Exhibit 10.70


Option Agreement


This OPTION AGREEMENT (this “Agreement”) is made and entered into as of August
8, 2006 (the “Effective
Date”), by and between DTS, Inc., a Delaware corporation
(together with its Affiliates and permitted assigns, “DTS”), and Avica Technology
Corporation, a California corporation (“Avica”). 
Capitalized terms used without definition shall have the meanings set
forth in Section 8.2 hereof.


Whereas, DTS and Avica have entered into an
Exclusive License Agreement, dated as of the date hereof (the “Exclusive License Agreement”);


Whereas, DTS may, in its sole discretion, deliver a
Purchase Election Notice (as such term is defined below) to cause Avica to (i)
sell all or substantially all of its assets to DTS and (ii) assign to or cause
to be assumed by DTS any of Avica’s contracts, in accordance with their terms,
as DTS shall select in its sole discretion (the “Asset
Purchase”), upon the terms and subject to the conditions set
forth in this Agreement;


Whereas, the board of directors of Avica (the “Avica Board”) has approved and
adopted the consummation of the transactions contemplated hereby, and has
determined to submit the performance of transactions contemplated by this
agreement and the Exclusive License Agreement to the holders (the “Avica Stockholders”) of the shares
of Avica’s Common Stock, no par value per share (the “Avica
Common Stock”), for their approval by written consent; and


Whereas, the Avica Board has carefully considered
the terms of this Agreement and the Exclusive License Agreement and has
determined that the terms and conditions of the transactions contemplated
hereby and thereby, including the Asset Purchase, are fair and in the best
interests of, and are advisable to, Avica and the Avica Stockholders, and the
Avica Board recommends that the Avica Stockholders vote for the approval of
this Agreement, the Exclusive License Agreement, the Asset Purchase and the
transactions contemplated hereby and thereby.


Now, Therefore, in consideration of the foregoing and the
mutual covenants and agreements herein contained and intending to be legally
bound hereby, DTS and Avica hereby agree as follows:


ARTICLE
1

THE ASSET PURCHASE


1.1           The Asset Purchase.  Subject to the other terms and conditions of
this Agreement and the Asset Purchase Agreement (as defined below), the Asset
Purchase may be consummated under the following circumstances:


(a)           Form of Asset
Purchase Agreement.  Within
forty-five (45) days after the date of this Agreement, DTS and Avica shall have
prepared and agreed to the form of asset purchase agreement, together with such
related agreements as shall be referenced therein (collectively, the “Asset Purchase Agreement”), pursuant
to which the Asset Purchase shall be consummated in DTS’ sole discretion as set
forth in this Agreement.  At such time as
DTS and Avica shall have agreed to the final form of the Asset Purchase
Agreement (the “Form Agreement Date”), DTS
and Avica shall evidence such agreement in writing, Avica shall confirm in
writing its representations and warranties thereunder as of the Form Agreement
Date and the Asset Purchase Agreement shall be deemed attached as Exhibit A
hereto.  The Asset Purchase Agreement
shall, among other things, contain representations and warranties to be made by
Avica, and shall contemplate a schedule of disclosures and exceptions to such
representations and warranties (the “Avica Disclosure Schedule”).  The Asset Purchase Agreement shall also
contain other schedules, including schedules that list all assets of the
Company (the “Asset Schedules”).  Avica shall 









 



complete and, on the Form Agreement Date, deliver to
DTS the Avica Disclosure Schedule, the Asset Schedules and such other schedules
as are contemplated by the Asset Purchase Agreement, each of which shall be
true, accurate and complete as of the Form Agreement Date.


(b)           Disclosure Schedules.  At any time during the Option Period (but not
more than twice in any 12-month period), DTS may, upon notice to Avica (a “Disclosure Schedule Request”),
require Avica to prepare an updated schedule of disclosures and exceptions to
the representations and warranties of Avica contained in the Asset Purchase
Agreement, together with updated Asset Schedules and updates to such other
schedules as are contemplated by the Asset Purchase Agreement (collectively, an
“Updated Avica Disclosure Schedule”),
as if such representations, warranties and disclosures were made as of the date
of such Updated Avica Disclosure Schedule, except to the extent any such
representations and warranties refer expressly to an earlier date, provided,
that in no event shall DTS be entitled to deliver a Disclosure Schedule Request
after the Option Expiration Date.  Avica
shall prepare and deliver to DTS an Updated Avica Disclosure Schedule within
thirty (30) days of receipt of a Disclosure Schedule Request.  An Updated Avica Disclosure Schedule
delivered pursuant to this Section 1.1(b) shall refer only to
(i) disclosures of actual facts contained in the Avica Disclosure Schedule
attached to the Asset Purchase Agreement as of the Form Agreement Date, and
(ii) disclosures of actual facts in existence on the date of such Updated
Avica Disclosure Schedule that have occurred or been discovered since the Form
Agreement Date, and the Updated Avica Disclosure Schedule shall not otherwise
limit or modify any of the representations and warranties made in the Asset
Purchase Agreement.  No disclosure of a
fact or event on an Updated Avica Disclosure Schedule shall be deemed to cure
any failure to disclose such fact or event on the Avica Disclosure Schedule, or
otherwise amend the Avica Disclosure Schedule.


(c)           Election by DTS to
Cause The Asset Purchase.


(i)            At any time during the
Option Period, DTS shall have the right to elect, in its sole discretion, to
cause Avica to close the Asset Purchase (the “Option”)
by delivery to Avica of a written notice of such election (a “Purchase Election Notice”) in the
form of Exhibit B hereto. 
The Purchase Election Notice shall also set forth the proposed closing
date of the Asset Purchase (which shall, unless otherwise mutually agreed to by
the parties, be no less than ten (10) days nor more than sixty (60) days after
the date of the Purchase Election Notice). 
In the event that Avica does not deliver an Updated Avica Disclosure
Schedule to DTS within the time period specified in Section 1.1(b), the Avica
Disclosure Schedule originally attached to the Asset Purchase Agreement, shall
be deemed to be the final Avica Disclosure Schedule for all purposes of this
Agreement and the Asset Purchase Agreement and all references to Avica
Disclosure Schedule and the Updated Avica Disclosure Schedule in Article 2
hereof shall be deemed to refer to such original Avica Disclosure
Schedule.  The Purchase Election Notice, when
duly signed and delivered by DTS in its sole discretion, shall be deemed the
irrevocable commitment of DTS and Avica to consummate the Asset Acquisition,
subject to the terms and conditions of the Asset Purchase Agreement, on the
closing date specified in the Purchaser Election Notice.


