
THIS AGREEMENT DOES NOT REQUIRE EMPLOYEE TO ASSIGN TO THE COMPANY ANY INVENTION
WHICH QUALIFIES FULLY UNDER THE PROVISIONS OF SECTION 2870 OF THE CALIFORNIA
LABOR CODE, A COPY OF WHICH IS ATTACHED AS EXHIBIT C TO THIS AGREEMENT. BY
SIGNING THIS AGREEMENT, EMPLOYEE AGREES TO BE BOUND BY ALL OF THE TERMS AND
CONDITIONS OF THIS AGREEMENT.



                            (signature page follows)














                                      -16-


<PAGE>   17



        IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.

COMPANY:                        SRS LABS, INC., a Delaware corporation



                                By:  /s/ THOMAS C.K. YUEN
                                   --------------------------------------
                                     Thomas C.K. Yuen
                                     Chairman of the Board and Chief
                                     Executive Officer



                                By:  /s/ JANET M. BISKI
                                   --------------------------------------
                                     Janet M. Biski
                                     Vice President, Chief Financial
                                     Officer and Secretary



VALENCE:                        VALENCE TECHNOLOGY INC.,
                                a British Virgin Islands company



                                By:  /s/ THOMAS WAH TONG WAN
                                   --------------------------------------
                                     Thomas Wah Tong Wan
                                     President and Chief Executive Officer



EMPLOYEE:                            /s/ THOMAS WAH TONG WAN
                                   --------------------------------------
                                     Thomas Wah Tong Wan







                                      -17-


<PAGE>   18



                                       EXHIBIT A

                               INDEMNIFICATION AGREEMENT






<PAGE>   19

                            INDEMNIFICATION AGREEMENT


        This Indemnification Agreement ("Agreement") is made as of this 2nd day
of March, 1998, by and between SRS LABS, INC., a Delaware corporation (the
"Company"), and Thomas Wah Tong Wan ("Indemnitee").

        WHEREAS, Indemnitee is currently serving as a director and an officer of
the Company and a director, executive officer and an employee of certain of the
Company's subsidiaries and the Company desires Indemnitee to continue in such
capacities. The Indemnitee is willing, subject to certain conditions including,
without limitation, the execution and performance of this Agreement by the
Company, to continue in such capacities;

        WHEREAS, in addition to the indemnification to which the Indemnitee is
or may be entitled under the Certificate of Incorporation of the Company (the
"Certificate") or the Bylaws of the Company (the "Bylaws"), the Company has
obtained at its sole expense insurance protecting its officers and directors
including Indemnitee against certain losses arising out of actual or threatened
actions, suits or proceedings to which such persons may be made or threatened to
be made parties. However, as a result of circumstances having no relation to,
and beyond the control of, the Company and Indemnitee, there can be no assurance
of the continuation or renewal of the insurance;

        WHEREAS, the Company and Indemnitee recognize the increasing difficulty
in obtaining directors' and officers' liability insurance, the significant
increases in the cost of such insurance and the general reductions in the
coverage of such insurance;

        WHEREAS, the Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting directors, officers,
employees and other agents to expensive litigation risks;

        WHEREAS, the Company desires to attract and retain the services of
highly qualified individuals, such as Indemnitee, to serve as directors,
officers, employees and other agents of the Company and its subsidiaries; and

        WHEREAS, in recognition of Indemnitee's need for substantial protection
against personal liability in order to enhance Indemnitee's continued and
effective service to the Company and its subsidiaries, and in order to induce
Indemnitee to provide services to the Company and its subsidiaries as a director
and an officer of the Company and a director, executive officer and an employee
of certain of the Company's subsidiaries, the Company wishes to provide in this
Agreement for the indemnification of and the advancing of expenses to Indemnitee
to the fullest extent (whether partial or complete) permitted by law and as set
forth in this Agreement, and, to the extent insurance is maintained, for the
coverage of Indemnitee under the Company's directors' and officers' liability
insurance policies.


                                       -1-

<PAGE>   20
        NOW, THEREFORE, in consideration of the above premises and of
Indemnitee's promise to continue to serve the Company directly or, at its
request, with another enterprise, and intending to be legally bound hereby, the
parties agree as follows:

        1.     DEFINED TERMS AND CONSTRUCTION OF CERTAIN PHASES. As used in this
Agreement:

               (a) "Board" shall mean the Board of Directors of the Company.

               (b) References to the "Company" shall include, in addition to the
        resulting corporation, any constituent corporation (including any
        constituent of a constituent) absorbed in a consolidation or merger
        which, if its separate existence had continued, would have had power and
        authority to indemnify its directors, officers, employees or other
        agents, so that if Indemnitee is or was a director, officer, employee or
        other agent of such constituent corporation, or is or was serving at the
        request of such constituent corporation as a director, officer, employee
        or agent of another corporation, partnership, joint venture, trust or
        other enterprise, Indemnitee shall stand in the same position under the
        provisions of this Agreement with respect to the resulting or surviving
        corporation as Indemnitee would have with respect to such constituent
        corporation if its separate existence had continued.

               (c) A "Change in Control" shall be deemed to have occurred if (i)
        any "person" (as such term is used in Sections 13(d) and 14(d) of the
        Securities Exchange Act of 1934, as amended), other than a trustee or
        other fiduciary holding securities under an employee benefit plan of the
        Company, a subsidiary of the Company, or a corporation owned directly or
        indirectly by the stockholders of the Company in substantially the same
        proportions as their ownership of stock of the Company, is or becomes
        the "Beneficial Owner" (as defined in Rule l3d-3 under said Act),
        directly or indirectly, of securities of the Company representing 40% or
        more of the total voting power represented by the Company's then
        outstanding Voting Securities; (ii) during a two-year period,
        individuals who at the beginning of such period' constitute the Board
        and any new director whose nomination for election or election was
        approved by a vote of at least two-thirds (2/3) of the directors then
        still in office who either were directors at the beginning of the period
        or whose election or nomination for election was previously so approved,
        cease for any reason to constitute a majority thereof; (iii) the
        stockholders of the Company approve a merger or consolidation of the
        Company with any other corporation, other than a merger or consolidation
        that would result in the Voting Securities of the Company outstanding
        immediately prior thereto continuing to represent (either by remaining
        outstanding or by being converted into Voting Securities of the
        surviving entity) at least 80% of the total voting power represented by
        the Voting Securities of the Company or such surviving entity
        outstanding immediately after such merger or consolidation, or (iv) the
        stockholders of the Company approve a plan of complete liquidation of
        the Company or an agreement for the sale or disposition by the Company
        (in one transaction or a series of transactions) of all or substantially
        all of the Company's assets.