(ii)           Notwithstanding
anything to the contrary in this Agreement but subject to Section 1.3, (A) none
of the parties hereto shall have any obligation to consummate the Asset
Purchase unless and until DTS delivers a Purchase Election Notice and (B) DTS
is under no obligation to deliver any Purchase Election Notice or a Disclosure
Schedule Request at any time.


(d)           Consummation of the
Asset Purchase.  The obligations of
Avica and DTS to consummate the Asset Purchase shall be subject to the
satisfaction of such conditions as shall be set forth in the Asset Purchase
Agreement.  Subject to the fulfillment or
waiver of all of such conditions, as soon as is reasonably practicable on or
after the closing date specified in the Purchase Election Notice, a closing
(the “Asset Closing”) will be held
at the offices of Heller Ehrman LLP in San Diego, California (or such other
place as the parties may agree).  The
date on which the Asset Closing is actually held is 



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referred to herein as the “Asset
Closing Date.”  On the Asset Closing Date, DTS and Avica
shall cause the Asset Purchase to be consummated.


(e)           Payment of Purchase
Price.  In the event DTS elects, in
its sole discretion, to consummate the Asset Purchase, and subject to the
fulfillment or waiver of all of the conditions contained in the Asset Purchase
Agreement, at the Asset Closing, DTS shall deliver to Avica the Asset Purchase
Price, which shall be payable as set forth below. ***


(i)            ***


(A)          ***


(B)           ***


(C)           ***


·      ***


·      ***


(D)          ***


(E)           ***


(ii)           ***


(A)          ***


(B)           ***






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·      ***


·      ***


(C)           In no event shall the number of [***] Shares delivered
or deliverable to Avica in payment of the Asset Purchase Price exceed five
percent (5%) of the aggregate number of shares of common stock of [***]
outstanding immediately prior to the Asset Closing (assuming conversion of any
then-outstanding securities that are convertible into shares of capital stock
of [***]) (the “Five Percent Limit”).  If the number of [***] Shares otherwise
deliverable in full payment of the Asset Purchase Price would otherwise exceed
the Five Percent Limit, then [***] shall pay any remaining unpaid balance of
the Asset Purchase Price in cash.


(D)          The issuance of [***] Shares in payment of the Asset
Purchase Price is subject to the availability of and compliance with a valid
exemption from the registration or qualification provisions of U.S. federal and
any applicable state or other securities laws.


(E)           Any [***] Shares issued in payment of the Asset
Purchase Price shall be “restricted securities” under the U.S. federal
securities laws and shall contain an appropriate legend relating thereto.


1.2           Other Provisions
Relating to the Issuance of Shares.


(a)           Restricted
Securities; Legend.  Any *** Shares ***
issued in payment of the Asset Purchase Price shall be “restricted securities”
under the U.S. federal securities laws (the “Restricted
Securities”).  Any
certificate representing the Restricted Securities shall be imprinted with the
following legend (or the substantial equivalent thereof):


“THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED
OF, IN WHOLE OR IN PART, OTHER THAN PURSUANT TO REGISTRATION UNDER SAID ACT OR
IN CONFORMITY WITH THE LIMITATIONS OF RULE 144 OR OTHER SIMILAR RULE OR
EXEMPTION AS THEN IN EFFECT, WITHOUT FIRST OBTAINING (I) IF REASONABLY REQUIRED
BY THE COMPANY, A WRITTEN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
COMPANY, TO THE EFFECT THAT THE CONTEMPLATED SALE, TRANSFER OR OTHER
DISPOSITION WILL NOT BE IN VIOLATION OF SAID ACT, OR (II) A ‘NO-ACTION’ OR
INTERPRETIVE LETTER FROM THE STAFF OF THE SECURITIES AND EXCHANGE COMMISSION TO
THE EFFECT THAT SUCH STAFF WILL TAKE NO ACTION IN RESPECT OF THE CONTEMPLATED
SALE, TRANSFER OR OTHER DISPOSITION.”


In the event that any certificate representing *** Shares *** is
imprinted with the foregoing legend (or a similar legend), DTS *** shall cause
such legends to be removed in connection with any resale of such *** Shares ***
that is made in compliance with, or pursuant to a valid exemption from, the
registration provisions of the Securities Act.


(b)           Notice of Proposed
Transfers.  Avica hereby agrees, and
any other holder of any certificate representing Restricted Securities, by
acceptance thereof, agrees to comply in all respects with 






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the provisions of this Section 1.2(b).  Prior to any proposed sale, assignment,
transfer or pledge of any Restricted Securities, unless there is in effect a
registration statement under the Securities Act covering the proposed transfer,
the holder thereof shall give written notice ***, of such holder’s intention to
effect such transfer, sale, assignment or pledge.  Each such notice shall describe the manner
and circumstances of the proposed transfer, sale, assignment or pledge in
sufficient detail, and shall be accompanied at such holder’s expense by either
(i) a written opinion of legal counsel who shall, and whose legal opinion shall
be, reasonably satisfactory to the Company, addressed to the Company, to the
effect that the proposed transfer of the Restricted Securities may be effected
without registration under the Securities Act, or (ii) a “no action” letter from the SEC to the
effect that the transfer of such securities without registration will not
result in a recommendation by the staff of the SEC that action be taken with
respect thereto, or (iii) any other evidence reasonably satisfactory to counsel
to the Company, whereupon the holder of such Restricted Securities shall be
entitled to transfer such Restricted Securities in accordance with the terms of
the notice delivered by the holder to the Company.  The Company will not require such a legal
opinion or “no action”
letter in any transaction in compliance with Rule 144.  Each certificate evidencing the Restricted
Securities transferred as above provided shall bear, except if such transfer is
made pursuant to Rule 144, the appropriate restrictive legend set forth in
Section 1.2(a) above, except that such certificate shall not bear such
restrictive legend if, in the opinion of counsel for such holder and the
Company, such legend is not required in order to establish compliance with any
provisions of the Securities Act.


(c)           No Fractional Shares.  In the event that all or any portion of the
Asset Purchase Price is paid in the form of *** Shares, no certificates or
scrip representing fractional shares of *** Shares shall be issued, but an
amount in cash equal to the aggregate value of any such fractional shares ***
shall instead be paid to Avica.