                                       -2-

<PAGE>   21
               (d) "Independent Counsel" shall be the person or body appointed
        in connection with Section 4 of this Agreement.

               (e) "Other enterprises" shall include employee benefit plans.

               (f) "Potential Change in Control" shall be deemed to have
        occurred if (i) the Company enters into an agreement or arrangement, the
        consummation of which would result in the occurrence of a Change in
        Control; (ii) any person (including the' Company) publicly announces an
        intention' to take or to consider taking actions that, if consummated,
        would constitute a Change in Control; (iii) any "person" (as such term
        is used in Sections 13(d) and 14(d) of the Securities Exchange Act of
        1934, as amended), other than a trustee or other fiduciary holding
        securities under an employee benefit plan of the Company, a subsidiary
        of the Company, a corporation owned directly or indirectly by the
        stockholders of the Company in substantially the same proportions as
        their ownership of stock of the Company, or a person who is a party to
        an indemnification agreement (in a form similar to this Agreement) with
        the Company, is or becomes the "Beneficial Owner" (as defined in Rule
        l3d-3 under said Act), directly or indirectly, of securities of the
        Company representing 15% or more of the total voting power represented
        by the Company's then outstanding Voting Securities; or (iv) the Board
        adopts a resolution to the effect that, for purposes of this Agreement,
        a Potential Change in Control has occurred.

               (g) "Serving at the request of the Company" shall include,
        without limitation, any service as a director, officer, employee or
        agent of the Company or one of its subsidiaries which imposes duties on,
        or involves services by, Indemnitee with respect to an employee benefit
        plan.

               (h) "Voting Securities" shall mean any securities of the Company
        that are entitled to vote generally in the election of directors.

        2.     INITIAL INDEMNITY.

               (a) Indemnity in Third Party Proceedings. The Company shall
        indemnify the Indemnitee when he was or is a party or is threatened to
        be made a party to any threatened, pending or completed action, suit or
        proceeding, whether civil, administrative, investigative or criminal
        (other than an action by or in the right of the Company), by reason of
        the fact that he is or was or had agreed to become a director, officer,
        employee or agent of the Company, or is or was serving or had agreed to
        serve at the request of the Company as a director, officer, employee or
        agent of another corporation, partnership, joint venture, trust or other
        enterprise, or by reason of any action alleged to have been taken or
        omitted in such capacity, against any and all costs, charges and
        expenses (including without limitation attorneys' and others' fees and
        expenses), judgments, fines and amounts paid in settlement actually and
        reasonably incurred by the Indemnitee in connection therewith and any
        appeal therefrom if the Indemnitee acted in good faith and in a manner
        he reasonably believed to be in or not


                                       -3-

<PAGE>   22
        opposed to the best interests of the Company, and, with respect to any
        criminal action or proceeding, had no reasonable cause to believe his
        conduct was unlawful. The termination of any action, suit or proceeding
        by judgment, order, settlement, conviction or upon a plea of nolo
        contendere or its equivalent shall not, of itself, create a presumption
        that the Indemnitee did not satisfy the foregoing standard of conduct to
        the extent applicable thereto.

               (b) Indemnity in Proceedings By or In the Name of the
        Corporation. The Company shall indemnify the Indemnitee when he was or
        is a party or is threatened to be made a party to any threatened,
        pending or completed action, suit or proceeding by or in the right of
        the Company to procure a judgment in its favor by reason of the fact
        that he is or was or had agreed to become a director, officer, employee
        or agent of the Company, or is or was serving or had agreed to serve at
        the request of the Company as a director, officer, employee or agent of
        another corporation, partnership, joint venture, trust or other
        enterprise against costs, charges and expenses (including attorneys' and
        others' fees and expenses) actually and reasonably incurred by him in
        connection with the defense or settlement thereof or any appeal
        therefrom if he acted in good faith and in a manner he reasonably
        believed to be in or not opposed to the best interests of the Company
        and except that no indemnification shall be made in respect of any
        claim, issue or matter as to which the Indemnitee shall have been
        adjudged to be liable to the Company unless and only to the extent that
        the Court of Chancery or the court in which such action, suit or
        proceeding was brought shall determine upon application that, despite
        the adjudication of liability but in view of all the circumstances of
        the case, the Indemnitee is fairly and reasonably entitled to indemnity
        for such expenses which the Court of Chancery or such other court shall
        deem proper.

               (c) Indemnification of Expenses of Successful Party. To the
        extent that the Indemnitee has been successful on the merits or
        otherwise, including without limitation the dismissal of an action
        without prejudice, in defense of any action, suit or proceeding referred
        to in Sections 2(a) or 2(b) hereof or in defense of any claim, issue or
        matter therein, he shall be indemnified against costs, charges and
        expenses (including attorneys' and others' fees and expenses) actually
        and reasonably incurred by him in connection therewith.

               (d) Determination of Right of Indemnitee to Indemnification. Any
        indemnification under Sections 2(a) or 2(b) (unless ordered by a court)
        shall be made by the Company only as authorized in the specific case
        upon a determination in accordance with Section 4 hereof or any
        applicable provision of the Certificate, Bylaws, other agreement,
        resolution or otherwise. Such determination shall be made (i) by the
        Board by a majority vote of a quorum consisting of directors who were
        not parties to such action, suit or proceeding or (ii) if such a quorum
        of disinterested directors is not available or so directs, by
        independent legal counsel (designated in the manner provided below in
        this subsection (d)) in a written opinion or (iii) by the stockholders
        of the Company (the "Stockholders"). Independent legal counsel shall be
        designated by vote of a majority of the disinterested directors;
        provided, however, that if the Board is


                                       -4-

<PAGE>   23
        unable or fails to so designate, such designation shall be made by the
        Indemnitee subject to the approval of the Company (which approval shall
        not be unreasonably withheld). Independent legal counsel shall not be
        any person or firm who, under the applicable standards of professional
        conduct then prevailing, would have a conflict of interest in
        representing either the Company or the Indemnitee in an action to
        determine the Indemnitee's rights under this Agreement. The Company
        agrees to pay the reasonable fees and expenses of such independent legal
        counsel and to indemnify fully such counsel against costs, charges and
        expenses (including attorneys' and others' fees and expenses) actually
        and reasonably incurred by such counsel in connection with this
        Agreement or the opinion of such counsel pursuant hereto.