1.3           Payment upon
Unexercised Expiration of the Option Period.


(a)           In the event that DTS
shall not have consummated the Asset Purchase on or before the Option
Expiration Date, then DTS shall pay to Avica the Unexercised Option Expiration
Amount on the next business day following the Option Expiration Date.  Such payment shall be made by wire transfer
in same day funds to Avica’s account at
*** as follows:


*** 


***


or at such other account as Avica may provide to DTS in a written
notice pursuant to Section 8.1.


(b)           For purposes of
clarity, in no event shall the Unexercised Option Expiration Amount be payable
if DTS has consummated the Asset Purchase. 
DTS shall not, in any event, pay both the Asset Purchase Price and the
Unexercised Option Expiration Amount.


1.4           No Obligation or
Liability to Avica Stockholders.  The
Asset Purchase Price or the Unexercised Option Expiration Amount, in either
case as applicable, shall be paid by DTS to Avica and not to the Avica
Stockholders, or any of them.  Avica
hereby acknowledges and confirms, and each Avica 






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Stockholder, by his, her or its approval of this
Agreement, acknowledges and confirms, that DTS has no obligation to and shall
have no liability with respect to any or all of the Avica Stockholders with
respect to the Asset Purchase Price or the Unexercised Option Expiration Amount
after either such payment has been made to Avica in accordance with this
Agreement.  In addition, Avica hereby
covenants, and each Avica Stockholder, by his, her or its approval of this Agreement,
covenants not to take or participate in any action or institute or participate
in any proceeding against DTS with respect to the Asset Purchase Price or the
Unexercised Option Expiration Amount after either such payment has been made to
Avica in accordance with this Agreement.


1.5           ***


ARTICLE 2

REPRESENTATIONS AND WARRANTIES OF AVICA


Avica hereby represents
and warrants to DTS as of the Effective Date that, except as set forth on the
Schedule of Exceptions to this Agreement delivered to DTS on the Effective
Date, each of the representations and warranties set forth in this Article 2
below are true and correct as of the Effective Date.


In addition, Avica shall
represent and warrant to DTS as of each of (a) the Form Agreement Date and (b)
the Asset Closing Date, that each of the representations and warranties that
shall be set forth in the Asset Purchase Agreement are true and correct as of
such dates; provided, that the representations and warranties made as of
the Form Agreement Date shall be qualified by the Avica Disclosure Schedule,
and the representations and warranties as of the Asset Closing Date shall be
qualified by the Updated Avica Disclosure Schedule delivered by Avica most
recently prior to the delivery of the Purchase Election Notice by DTS, and the
references below to Avica Disclosure Schedule shall be deemed, for purposes of
determining the accuracy of such representations and warranties as of the Asset
Closing Date, to be references to such Updated Avica Disclosure Schedule.


Information contained in
certain sections or subsections of the Schedule of Exceptions, Avica Disclosure
Schedule or Updated Avica Disclosure Schedule may be applicable to other of its
sections and/or subsections and Avica shall use its commercially reasonable
efforts to cross-reference the exceptions to all applicable representations and
warranties.  Any document, agreement,
matter, or other information referenced in one section or subsection of the
Schedule of Exceptions, Avica Disclosure Schedule or Updated Avica Disclosure
Schedule shall be deemed referenced in all other sections or subsections
therein for all purposes of this Agreement or the Asset Purchase Agreement, as
applicable, if and to the extent it appears from the face of the Schedule of
Exceptions, Avica Disclosure Schedule or Updated Avica Disclosure Schedule that
such information would reasonably be so appropriate.  The Schedule of Exceptions, Avica Disclosure
Schedule or Updated Avica Disclosure Schedule shall set forth all exceptions to
the representations and warranties being made by Avica to DTS pursuant to this
Agreement or the Asset Purchase Agreement, as applicable.


2.1           Organization, Good
Standing and Qualification.  Avica is
a corporation duly organized, validly existing and in good standing under the
laws of the State of California and has all requisite corporate power and
authority to carry on its business as now conducted.  Avica is duly qualified or licensed to
transact business and is in good standing in each jurisdiction in which the
failure to so qualify would have a Material Adverse Effect.  Avica has all requisite corporate power and
authority to own and operate its properties and assets, to execute and deliver
this Agreement and the Related Agreements, and to perform its obligations
under, and carry out the provisions of, this Agreement and the Related
Agreements, and to carry on its business as presently conducted.






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2.2           Capitalization and
Voting Rights.


(a)           The authorized capital
of Avica consists of (except as otherwise disclosed in the Avica Disclosure
Schedule) 40,000,000 shares of common stock, no par value per share (the “Avica Common Stock”).


(b)           The number of shares of
Avica Common Stock issued and outstanding is set forth in Section 2.2(b) of
Avica Disclosure Schedule.  Section
2.2(b) of the Avica Disclosure Schedule sets forth the name and address of each
Securityholder and the Securities owned by each Securityholder, including in
the case of instruments, options, warrants, convertible debt or other
instruments and other rights to acquire capital stock of Avica, the number of
shares of Avica’s capital stock each option, warrant, instrument or other right
is vested or exercisable for as of the Effective Date, the Form Agreement Date
or the Asset Closing Date, as applicable.


(c)           Except as set forth in
Section 2.2(c) of Avica Disclosure Schedule or as expressly contemplated by
this Agreement and the Related Agreements, there are not outstanding any
options, warrants, instruments, rights (including conversion or preemptive
rights and rights of first refusal), proxy or stockholder agreements, or other
agreements or instruments of any kind, including convertible debt instruments,
for the purchase or acquisition from Avica of any of its Securities.  Avica is not a party or subject to any
agreement or understanding and, to Avica’s knowledge, there is no agreement or
understanding between any other persons, that affects or relates to the voting
or giving of written consents with respect to any security or by a director of
Avica.


(d)           All of the issued and
outstanding shares of Avica Common Stock (i) have been duly authorized and
validly issued and are fully paid and nonassessable, and (ii) were issued in
compliance with all applicable state and federal laws concerning the issuance
of securities.