               (e) Advancement of Expenses. All expenses (including attorneys'
        and others' fees and expenses) incurred by the Indemnitee in his
        capacity as a director or officer of the Company in defending a civil or
        criminal action, suit or proceeding shall be paid by the Company in
        advance of the final disposition of such action, suit or proceeding in
        the manner prescribed by Section 4(b) hereof.

        3.     ADDITIONAL INDEMNIFICATION.

               (a) Right to Additional Indemnification. Pursuant to Section
        145(f) of the General Corporation Law of the State of Delaware (the
        "GCL"), without limiting any right which the Indemnitee may have
        pursuant to Section 2 hereof, the Certificate, the Bylaws, the GCL, any
        policy of insurance or otherwise, but subject to the limitations on the
        maximum permissible indemnity which may exist under applicable law at
        the time of any request for indemnity hereunder determined as
        contemplated by this Section 3(a), the Company shall indemnify the
        Indemnitee against any amount which he is or becomes legally obligated
        to pay relating to or arising out of any claim made against him because
        of any act, failure to act or neglect or breach of duty, including any
        actual or alleged error, misstatement or misleading statement, which he
        commits, suffers, permits or acquiesces in while acting in his capacity
        as a director, an officer, an employee or agent of the Company, or, at
        the request of the Company, as a director, officer, employee or agent of
        another corporation, partnership, joint venture, trust or other
        enterprise, whether prior to or after the date of this Agreement and
        whether or not the basis of the claim is alleged action or inaction in
        an official capacity as a director, officer, employee or agent or in any
        other capacity while serving as a director, officer, employee or agent
        of the Company. The payments which the Company is obligated to make
        pursuant to this Section 3 shall include without limitation (i) damages,
        judgments, settlements (in accordance with Section 6(d) of this
        Agreement), fines and similar penalties, and excise taxes and penalties
        assessed on a person with respect to an employee benefit plan, (ii)
        charges, costs, expenses (including attorneys' and others' fees and
        related disbursements), expenses of investigation, expenses of defense
        of legal actions, suits, proceedings or claims and appeals therefrom,
        expenses relating to serving as a witness and expenses of appeal,
        attachment or similar bonds, and (iii) any interest, assessments, or
        other charges imposed thereon and any federal, state, local or foreign
        taxes imposed as a result of the actual or deemed receipt of such


                                       -5-

<PAGE>   24
        payments under this Agreement. Notwithstanding the foregoing, the
        Company shall not be obligated under this Section 3(a) to make any
        payment in connection with any claim against the Indemnitee:

                      (i) to the extent of any fine or similar governmental
               imposition which the Company is prohibited by applicable law from
               paying which results in a final, nonappealable order; or

                      (ii) to the extent based upon or attributable to the
               Indemnitee gaining in fact a personal profit to which he was not
               legally entitled, including without limitation profits made from
               the purchase and sale by the Indemnitee of equity securities of
               the Company which are recoverable by the Company pursuant to
               Section 16(b) of the Securities Exchange Act of 1934, as amended,
               and profits arising from transactions in publicly traded
               securities of the Company which were effected by the Indemnitee
               in violation of Section 10(b) of the Securities Exchange Act of
               1934, as amended, including Rule l0b-5 promulgated thereunder.

The determination of whether the Indemnitee shall be entitled to indemnification
under this Section 3(a) shall be made in accordance with Section 4(d) hereof.

               (b) Advancement of Expenses Relating to Additional
        Indemnification. Expenses (including without limitation attorneys' and
        others' fees and expenses) incurred by Indemnitee in defending any
        actual or threatened civil or criminal action, suit, proceeding or claim
        shall be paid by the Company in advance of the final disposition thereof
        as authorized in accordance with Section 4(b) hereof.

        4.     CERTAIN PROCEDURES RELATING TO INDEMNIFICATION AND ADVANCEMENT OF
EXPENSES.

               (a) General. Except as otherwise permitted or required by the
        GCL, for purposes of pursuing his rights to indemnification under
        Sections 2(a), 2(b) or 3(a) hereof, as the case may be, the Indemnitee
        may, but shall not be required to, (i) submit to the Board a sworn
        statement of request for indemnification substantially in the form of
        Exhibit 1 attached hereto and made a part hereof (the "Indemnification
        Statement") averring that he is entitled to indemnification hereunder;
        and (ii) present to the Company reasonable evidence of all expenses for
        which payment is requested. Submission of an Indemnification Statement
        to the Board shall create a presumption that the Indemnitee is entitled
        to indemnification under Sections 2(a), 2(b) or 3(a) hereof, as the case
        may be, and the Board shall be deemed to have determined that the
        Indemnitee is entitled to such indemnification unless within 30 calendar
        days after submission of the Indemnification Statement the Board shall
        determine by vote of a majority of the directors at a meeting at which a
        quorum is present, based upon clear and convincing evidence (sufficient
        to rebut the foregoing presumption), and the Indemnitee shall have
        received notice within such period in writing of such determination that
        the Indemnitee


                                       -6-

<PAGE>   25
        is not so entitled to indemnification, which notice shall disclose with
        particularity the evidence in support of the Board's determination. The
        foregoing notice shall be sworn to by all persons who participated in
        the determination and voted to deny indemnification. The provisions of
        this Section 4(a) are intended to be procedural only and shall not
        affect the right of the Indemnitee to indemnification under this
        Agreement and any determination by the Board that the Indemnitee is not
        entitled to indemnification and any failure to make the payments
        requested in the Indemnification Statement shall be subject to judicial
        review as provided in Section 5 hereof.

               (b) Undertaking or Expense Request Regarding Advancement of
        Expenses. For purposes of determining whether to authorize advancement
        of expenses pursuant to Section 2(e) hereof, the Indemnitee shall submit
        to the Board a sworn statement of request for advancement of expenses
        substantially in the form of Exhibit 2 attached hereto and made a part
        hereof (the "Undertaking"), averring that (i) he has reasonably incurred
        or will reasonably incur actual expenses in defending an actual civil or
        criminal action, suit, proceeding or claim and (ii) he undertakes to
        repay such amount if it shall ultimately be determined that he is not
        entitled to be indemnified by the Company under this Agreement or
        otherwise. For purposes of requesting advancement of expenses pursuant
        to Section 3 (b) hereof, the Indemnitee (i) may, but shall not be
        required to, submit an Undertaking or (ii) shall submit such other form
        of request as he determines to be appropriate (an "Expense Request").
        Upon receipt of an Undertaking or Expense Request, as the case may be,
        the Board shall within 20 calendar days authorize immediate payment of
        the expenses stated in the Undertaking or Expense Request, whereupon
        such payments shall immediately be made by the Company. No security
        shall be required in connection with any Undertaking or Expense Request
        and any Undertaking or Expense Request shall be accepted without
        reference to the Indemnitee's ability to make repayment.