2.3           Authorization; Binding Obligations;
Governmental Consents.


(a)           All corporate action on the part of Avica,
its officers, directors and stockholders necessary for the authorization,
execution and delivery of this Agreement and the Related Agreements, and the
performance of all obligations of Avica hereunder and thereunder, have been
taken prior to the Effective Date.  This
Agreement and the Related Agreements will be valid and legally binding
obligations of Avica, enforceable against Avica in accordance with their
respective terms, except as such enforcement may be limited by (a) the
effect of bankruptcy, insolvency, reorganization, receivership,
conservatorship, arrangement, moratorium or other laws affecting or relating to
the rights of creditors generally, or (b) the rules governing the
availability of specific performance, injunctive relief or other equitable
remedies and general principles of equity, regardless of whether considered in
a proceeding in law or equity.  The
option with respect to the Asset Purchase granted to DTS pursuant to this
Agreement is not and the Asset Purchase will not be subject to any preemptive
rights or rights of first refusal relating thereto.


(b)           No consent, approval,
permit, order or authorization of, or registration, qualification, designation,
declaration or filing with, any federal, state or local governmental authority
or any other person on the part of Avica is required in connection with the
execution and delivery of this Agreement or the Related Agreements and the
consummation of the transactions contemplated hereby or thereby, except as explicitly
set forth in this Agreement and the Related Agreements.


2.4           Litigation.  There is no action, suit, proceeding or
investigation pending or, to the knowledge of Avica, currently threatened
against Avica and its Subsidiaries or any of its officers or directors.  The foregoing includes, without limitation,
actions, suits, proceedings or investigations pending or, to the knowledge of
Avica, threatened involving the prior employment of any of Avica’s employees,
their use in connection with Avica’s business of any information or techniques
allegedly proprietary to any of their former employers, or their obligations
under any agreements with prior employers. 
Avica and its Subsidiaries are not a party or subject to the provisions
of any order, writ, injunction, judgment or decree of any court or government
agency or instrumentality.  There is no
action, 



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suit, proceeding or investigation by Avica or any of
its Subsidiaries currently pending or that Avica or any of its Subsidiaries
intends to initiate.


2.5           No Conflicts with
Other Instruments.  The execution,
delivery and performance of this Agreement and the Related Agreements will not
result in violation or default of any provision of Avica’s or any of it
Subsidiaries’ Articles of Incorporation or bylaws, or of any material mortgage,
indenture, contract, agreement, instrument, judgment, order, writ or decree by
which it is bound or, to Avica’s knowledge, of any provision of any federal or
state statute, rule or regulation applicable to Avica or any of its
Subsidiaries, or be in conflict with or constitute, with or without the passage
of time or giving of notice, a default under any such provision, instrument,
judgment, order, writ or decree, or result in the creation of any material
mortgage, pledge, lien, charge or encumbrance upon any of the properties or
assets of Avica or any of its Subsidiaries or the suspension, revocation,
impairment, forfeiture, or nonrenewal of any material permit, license,
authorization or approval applicable to the business, operations or any of the
assets or properties of Avica or any of its Subsidiaries.


2.6           Disclosure.  Avica has provided DTS or counsel to DTS with
all material information that DTS has requested in connection with its due
diligence investigation relating to this Agreement and the Related
Agreements.  Except as set forth in this Agreement, to the knowledge of Avica, there
is no material fact relating to Avica that Avica or any of its Subsidiaries, as
the case may be, has not disclosed to DTS or counsel to DTS and of which any of its officers, directors or
executive employees is aware that could reasonably be expected to result
in a Material Adverse Effect on Avica.


2.7           Brokers; Expenses.  No finder, broker, agent or other similar
intermediary has acted for or on behalf of Avica in connection with the
negotiation of this Agreement or the Related Agreements or the consummation of
the transactions contemplated hereby or thereby and no finder, broker, agent or
similar intermediary shall be owed any amount as a result of or in connection
with this Agreement, the Related Agreements or upon any consummation of the
Asset Purchase.


ARTICLE 3

REPRESENTATIONS AND WARRANTIES OF DTS


DTS hereby represents and warrants to Avica as of the Effective Date,
as follows, subject in each case to such exceptions as are specifically
contemplated by this Agreement.


3.1           Organization, Good
Standing and Qualification. DTS is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware.  DTS has all requisite corporate power and
authority to own and operate its properties and assets, to execute and deliver
this Agreement and the Related Agreements to which it is a party, to carry out
the provisions of this Agreement and those of the Related Agreements to which
it is party, and to perform its obligations under, and carry out the provisions
of, this Agreement and such Related Agreements, and to carry on its business as
presently conducted and as presently proposed to be conducted.  DTS is duly qualified to transact business
and is in good standing in each jurisdiction where such qualification is
required and in which failure to so qualify would have a Material Adverse
Effect on DTS.


3.2           Authorization;
Binding Obligations; Governmental Consents. 
All corporate actions on the part of DTS, and its officers, directors
and stockholders necessary for the authorization, execution and delivery of
this Agreement and those of the Related Agreements to which it is a party and
the performance of all obligations of DTS hereunder and thereunder have been
taken; provided, that as of the Effective Date, the board of directors
of DTS has not authorized any consummation of the Asset Purchase or delivery of
a Purchase Election Notice.  This
Agreement and the those of the Related Agreements to which DTS is a party are
the valid and legally binding obligations of DTS, enforceable against DTS in
accordance with their respective terms, except as such enforcement may be
limited by (a) the effect of bankruptcy, insolvency, reorganization,
receivership, conservatorship, arrangement, moratorium or other laws affecting
or relating to the rights of creditors generally, or (b) the rules
governing the availability of 



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specific performance, injunctive relief or other
equitable remedies and general principles of equity, regardless of whether
considered in a proceeding in law or equity.


3.3           Compliance with
Other Instruments.  The execution,
delivery and performance of this Agreement and the Related Agreements to which
it is party, and the performance by DTS of each such agreement in accordance
with their respective terms will not (a) violate the Certificate of
Incorporation or bylaws of DTS, (b) breach or result in a violation of any law,
rule or regulation applicable to DTS, or (c) constitute a material breach of
the terms, conditions, provisions of, or constitute a default under, any
judgment, order, writ or decree of any court or arbitrator to which DTS is a
party or any material mortgage, indenture, agreement, contract or instrument to
which DTS is a party or by which it is bound, to the extent that such breach or
default could reasonably be expected to prevent DTS from consummating the
transactions contemplated hereby or (d) result in the suspension, revocation,
impairment, forfeiture or nonrenewal of any permit, license, authorization, or
approval applicable to the business, operations or any of the assets or
properties of DTS, to the extent that such breach or default could reasonably
be expected to prevent DTS from consummating the transactions contemplated
hereby.