               (c) Independent Counsel. Notwithstanding anything to the contrary
        contained in Sections 2(d) or 4(a) of this Agreement, after a Change of
        Control and if requested by the Indemnitee at the time of making a claim
        for indemnification, (i) any determination under Section 2(a) or 2(b)
        (unless ordered by a court) shall be made by Independent Counsel (as
        defined below), and (ii) after the submission of an Indemnification
        Statement, the determination pursuant to Section 4(a) whether an
        Indemnitee shall be entitled to indemnification under Sections 2(a),
        2(b) or 3(a) hereof, as the case may be, shall be made by Independent
        Counsel (as defined below) instead of by the Board. For purposes of this
        Section 4(c) "Independent Counsel" shall be an attorney selected by
        Indemnitee and approved by the Company (which approval shall not be
        unreasonably withheld), (i) who has not otherwise performed services for
        the Company or the Indemnitee (other than in connection with
        indemnification matters) within the three years prior to the selection
        of the Independent Counsel, and (ii) who shall not, under the applicable
        standards of professional conduct then prevailing, have a conflict of
        interest in representing either the Company or Indemnitee in an action
        to determine Indemnitee's rights under this Agreement. Any determination
        by Independent Counsel as to whether and to what extent the Indemnitee
        should be


                                       -7-

<PAGE>   26
        permitted to be indemnified under applicable law shall be rendered by
        its written opinion to the Company and Indemnitee. The Company agrees to
        pay the reasonable fees of the Independent Counsel and to indemnify
        fully such counsel against any and all expenses (including attorneys'
        and others' fees and expenses), claims, liabilities, loss, and damages
        arising out of or relating to this Agreement, the engagement of
        Independent Counsel pursuant hereto or the opinion of such counsel
        pursuant hereto.

        5.     INDEMNIFICATION PROCESS AND APPEAL.

               (a) Suit to Enforce Rights. If a claim for indemnification made
        to the Company pursuant to Section 4 hereof is not paid in full by the
        Company within 30 calendar days after a written claim has been received
        by the Company, the Indemnitee may at any time thereafter bring suit
        against the Company to recover the unpaid amount of the claim in any
        court having subject matter jurisdiction thereof. The Company hereby
        consents to service of process and to appear in any such proceeding. The
        remedy provided for in this Section 5 shall be in addition to any other
        remedies available to Indemnitee in law or equity.

               (b) Defense to Indemnification, Burden of Proof and Presumptions.
        In any action brought under Section 5(a) hereof, it shall be a defense
        to a claim for indemnification pursuant to Sections 2(a) or 2(b) hereof
        (other than an action brought to enforce a claim for expenses incurred
        in defending any proceeding in advance of its final disposition where
        the Undertaking, if any is required, has been tendered to the Company)
        that the Indemnitee has not met the standards of conduct which make it
        permissible under the GCL for the Company to indemnify the Indemnitee
        for the amount claimed, but the burden of proving such defense shall be
        on the Company. It shall be a defense to any action brought by
        Indemnitee against the Company to enforce this Agreement that it is not
        permissible under applicable law for the Company to indemnify Indemnitee
        for the amount claimed, but the burden of proving such defense shall be
        on the Company. Neither the failure of the Company (including its Board,
        independent legal counsel or its stockholders) or Independent Counsel to
        have made a determination prior to the commencement of such action by
        Indemnitee that indemnification of the claimant is proper under the
        circumstances because he has met the standard of conduct set forth in
        applicable law, nor an actual determination by the Company (including
        its Board, independent legal counsel or its stockholders) or Independent
        Counsel that Indemnitee had not met such applicable standard of conduct,
        shall be a defense to the action or create a presumption that Indemnitee
        has not met the applicable standard of conduct.

               (c) Indemnification for Expenses Incurred in Enforcing Rights. It
        is the intent of the Company that the Indemnitee not be required to
        incur the expenses associated with the enforcement of his rights under
        this Agreement by litigation or other legal action because the cost and
        expense thereof would substantially detract from the benefits intended
        to be extended to the Indemnitee hereunder. Accordingly, if it should
        appear to the Indemnitee that the Company has failed to comply with any
        of its


                                       -8-

<PAGE>   27
        obligations under the Agreement or in the event that the Company or any
        other person takes any action to declare the Agreement void or
        unenforceable, or institutes any action, suit or proceeding designed (or
        having the effect of being designed) to deny, or to recover from, the
        Indemnitee the benefits intended to be provided to the Indemnitee
        hereunder, the Company irrevocably authorizes the Indemnitee from time
        to time to retain counsel of his choice, at the expense of the Company
        as hereafter provided, to represent the Indemnitee in connection with
        the initiation or defense of any litigation or other legal action,
        whether by or against the Company or any director, officer, stockholder
        or other person affiliated with the Company, in any jurisdiction.
        Regardless of the outcome thereof, the Company shall pay and be solely
        responsible for any and all costs, charges and expenses (including
        without limitation attorneys' and others' fees and expenses) reasonably
        incurred by the Indemnitee (i) as a result of the Company's failure to
        perform this Agreement or any provision thereof or (ii) as a result of
        the Company or any person contesting the validity or enforceability of
        this Agreement or any provision thereof as aforesaid; provided that, if
        and to the extent that a court of competent jurisdiction determines (in
        a final judicial determination as to which all rights of appeal
        therefrom have been exhausted or waived or have lapsed) that each of the
        material assertions made by Indemnitee in such litigation or other legal
        action was not made in good faith or was frivolous, the Company shall
        not be obligated to pay any such costs, charges and expenses incurred by
        Indemnitee in connection with such suit and shall be entitled to be
        reimbursed by Indemnitee (who hereby agrees to reimburse the Company)
        for all such amounts theretofore paid under this Section 5(c).
        Notwithstanding the procedure for selection of counsel in Section 6(c)
        herein, in connection with the assertion of any claim under this Section
        5(c), Indemnitee from time to time may retain counsel of his choice to
        represent him.

        6.     NOTIFICATION AND DEFENSE OF PROCEEDING.

               (a) Notice/Cooperation by Indemnitee. Indemnitee shall give the
        Company notice in writing as soon as practicable of any claim made
        against Indemnitee for which indemnification will or could be sought
        under this Agreement (for purposes of this Section 6, a "Claim").
        Indemnitee shall also provide the Company such information and
        cooperation as the Company from time to time may reasonably request and
        as shall reasonably be within Indemnitee's power to provide.

               (b) Notice to Insurers. If at the time of the receipt of a notice
        of a Claim pursuant to Section 6(a) hereof the Company has directors'
        and officers' liability insurance (or a similar policy covering key
        employees, if applicable) in effect, the Company shall give prompt
        notice of such Claim to the insurers in accordance with the procedures
        set forth in the respective policies. The Company thereafter shall take
        all necessary or desirable action to cause such insurers to pay, on
        behalf of Indemnitee, all amounts payable as a result of such Claim in
        accordance with the terms of such policies.


                                       -9-

<PAGE>   28
               (c) Selection of Counsel. With respect to any litigation or other
        legal action relating to a Claim as to which Indemnitee notifies the
        Company (for purposes of this Section 6, a "Proceeding"), the Company
        will be entitled to participate in the Proceeding at its own expense and
        except as otherwise provided below, to the extent the Company so wishes,
        it may assume the defense thereof with counsel selected by the Company
        and approved by Indemnitee, which approval shall not be unreasonably
        withheld. After notice from the Company to Indemnitee of its election to
        assume the defense of any Proceeding, the Company will not be liable to
        Indemnitee under this Agreement or otherwise for any expenses
        subsequently incurred by Indemnitee in connection with the defense of
        such Proceeding other than reasonable costs of investigation or as
        otherwise provided below. Indemnitee shall have the right to employ his
        own counsel in such Proceeding, but all expenses related thereto
        incurred after notice from the Company of its assumption of the defense
        shall be at Indemnitee's expense unless: (i) the employment of counsel
        by Indemnitee has been authorized by the Company; (ii) Indemnitee has
        reasonably determined and either the Company shall have agreed, or
        disinterested counsel (as defined in this Section 6(c) shall have
        determined, that there may be a conflict of interest between Indemnitee
        and the Company in the defense of the Proceeding; (iii) after a Change
        in Control, the employment of counsel by Indemnitee has been approved by
        the Independent Counsel; or (iv) the Company shall not in fact have
        employed counsel to assume the defense of such Proceeding, in each of
        which case all expenses of the Proceeding shall be borne by the Company,
        and Indemnitee's counsel shall have been approved by the Company (which
        approval may not be unreasonably withheld) and any carrier of an
        applicable insurance policy if required under the terms of that policy
        or under applicable law. As used in this Section 6(c), "disinterested
        counsel" shall mean counsel selected and compensated by the Company, and
        approved by Indemnitee (which approval may not be unreasonably
        withheld), to determine whether a conflict of interest may exist, which
        counsel shall not represent the Company, Indemnitee or any other party
        to the Proceeding for which indemnification is sought. Disinterested
        counsel shall be selected promptly following the notice from Indemnitee
        to the Company of Indemnitee's belief that a conflict of interest may
        exist. The Company shall not be entitled to assume the defense of any
        Proceeding as to which the determination provided for in (ii) above
        shall have been made. Nothing herein shall limit the right of Indemnitee
        to employ counsel at Indemnitee's sole expense.

               (d) Settlements. Notwithstanding anything to the contrary
        contained in this Agreement, the Company shall not be liable to
        indemnify Indemnitee under this Agreement or otherwise for any amounts
        paid in settlement of any Proceeding effected without the Company's
        written consent; provided, however, that if a Change in Control has
        occurred, the Company shall be liable for indemnification of Indemnitee
        for amounts paid in settlement if the Independent Counsel has approved
        the settlement. The Company shall not settle any Proceeding in any
        manner that would impose any penalty or limitation on Indemnitee without
        Indemnitee's written consent. Neither the Company nor Indemnitee will
        unreasonably withhold its consent to any proposed settlement. The
        Company shall not be liable to indemnify Indemnitee under this


                                      -10-

<PAGE>   29
        Agreement with regard to any judicial award if the Company was not given
        a reasonable and timely opportunity, at its expense, to participate in
        the defense of such action; the Company's liability hereunder shall not
        be excused if participation in the Proceeding by the Company was barred
        by this Agreement.

        7. ESTABLISHMENT OF A TRUST. Immediately upon the occurrence of a Change
in Control or a Potential Change in Control, the Company shall, upon written
request by Indemnitee, create a trust (a "Trust") for the benefit of Indemnitee
and from time to time upon written request of Indemnitee shall fund the Trust in
an amount sufficient to satisfy any and all amounts reasonably anticipated at
the time of each such request to be incurred in connection with any claim made
by Indemnitee. The amount or amounts to be deposited in the Trust pursuant to
the foregoing funding obligation shall be determined (i) prior to the occurrence
of a Change in Control or a Potential Change in Control, (a) by the Board by a
majority vote of a quorum consisting of directors who were not parties to the
action, suit or proceeding serving as the basis of a claim by Indemnitee, or (b)
if such a quorum of disinterested directors is not available or so directs, by
independent legal counsel (designated in the manner provided in Section 2(d)) in
a written opinion or (c) by the Stockholders, or (ii) after the occurrence of a
Change in Control or a Potential Change in Control, by Independent Counsel as
defined in Section 4(c) (for purposes of this Section 7, the "Reviewing
Party").The terms of the Trust shall provide that upon a Change in Control (i)
the Trust shall not be revoked or the principal thereof invaded without the
written consent of Indemnitee, (ii) the trustee of the Trust (the "Trustee")
shall advance, within 20 business days of the request by Indemnitee, any and all
expenses to Indemnitee (and Indemnitee hereby agrees to reimburse the Trust
under the same circumstances for which Indemnitee would be required to reimburse
the Company under Section 4(b) of this Agreement), (iii) the Trust shall
continue to be funded by the Company in accordance with the funding obligation
set forth above, (iv) the Trustee shall promptly pay to Indemnitee all amounts
for which Indemnitee shall be entitled to indemnification pursuant to this
Agreement or otherwise, and (v) all unexpended funds in the Trust shall revert
to the Company upon a final determination by the Reviewing Party or a court of
competent jurisdiction, as the case may be, that Indemnitee has been fully
indemnified under the terms of this Agreement. The Trustee shall be chosen by
Indemnitee. Nothing in this Section 7 shall relieve the Company of any of its
obligations under this Agreement. All income earned on the assets held in the
Trust shall be reported as income by the Company for federal, state, local and
foreign tax purposes. The Company shall pay all costs of establishing and
maintaining the Trust and shall indemnify the Trustee against any and all
expenses (including attorneys' fees), claims, liabilities, loss and damages
arising out of or relating to this Agreement or the establishment and
maintenance of the Trust.