3.4           Available Resources.  At the times required, if any, pursuant to
this Agreement and the Related Agreements, DTS shall have sufficient funds,
debt borrowing capacity or shares of authorized and unissued capital stock to
satisfy its obligations hereunder and thereunder.


3.5           Brokers; Expenses.  No finder, broker, agent or other similar
intermediary has acted for or on behalf of DTS in connection with the
negotiation of this Agreement or the Related Agreements or the consummation of
the transactions contemplated hereby or thereby and no finder, broker, agent or
similar intermediary shall be owed any amount as a result of or in connection
with this Agreement, the Related Agreements or upon any consummation of the
Asset Purchase.


ARTICLE 4

CONDUCT OF BUSINESS PENDING THE ASSET PURCHASE

AND RELATED COVENANTS


4.1           Conduct of Business
of Avica.  Avica covenants and agrees
that, during the Option Period, unless DTS
shall otherwise agree in writing, Avica shall use commercially reasonable
efforts to preserve the current relationships of Avica with customers,
suppliers and other persons with which Avica has significant business
relations.  Avica shall use its
commercially reasonable efforts to satisfy and extinguish, promptly following
the License Closing and to the extent funds are reasonably available for such
purpose, all of its liabilities as of the License Closing.  Avica further covenants and agrees that,
during the Option Period, Avica shall use its commercially reasonable efforts
to (i) avoid incurring additional liabilities during the Option Period beyond
Avica’s ability to satisfy such obligations as they come due and (ii) to
satisfy and extinguish all liabilities incurred during the Option Period as
they come due.


4.2           Negative Covenants.  During
the Option Period, Avica shall not, without the prior written consent of DTS:


(a)           declare or pay any
dividends on, or make any other distributions (whether in cash, stock or
property) in respect of, any of its capital stock;


(b)           pay any bonus, increased salary or special remuneration to any officer,
director, employee or consultant of Avica in such capacity, or enter into any
new employment or consulting agreement with any such person;


(c)           grant any Encumbrances on any of the Licensed IP;


(d)           guarantee or act as a surety for any obligation of any third party;


(e)           initiate any voluntary bankruptcy or insolvency proceeding;



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(f)            repurchase or
otherwise acquire, directly or indirectly, any shares of its capital stock;


(g)           incur any Indebtedness
for borrowed money or guarantee any such Indebtedness or issue or sell any debt
securities or guarantee any debt securities of others;


(h)           enter into any material
contract or commitment, or violate, amend or otherwise modify or waive any of
the terms of any agreements, understandings, instruments or contracts which are
material to the business of Avica as currently conducted and as proposed to be
conducted.  For purposes of this Section
4.2(g), the parties hereto acknowledge that any such actions with respect to
any contract or commitment, or series of related contracts or commitments,
having a value in excess of $10,000 shall be deemed to be material and outside
the ordinary course of business.  Any
contact or commitment of any size entered into, or extended, by Avica during
the Option Period shall explicitly provide that the consummation of the Asset
Purchase shall not result in a breach or violation of such contract or
otherwise require the payment of any fees or expenses in connection therewith,
or give the other party the right to accelerate any obligations of Avica
thereunder or to cause the termination of such contract;


(i)            except for the sale of
Avica’s inventory, sell, lease, license or otherwise dispose of or encumber any
of its properties or assets which are material, individually or in the
aggregate, taken as a whole;


(j)            cause or permit any
amendments to its Restated Articles or bylaws;


(k)           terminate or waive any
right that has material value to Avica;


(l)            commence any lawsuit
or other legal proceeding, except as may be required or permitted pursuant to
Avica’s indemnification obligations to DTS under the Exclusive License
Agreement;


(m)          acquire or
agree to acquire by merging or consolidating with, or by purchasing a
substantial portion of the assets of, or by any other manner, any business or
any corporation, partnership, association or other business organization or
division thereof which are material, individually or in the aggregate, to Avica’s
business, taken as a whole;


(n)           merge or consolidate
with any entity or initiate or consummate any voluntary liquidation or
dissolution, or effect a recapitalization or reorganization in any form of
transaction;


(o)           hire or retain, or
continue to retain or employ, any employee or consultant having access to
confidential or proprietary information of Avica unless such employee or
consultant enters into, or has entered into, a proprietary information and
inventions agreement, a confidentiality agreement, or a mutual confidentiality
agreement with Avica in a form reasonably agreed to by DTS, or amend or
otherwise modify, or grant a waiver under, any such confidentiality or
proprietary information agreement with any such person;


(p)           enter into any
transaction outside the ordinary course of business with any director, officer,
employee, significant stockholder or family member of or consultant to any such
person, corporation or other entity of which any such person beneficially owns
10% or more of the equity interests or has 10% or more of the voting power, or
Subsidiary or Affiliate of Avica, except as approved by a majority of the
disinterested directors of the Avica Board on terms and conditions which are
fair and reasonable to Avica and no less favorable to Avica as could be
obtained from a third party on an arms-length basis;


(q)           knowingly engage in any
other activity which could reasonably be expected to materially impair the
ability of DTS or Avica to consummate the Asset Purchase; or


(r)            permit any Subsidiary
of Avica to take any action from which Avica would be prohibited pursuant to
this Section.



 10















4.3           Notice to DTS of Certain Proceedings.  In
addition, during the Option Period, Avica shall deliver prompt notice to DTS of
(a) the initiation or institution (or any threat thereof) of any bankruptcy or
insolvency proceeding; and (b) any litigation or other legal or administrative
proceeding (or threat thereof), in either case known to Avica.