        8. EXCEPTIONS. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:

               (a) Claims Initiated by Indemnitee. To indemnify Indemnitee for
        any amounts or to advance expenses to Indemnitee with respect to any
        litigation or other legal action initiated or brought voluntarily (and
        not by way defense or counterclaim) by Indemnitee against the Company or
        any agent of the Company unless (i) the


                                      -11-

<PAGE>   30
        Company has joined in or the Board has consented to the initiation of
        such litigation or other legal action, (ii) the litigation or other
        legal action is brought to establish or enforce a right to
        indemnification under Section 5 of this Agreement, or (iii) the
        litigation or other legal action is instituted after a Change in Control
        and Independent Counsel has approved its initiation; or

               (b) No Duplication of Payments. To make any payment in connection
        with any claim made against Indemnitee to the extent Indemnitee has
        otherwise actually received payment (under any insurance policy, bylaw
        or otherwise) of the amounts otherwise indemnifiable hereunder.

        9.     SCOPE; NONEXCLUSIVITY.

               (a) Scope. In accordance with Section 145(f) of the GCL, the
        parties hereto intend that this Agreement shall provide for
        indemnification in excess of that expressly permitted by statute,
        including, without limitation, any indemnification provided by the
        Certificate, Bylaws, vote of its stockholders or disinterested directors
        or applicable law. To the extent that a change in applicable law
        (whether by statute, rule or judicial decision) permits greater
        indemnification by agreement than would be afforded currently under the
        Certificate, Bylaws, applicable law or this Agreement, it is the intent
        of the parties that Indemnitee enjoy by this Agreement the greater
        benefits so afforded by such change.

               (b) Non exclusivity. Consistent with Section 145(f) of the GCL,
        the indemnification provided by this Agreement shall not be deemed
        exclusive of any rights to which Indemnitee may be entitled under the
        Certificate, Bylaws, any agreement, any vote of stockholders or
        disinterested directors, or otherwise, both as to actions in
        Indemnitee's official capacity and as to actions in another capacity
        while holding such office, and shall continue after Indemnitee has
        ceased to be a director, officer, employee or agent.

        10. MUTUAL ACKNOWLEDGMENT. Both the Company and Indemnitee acknowledge
that in certain instances, federal or state law or applicable public policy may
prohibit the Company from indemnifying its directors, officers, employees or
other agents under this Agreement or otherwise. Indemnitee understands and
acknowledges that the Company has undertaken or may be required in the future to
undertake with the U.S. Securities and Exchange Commission or applicable state
securities agencies to submit the question of indemnification to a court in
certain circumstances for a determination of the Company's right under public
policy to indemnify Indemnitee.

        11. DIRECTORS' AND OFFICERS' LIABILITY INSURANCE. The Company shall,
from time to time, make the good faith determination whether or not it is
practicable for the Company to obtain and maintain a policy or policies of
insurance with reputable insurance companies providing the officers and
directors of the Company with coverage for losses from wrongful acts, or to
ensure the Company's performance of its indemnification obligations under this


                                      -12-

<PAGE>   31
Agreement. Among other considerations, the Company will weigh the costs of
obtaining such insurance coverage against the protection afforded by such
coverage. To the extent the Company maintains an insurance policy or policies
providing directors' and officers' liability insurance (or such other similar
insurance policy covering key employees, if applicable), Indemnitee shall be
covered by such policy or policies, in accordance with its or their terms, to
the maximum extent of the coverage available for any Company director or
officer. Notwithstanding the foregoing, the Company shall have no obligation to
obtain or maintain such insurance if the Company determines in good faith that
such insurance is not reasonably available, if the premium costs for such
insurance are disproportionate to the amount of coverage provided, if the
coverage provided by such insurance is limited by exclusions so as to provide an
insufficient benefit, or if Indemnitee is covered by similar insurance
maintained by a subsidiary or parent of the Company.

        12. EFFECTIVENESS OF AGREEMENT. This Agreement shall be effective as of
the date set forth on the first page and may apply to acts or omissions of
Indemnitee which occurred prior to such date if Indemnitee was a director,
officer, employee or agent of the Company, or was serving at the request of the
Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, at the time such act or
omission occurred.

        13. PERIOD OF LIMITATION. No legal action shall be brought and no cause
of action shall be asserted by or on behalf of the Company or any affiliate of
the Company against Indemnitee, Indemnitee's spouse, heirs, executors, or
personal or legal representatives after the expiration of two years from the
date of accrual of such causes of action, or such longer period as may be
required by state law under the circumstances (i.e., a minimum limitation period
that expressly may not be altered by agreement among the parties). Any claim or
cause of action of the Company or any of its affiliates shall be extinguished
and deemed released unless asserted by the timely filing of a legal action
within such period; provided, however, if any shorter period of limitation is
otherwise applicable to any such cause of action, the shorter period shall
govern.

        14. RATIFICATION OF ACTS. None of the provisions contained in this
Agreement is intended to constitute, or shall be construed in any manner as
constituting, a ratification by the Company (or by any of its directors,
officers or other agents) of any action or inaction on the part of Indemnitee.

        15. CONTINUED EMPLOYMENT. No provision contained herein shall be
construed as conferring upon Indemnitee any right with respect to continuance of
performance of services for the Company or a subsidiary of the Company, nor
shall any such provisions interfere in any way with the right of the Company to
terminate Indemnitee's services as an officer, employee or other agent at any
time with or without cause.

        16. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon, inure
to the benefit of and be enforceable by the parties hereto and their respective
successors (including any direct or indirect successor by purchase, merger,
consolidation or otherwise to all or


                                      -13-

<PAGE>   32
substantially all of the business and/or assets of the Company), assigns,
spouses, heirs and personal and legal representatives. The Company shall require
and cause any successor (whether direct or indirect by purchase, merger,
consolidation or otherwise) to all, substantially all, or a substantial part, of
the business and!or assets of the Company, by written agreement in form and
substance satisfactory to Indemnitee, expressly to assume and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform if no such succession had taken place. Nothing in this
Section 16 shall be construed to limit the protections afforded Indemnitee under
this Agreement which would occur upon a Change in Control or a Potential Change
in Control. The indemnification provided under this Agreement shall continue as
to Indemnitee for any action taken or not taken while serving in an indemnified
capacity even though Indemnitee may have ceased to serve in such capacity at the
time of any litigation or other legal action relating to events for which a
claim for indemnification is made by Indemnitee hereunder.

        17. NOTICE. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressee, on the date of such
receipt, or (ii) if mailed by domestic certified or registered mail with postage
prepaid, on the third business day after the date postmarked. Addresses for
notice to either party are as shown on the signature page of this Agreement, or
as subsequently modified by written notice.

        18. CHOICE OF LAW. This Agreement shall be governed by, and its
provisions construed in accordance with, the laws of the State of Delaware,
including without limitation, all matters of formation, construction, validity,
performance and enforcement and without giving effect to the principles of
conflicts of laws.

        19. SEVERABILITY. Nothing in this Agreement is intended to require or
shall be construed as requiring the Company to do or fail to do any act in
violation of applicable law. The Company's inability, pursuant to court order,
to perform its obligations under this Agreement shall not constitute a breach of
this Agreement. The provisions of this Agreement shall be severable as provided
in this Section 19. If this Agreement or any portion hereof shall be invalidated
or held unlawful or unenforceable on any ground by any court of competent
jurisdiction, then the Company shall nevertheless indemnify Indemnitee to the
full extent permitted by any applicable portion of this Agreement that shall not
have been invalidated or held unlawful or unenforceable, the provision(s) so
held to be invalid, unenforceable or otherwise illegal shall be reformed to the
extent (and only to the extent) necessary to make it enforceable, valid and
legal and the balance of this Agreement shall be enforceable in accordance with
its terms. Furthermore, to the fullest extent possible, the provisions of this
Agreement (including, without limitation, each portion of this Agreement
containing any provision held to be invalid, void, or otherwise unenforceable,
that is not itself invalid, void or unenforceable) shall be construed so as to
give effect to the intent manifested by the provision held invalid, void or
unenforceable.

        20. AMENDMENT AND WAIVER. No supplement, modification or amendment of
this Agreement shall be binding unless executed in writing by both of the
parties hereto. No


                                      -14-

<PAGE>   33
waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver of any other provision hereof (whether or not similar), nor
shall such waiver constitute a continuing waiver. Except as specifically
provided herein, no failure to exercise or any delay in exercising any right or
remedy hereunder shall constitute a waiver thereof.

        21. SUBROGATION. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all papers required and shall do
everything that may be necessary to secure such rights, including the execution
of such documents necessary to enable the Company effectively to bring suit to
enforce such rights.

        22. FUTURE AGREEMENTS. The Company shall not adopt any amendment to its
Certificate or Bylaws the effect of which would be to deny, diminish or encumber
Indemnitee's rights to indemnity pursuant to the Certificate, the Bylaws, the
GCL or any other applicable law as applied to any act or failure to act
occurring in whole or in part prior to the date (the "Effective Date") upon
which the amendment was approved by the Board or the stockholders, as the case
may be. In the event that the Company shall adopt any amendment to its
Certificate or Bylaws the effect of which is to so deny, diminish or encumber
Indemnitee's rights to indemnity, such amendment shall apply only to acts or
failures to act occurring entirely after the Effective Date thereof unless the
Indemnitee shall have voted in favor of such adoption as a director or holder of
record of the Company's Voting Securities, as the case may be.

        23. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original but all of which counterparts taken
together shall constitute one and the same document.

        24. HEADINGS. Section headings herein are for reference purposes only
and shall not affect the meaning or interpretation of any provision of this
Agreement.




                            [Signature Page Follows]


                                      -15-

<PAGE>   34
        IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.

                                    SRS LABS, INC.,
                                    a Delaware corporation


                                    By:
                                       ----------------------------------------
                                       Thomas C.K. Yuen
                                       Chairman of the Board and Chief Executive
                                       Officer

                                          Address:  2909 Daimler Street
                                                    Santa Ana, California 92705


AGREED TO AND ACCEPTED:

INDEMNITEE:


-------------------------------
Thomas Wah Tong Wan


Address:
c/o Valence Technology Inc.
Unit 413, Hong Kong Industrial Technology Centre
72 Tat Chee Avenue
Kowloon, Hong Kong


                                      -16-

<PAGE>   35
                                    EXHIBIT 1

                            INDEMNIFICATION STATEMENT

STATE OF_______________)
                       ) ss
COUNTY OF______________)

               I, ___________________________, being first duly sworn, do depose
and say as follows:

               1. This Indemnification Statement is submitted pursuant to the
Indemnification Agreement, dated as of March 2, 1998, between SRS Labs, Inc.
(the "Company"), a Delaware corporation, and the undersigned.

               2. I am requesting indemnification against charges, costs,
expenses (including attorneys' and others' fees and expenses), judgments, fines
and amounts paid in settlement, all of which have been or will be incurred by me
in connection with an actual or threatened action, suit, proceeding or claim to
which I am a party or am threatened to be made a party.

               3. With respect to all matters related to any such action, suit,
proceeding or claim, I am entitled to be indemnified as herein contemplated
pursuant to the aforesaid Indemnification Agreement.

               4. Without limiting any other rights which I have or may have, I
am requesting indemnification against liabilities which have or may arise out of

_______________________________________________________________________________

_______________________________________________________________________________

_______________________________________________________________________________


                                                      __________________________

               Subscribed and sworn to before me, a Notary Public in and for
said County and State, this ___ day of ____________________, _____.



                                                      __________________________

[Seal]

               My commission expires the ___ day of _______________, _____.


                                      -17-

<PAGE>   36
                                    EXHIBIT 2

                                   UNDERTAKING

STATE OF_______________)
                       ) ss
COUNTY OF______________)


               I, ___________________________, being first duly sworn, do depose
and say as follows:

               1. This Undertaking is submitted pursuant to the Indemnification
Agreement, dated as of March 2, 1998, between SRS Labs, Inc. (the "Company"), a
Delaware corporation, and the undersigned.

               2. I am requesting advancement of certain costs, charges and
expenses which I have incurred or will incur in defending an actual or pending
civil or criminal action, suit, proceeding or claim.

               3. I hereby undertake to repay this advancement of expenses if it
shall ultimately be determined that I am not entitled to be indemnified by the
Company under the aforesaid Agreement or otherwise.

               4. The costs, charges and expenses for which advancement is
requested are, in general, all expenses related to _________________________

____________________________________________________________________________

____________________________________________________________________________


               Subscribed and sworn to before me, a Notary Public in and for
said County and State, this ___ day of ____________________, _____.



                                                    ____________________________


[Seal]

               My commission expires the ___ day of _______________, _____.