4.4           Payment of Taxes,
Etc.  Avica shall, and shall cause
each of its Subsidiaries to, use its commercially reasonable efforts, promptly
following the License Closing, to file all of its Tax Returns that are overdue
or delinquent as of the License Closing (taking all timely filed proper
extension requests into account).  Avica
shall, and shall cause each of its Subsidiaries to, use its commercially
reasonable efforts, promptly following the License Closing and to the extent
funds are reasonably available for such purpose, timely pay and discharge all
Taxes (other than Taxes contested in good faith by Avica or its Subsidiaries in
appropriate proceedings), assessments and other governmental charges or levies
imposed upon it or its income or any of its property as well as all claims of
any kind (including claims for labor, materials and supplies), in each case,
that are due and payable as of the License Closing.  In addition, Avica shall, and shall cause
each of its Subsidiaries to, timely file all of its Tax Returns as they become
due after the License Closing (taking all timely filed proper extension
requests into account).  Avica shall, and
shall cause each of its Subsidiaries to, timely pay and discharge (to the
extent funds are reasonably available for such purpose) as they become due and
payable following the License Closing all Taxes (other than Taxes contested in
good faith by Avica or its Subsidiaries in appropriate proceedings),
assessments and other governmental charges or levies imposed upon it or its
income or any of its property as well as all claims of any kind (including
claims for labor, materials and supplies) that, if unpaid, may by law become a
lien or charge upon its properties.  All
Tax Returns referenced above, shall be true, correct and complete.


4.5           Board Observation
Rights.  During the Option Period,
Avica shall permit one (1) representative of DTS, who shall initially be ***, to
attend all formal meetings of the Avica Board at which minutes are kept in a
nonvoting observer capacity and, in this respect, shall give such
representatives copies of all notices, minutes, consents and other materials
that Avica provides to its directors in such capacity; provided, however,
that Avica shall be entitled to exclude such representatives from access to any
material or meeting or portion thereof to the extent that Avica reasonably
believes (a) that such exclusion is necessary to maintain the attorney-client
privilege with respect to any material fact or advice or (b) that such material
or meeting or portion thereof presents a clear conflict between Avica and DTS
relating to the relationship represented by this Agreement and the Related
Agreements, or otherwise.  All
information obtained by DTS or such representatives pursuant to this Section
4.5 shall be kept confidential in accordance with Article 7 of this Agreement,
to the extent it constitutes Confidential Information.


ARTICLE 5

ADDITIONAL AGREEMENTS


5.1           Notices; Consents;
Filings.  From and after the delivery
of a Purchase Election Notice, Avica shall use its commercially reasonable
efforts, at Avica’s expense, to obtain all necessary third party consents
required in connection with the Asset Purchase. 
In the event that Avica shall fail to obtain any third party consent
necessary for the consummation of the Asset Purchase, Avica shall use
commercially reasonable efforts, and take any such actions reasonably requested
by DTS, to minimize any adverse effect upon DTS and its Subsidiaries, and its
business resulting, or which could reasonably be expected to result after the
Asset Closing, from the failure to obtain such consent.


5.2           Stockholders
Meeting; Written Consent. Subject to the fiduciary duties of the Avica
Board under applicable law, in addition to the solicitation of stockholder
approval required under Section 5.4, if requested by DTS in writing (a “Meeting Request”) at any time during
the Option Period, Avica shall, at its option, (a) cause a meeting of the
Avica Stockholders (a “Stockholders Meeting”),
to be called for purposes of approving, reapproving or ratifying the Asset
Purchase and this Agreement, or 






***  Portions of
this page have been omitted pursuant to a request for Confidential Treatment
and filed separately with the Commission.



 11
 






 



(b) circulate a solicitation for written consent
in lieu of such Stockholders Meeting for the same purposes (a “Written Consent”).  In the event that DTS delivers a Meeting
Request pursuant to this Section 5.2, Avica shall cause a Stockholders
Meeting to be held, or a solicitation for Written Consent to be delivered to
each of its stockholders, on such date as may be reasonably requested by DTS
and set forth in the Meeting Request and is consistent with Avica’s bylaws and
applicable law, and shall distribute on a timely basis to all stockholders of
Avica any soliciting materials relating to such meeting or solicitation for
Written Consent (including any information prepared by DTS and, to the extent
such information statement or proxy statement relates to Avica or the Asset
Purchase, reasonably approved by Avica). 
Subject to the fiduciary duties of the Avica Board under applicable law,
any such information statement, proxy statement or prospectus shall be distributed
together with a copy of the recommendation of the Avica Board that the Avica
Stockholders vote “FOR” the approval and adoption of the Asset Purchase and
this Agreement.


5.3           Further Assurances.


(a)           Following the delivery
of a Purchase Election Notice, each of DTS and Avica will:


(i)            use its commercially
reasonable efforts to take, or cause to be taken, all appropriate action, and
to do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate the Asset Purchase and the
transactions contemplated hereby, including using its commercially reasonable
efforts to obtain all permits, consents, approvals, authorizations,
qualifications and orders of governmental authorities (if any) as are necessary
for the consummation of the Asset Purchase and the other transactions
contemplated hereby and to fulfill the conditions set forth in the Asset
Purchase Agreement.  In case, at any time
after the Asset Closing, any further action is necessary or desirable to carry
out the purposes of this Agreement, the proper officers and directors of each
party to this Agreement shall use their commercially reasonable efforts to take
all such action; and


(ii)           cooperate and use its
commercially reasonable efforts to vigorously contest and resist any action,
including administrative or judicial action, and to have vacated, lifted,
reversed or overturned any decree, judgment, injunction or other order (whether
temporary, preliminary or permanent) that is in effect and that restricts,
prevents or prohibits consummation of the Asset Purchase and the other
transactions contemplated hereby, including by vigorously pursuing all
available avenues of administrative and judicial appeal.


(b)           From the Effective Date
until the Asset Closing, Avica will take all further action that is necessary
or desirable to carry out the purposes of this Agreement, and the proper
officers and directors of Avica shall use their commercially reasonable efforts
to take all such action and shall refrain from taking any actions which would
be contrary to, inconsistent with or against, or would frustrate the essential
purposes of, the transactions contemplated by this Agreement, if DTS were to
deliver a Purchase Election Notice.


5.4           Stockholder Approval.  Following the execution of this Agreement,
Avica will promptly solicit and obtain the approval by written consent of the
execution and delivery by Avica of this Agreement, the Exclusive License
Agreement, the Escrow Agreement and the Asset Purchase Agreement and the
consummation of the transactions contemplated hereby and thereby, by Avica
Stockholders holding at least 90% of the outstanding shares of Avica Common
Stock (the “Stockholder Ratification”).  Such solicitation shall be in form and
substance reasonably approved by DTS, and distributed to the Avica Stockholders
no later than 3 business days after the Form Agreement Date.  Avica shall take all other action necessary
or advisable to secure the Stockholder Ratification, by vote or written
consent, consistent with California Law.



 12
 






 



5.5           Voting Agreement.  Avica shall use reasonable efforts to cause
Avica Shareholders holding at least two-thirds (2/3) of all outstanding shares
of Avica’s common stock to enter into and deliver the Voting Agreement to DTS
on or prior to the date hereof.


5.6           Notice of
Developments.  Avica shall use
reasonable efforts to give prompt written notice to DTS of any material
development causing a breach of any of its representations and warranties in
this Agreement or the Exclusive License Agreement.


5.7           Exclusivity.


(a)           From and after the date
of this Agreement until the Asset Closing or termination of this Agreement
pursuant to Article 8, Avica will not, nor will it authorize or permit any of
its officers, directors, Affiliates or employees or any investment banker,
attorney or other advisor or representative retained by it to, directly or
indirectly, (i) solicit, initiate or induce the making, submission or
announcement of any Alternative Proposal, (ii) participate in any discussions or
negotiations regarding, or furnish to any person any non-public information
with respect to, or take any other action to facilitate any inquiries or the
making of any proposal that constitutes or may reasonably be expected to lead
to, any Alternative Proposal, (iii) engage in discussions with any person with
respect to any Alternative Proposal, except as to disclose the existence of
these provisions, (iv) endorse or recommend any Alternative Proposal (except if
required pursuant to the exercise of such person’s fiduciary duty), or (v)
enter into any letter of intent or similar document or any contract, agreement
or commitment contemplating or otherwise relating to any Alternative
Proposal.  Avica and its Subsidiaries
will, and will cause their respective officers, directors, Affiliates,
employees, investment bankers, attorneys and other advisors and representatives
to, immediately cease any and all existing activities, discussions or
negotiations with any parties conducted heretofore with respect to any Alternative
Proposal.  Without limiting the
foregoing, it is understood that any violation of the restrictions set forth in
the preceding two sentences by any officer, director or employee of Avica or
any of its Subsidiaries or any investment banker, attorney or other advisor or
representative of Avica or any of its Subsidiaries shall be deemed to be a
breach of this Section 5.7 by Avica.


(b)           In addition to the
obligations of Avica set forth in Section 5.7(a), Avica as promptly as
practicable shall advise DTS in writing of any Alternative Proposal or of any
request for nonpublic information or other inquiry which Avica reasonably
believes could lead to an Alternative Proposal, the material terms and
conditions of such Alternative Proposal (to the extent known), and the identity
of the person or group making any such request, inquiry or Alternative
Proposal.  Avica agrees to keep DTS
informed on a current basis of the status and details (including any material
amendments or proposed amendments) of any such request, inquiry or Alternative
Proposal.


5.8           Access to Properties
and Information.  At all times until
the expiration of the Option Period, Avica will afford to DTS and its
authorized representatives, upon reasonable notice, reasonable access during
normal business hours to all properties, books, records, contracts and
documents of Avica as DTS and such authorized representatives may reasonably
request and a complete opportunity to make such investigations as DTS and such
authorized representatives reasonably request, and Avica will furnish or cause
to be furnished to DTS and its authorized representatives all such information
with respect to the affairs and businesses of Avica as they may reasonably
request.  All information obtained by DTS
pursuant to this Section 5.8 shall be kept confidential in accordance with
Article 7 of this Agreement, to the extent it constitutes Confidential
Information.  No investigation pursuant
to this Section 5.8 shall affect any representation or warranty in this
Agreement, the Asset Purchase Agreement or the Related Agreements of any party
hereto or thereto or any condition to the obligations of the parties hereto or
thereto.



 13
 






 



5.9           Public Announcements.


(a)           On or after the
Effective Date, DTS and Avica shall issue a joint press release, reasonably
acceptable to both parties, regarding the transactions contemplated by the
Exclusive License Agreement and this Agreement.


(b)           Following the Effective
Date, DTS shall be permitted to make such public disclosure regarding the
content of this Agreement and the Related Agreements if it is advised in good
faith by outside legal counsel that such disclosure may reasonably be required
under or by any applicable law, regulatory or securities exchange listing
agreement.  Nothing herein express or
implied shall require DTS to consult with Avica following the Asset Closing.


(c)           Except as provided
under Section 5.9(a), Avica shall not, nor shall any Avica Stockholder or
employee, officer, director, consultant or advisor of Avica, without the prior
written consent of DTS, issue any press release or otherwise make any public
statements with respect to this Agreement, the Related Agreements or the
transactions contemplated hereby or thereby at any time, other than as may be
required by law or legal process, and then only in compliance with the notice
provisions of Article 7.


(d)           Notwithstanding
anything herein to the contrary, DTS may in its reasonable discretion issue
press releases and make public announcements relating to its products and
services, including any Avica products or services sold and/or licensed by DTS,
or any other disclosure that is consistent with prior press releases or public
announcements that are permitted under this Section 5.9.


(e)           ***


ARTICLE 6

TERMINATION


This
Agreement may be terminated and the Asset Purchase may be abandoned at any time
prior to the Asset Closing, notwithstanding any requisite approval and adoption
of this Agreement and the transactions contemplated hereby by the Avica
Stockholders:


(a)           by the mutual written
consent of the parties;


(b)           by DTS at any time in
its sole discretion upon written notice to Avica, which will be deemed to
include any written notice to Avica delivered by DTS that DTS will not exercise
the Option (the “Termination Notice”);
provided, that in the event DTS exercises its rights under this Article 6, then
DTS shall pay to Avica the Unexercised Option Expiration Amount on the next
business day following effectiveness of the Termination Notice.  Upon the effectiveness of any termination of
this Agreement as a result of delivery by DTS of a Termination Notice, the
Exclusive License Agreement shall also be terminated.  The obligation of DTS to pay Avica the
Unexercised Option Expiration Amount shall survive the termination of this
Agreement.


ARTICLE 7

CONFIDENTIALITY


A party receiving or having access to
Disclosing Party’s Confidential Information (each, a “Recipient”)
will not use Disclosing Party’s Confidential Information except as permitted
herein, and will 






***  Portions of this
page have been omitted pursuant to a request for Confidential Treatment and
filed separately with the Commission.