                                      -18-
<PAGE>   37



                                       EXHIBIT B

                               CONFIDENTIALITY AGREEMENT





<PAGE>   38

                  EMPLOYEE AGREEMENT REGARDING CONFIDENTIALITY



           In return for new or continued employment by SRS LABS, INC.(the
"Company"), I acknowledge and agree that:

           1. DEFINITION. For purposes of this Agreement, unless otherwise
noted, all references to the "Company" shall include the Company and/or all of
its direct and indirect subsidiaries.

           2. OBLIGATIONS OF CONFIDENTIALITY. I will maintain in confidence and
will not, either during or at any time after the term of my employment without
the prior express written consent of the Company, communicate or disclose to, or
use for the benefit of myself or any other person, firm, association or
corporation (including, without limitation, any subsequent employer) any
proprietary or confidential information, trade secret or know-how belonging to
the Company ("Proprietary Information"), whether or not it is in written or
permanent form, except to the extent required to perform duties on behalf of the
Company in my capacity as an employee. Such Proprietary Information includes,
but is not limited to, techniques, processes, plans or methods of the Company in
developing, marketing and licensing products and services, and technical and
business information relating to the Company's inventions or products, research
and development, production processes, manufacturing and engineering processes,
machines and equipment, finances, existing and potential customers and
suppliers, marketing and future business plans. However, such Proprietary
Information shall not include any materials, techniques, or information of the
type specified to the extent that such materials, techniques or information are
publicly known or generally utilized by others engaged in the same business or
activities as that in the course of which the Company utilized, developed or
otherwise acquired such materials, techniques, or information. Upon termination
of my employment or at the request of my supervisor before termination, I will
deliver to the Company all written and tangible material in my possession
belonging to the Company incorporating the Proprietary Information or otherwise
relating to the Company's Business. These obligations with respect to
Proprietary Information extend to information belonging to customers and
suppliers of the Company who may have disclosed such information to me as the
result of my status as an employee of the Company. The covenants made in this
Section 2 shall commence on the date hereof and shall be perpetual with respect
to any Proprietary Information.

           3. POSSESSION OF INFORMATION IN TANGIBLE FORM. All Proprietary
Information consisting of records, reports, notes, compilations, computer
software programs or disks or other recorded matter, and copies or reproductions
thereof, relating to the Company's operations, activities or business, made or
received by me during any period of employment with the Company are and shall be
the Company's exclusive property, and I will keep the same at all times in the
Company's custody and subject to its control, and will surrender the same at the
termination of my employment if not before.

           4. COMPANY'S REMEDIES FOR BREACH. I acknowledge that a breach by me
of this Agreement cannot reasonably or adequately be compensated in damages in
an action at law, and that


                                       -1-

<PAGE>   39
a breach of any of the provisions contained in this Agreement will cause the
Company irreparable injury and damage. By reason thereof, I agree that the
Company shall be entitled, in addition to any other remedies it may have under
this Agreement or otherwise, to preliminary and permanent injunctive and other
equitable relief to prevent or curtail any breach of this Agreement; provided,
however, that no specification in this Agreement of a specific legal or
equitable remedy shall be construed as a waiver or prohibition against the
pursuing of other legal or equitable remedies in the event of such a breach.

           5. SEVERABILITY. In the event that any provision of this Agreement or
any word, phrase, clause, sentence or other portion thereof should be held to be
unenforceable or invalid for any reason, such provision or portion thereof shall
be modified or deleted in such a manner so as to make this Agreement as modified
legal and enforceable to the fullest extent permitted under applicable laws.

           6. BINDING EFFECT. This Agreement shall be binding upon my heirs,
executors, administrators or other legal representatives or assigns and shall
inure to the benefit of and be enforceable by the Company and its successors and
assigns.

           7. GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the laws of the State of Delaware without regard to the
conflicts of law principles thereof.

           9. VENUE. The parties hereby irrevocably and unconditionally consent
to submit to the exclusive jurisdiction of the courts of the State of
California, County of Orange, and/or the United States District Court for the
Central District of California (Southern Division) for any actions, suits,
controversies or proceedings arising out of or relating to this Agreement and
the transactions contemplated hereby (and the parties agree not to commence any
action, suit or proceeding relating thereto except in such courts), and further
agree that service of any process, summons, notice or document by U.S.
registered mail to the respective addresses set forth above shall be effective
service of process for any action, suit or proceeding brought against the
parties in any such court. The parties hereby irrevocably and unconditionally
waive any objection to the laying of venue of any action, suit, controversies or
proceeding arising out of this Agreement or the transactions contemplated
hereby, in the courts of the State of California, County of Orange and/or the
United States District Court for the Central District of California (Southern
Division), and hereby further irrevocably and unconditionally waive and agree
not to plead or claim in any such court that any such action, suit or proceeding
brought in any such court has been brought in an inconvenient or improper forum.



                            (signature page follows)


                                       -2-

<PAGE>   40
           IN WITNESS WHEREOF, I have hereunto set my hand as of this 2nd day of
March, 1998.


                                  ------------------------------------------
                                  Thomas Wah Tong Wan


                                  Address:
                                  c/o Valence Technology Inc.
                                  Unit 413, Hong Kong Industrial Technology
                                  Centre
                                  72 Tat Chee Avenue
                                  Kowloon, Hong Kong

Accepted and agreed:

SRS LABS, INC.,
a Delaware corporation


--------------------------------------------
Thomas C.K. Yuen
Chairman of the Board and
Chief Executive Officer


                                            -3-
<PAGE>   41



                                       EXHIBIT C

                       SECTION 2870 OF THE CALIFORNIA LABOR CODE




<PAGE>   42

                       SECTION 2870 OF THE CALIFORNIA LABOR CODE


SECTION 2870. EMPLOYMENT AGREEMENTS; ASSIGNMENT OF RIGHTS

        (a) Any provision in an employment agreement which provides that an
employee shall assign, or offer to assign, any of his or her rights in an
invention to his or her employer shall not apply to an invention that the
employee developed entirely on his or her own time without using the employer's
equipment, supplies, facilities, or trade secret information except for those
inventions that either:

               (1) Relate at the time of conception or reduction to practice of
the invention to the employer's business, or actual or demonstrably anticipated
research or development of the employer; or

               (2) Result from any work performed by the employee for the
employer.

        (b) To the extent a provision in an employment agreement purports to
require an employee to assign an invention otherwise excluded from being
required to be assigned under subdivision (a), the provision is against the
public policy of this state and is unenforceable.