 14
 






 



not disclose, except as expressly permitted herein, such
Confidential Information to any third party except to Recipient’s employees and
consultants as is reasonably required in connection with the exercise of
Recipient’s rights and obligations under this Agreement (“Authorized
Representatives”).  Each
Recipient will ensure that each of its Authorized Representatives, before
obtaining access to the Disclosing Party’s Confidential Information, is bound
by a written confidentiality agreement, with provisions to protect such
Confidential Information at least as restrictive as those contained
herein.  Each Recipient shall be
responsible for any breach of this Section 8 by its Authorized Representatives.  Each Recipient agrees that it shall take all
reasonable measures to protect the secrecy of and avoid disclosure or use of
Confidential Information of the Disclosing Party in order to prevent it from
falling into the public domain or the possession of persons other than those
persons authorized under this Agreement to have any such information.  Such measures shall include the highest
degree of care that Recipient utilizes to protect its own Confidential
Information of a similar nature, which shall be no less than reasonable care.  However, each Recipient may disclose
Confidential Information of Disclosing Party: 
(i) pursuant to the order or requirement of a court, administrative
agency or other governmental body, provided that Disclosing Party gives
reasonable notice to the other party to contest such order or requirement; and
(ii) on a confidential basis to legal or financial advisors, who shall be
deemed to be Authorized Representatives hereunder.  Whether or not a protective order or other
such remedy is obtained, or whether the Disclosing Party waives compliance with
the provisions hereof, Recipient agrees to (a) furnish only that portion of the
Confidential Information that Recipient is legally required to furnish or
disclose and (b) exercise Recipient’s reasonable efforts to obtain assurance
that confidential treatment was accorded such Confidential Information.  Upon expiration or termination of this
Agreement for any reason, Recipient shall, as reasonably instructed by the
Disclosing Party, promptly destroy or return to the Disclosing Party all
documents and other tangible materials representing the Disclosing Party’s
Confidential Information and all copies thereof, and purge all electronic
copies or other representations thereof that are under Recipient’s direct or
indirect control.  Notwithstanding the
foregoing, Avica or its legal counsel and DTS’ legal counsel, respectively,
shall be permitted to retain one (1) copy of all such Confidential Information
in its records for archival purposes, provided such Confidential Information
remains subject to the terms and conditions set forth in this Article 7.


ARTICLE 8

GENERAL PROVISIONS


8.1           Notices.  All
notices, claims and demands hereunder, and all other communications which are
required to be given in writing pursuant to this Agreement, shall be in writing
and shall be given (and shall be deemed to have been duly given upon receipt)
by delivery in person or by express mail courier or by facsimile with
confirmation copy sent by first class mail (received at the facsimile machine
to which it is transmitted prior to 5 p.m., local time, on a business day
for the party to which it is sent, or if received after 5 p.m., local time, as
of the next business day) or by registered or certified mail (postage prepaid,
return receipt requested) to the respective parties at the following addresses
(or at such other address for a party as shall be specified in a notice given
in accordance with this Section 8.1):


if to DTS:


DTS, Inc.


5171 Clareton Drive


Agoura Hills,
California  91301


Attention:  General
Counsel


Telephone:  (818) 706-3525


Facsimile:  (818)
827-2470



 15
 






 



with a copy to:


Heller Ehrman LLP


4350 La Jolla Village
Drive


San Diego, CA 
92122


Attention:  Kirt Shuldberg, Esq.


Telephone:  (858) 450-8400


Facsimile:  (858) 450-8499


 


if to Avica:


Avica Technology
Corporation


1202 Olympic Blvd.


Santa Monica, CA  90404


Attention:  President


Telephone: 
(310) 985-9840


 


with a copy to:


Mitchell
Silberberg & Knupp LLP


11377
West Olympic Blvd.,


Los
Angeles, CA 90064


Attention:
Jan Powers, Esq.


Telephone:  (310) 312-3257


Facsimile:  (310) 231-8357


 


8.2           Certain Definitions.  For purposes of this Agreement, the term:


“Affiliate” means, with respect to
any person, any person that, directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with,
such person.  Until the consummation of
the Asset Purchase, Avica shall not be deemed for any purposes of this
Agreement to be an Affiliate of DTS.


“Alternative Proposal” means any bona
fide offer or proposal (other than an offer or proposal by DTS) relating to any
Prohibited Transaction.


“Asset Purchase Price” means
$1,500,000 minus (i) the aggregate amount of all liabilities of Avica
outstanding as of the Asset Closing Date that are expressly assumed by DTS
(excluding future ongoing obligations under executory contracts); (ii) the
aggregate amount of the sum of (a) the accounts receivable balance and (b) 30%
of the inventory balance, in each case, on Avica’s balance sheet dated as of
the date of the License Closing; and (iii) all DTS Direct Liability Payments
which have not been reimbursed to DTS out of the Liability Escrow.


“business day” (whether such term is
capitalized or not) means any day other than Saturday, Sunday or a legal
holiday that banks located in Los Angeles, California are closed for business.


“California Law” means the California
Corporations Code of the State of California, as amended.


“Confidentiality Information” means
with respect to a party hereto (the “Disclosing Party”),
collectively:  (i) all technical,
financial and/or business information of any kind whatsoever, including all
data, compilations, blueprints, plans, audio and/or video recordings and/or
devices, information on computer disks, software, source code, object code,
tapes, printouts and other printed, typewritten or handwritten documents,
specifications, systems, schemas, methods (including delivery, storage,
receipt, transmission, presentation and manufacture of audio, video,
informational or other data or content), strategies, business or marketing
development plans, customer lists, research projections, processes,



 16
 






 



techniques, designs,
sequences, components, programs, technology, ideas, know-how, improvements,
inventions (whether or not patentable or copyrightable), information about
operations and maintenance, trade secrets, formulae, models, patent
disclosures, information regarding the skills and compensation of the
Disclosing Party’s employees, information concerning the actual or anticipated
business, research or development of the Disclosing Party or its actual or
potential customers or partners, information which is or has been generated or
received in confidence by or for the Disclosing Party by or from any person;
(ii) any and all tangible and intangible embodiments thereof of any kind
whatsoever including all compositions, machinery, apparatus, records, reports,
drawings, copyright applications, patent applications, documents, samples,
prototypes, models, products and the like; and (iii) any extensions or
derivatives thereof of any kind whatsoever. 
Confidential Information does not include information that the Recipient
proves:  (a) is or becomes generally
known to the public through no fault or breach of this Agreement by the
Recipient; (b) is known to the Recipient at the time of disclosure without an
obligation of confidentiality; (c) is entirely independently developed by the
Recipient without any access or reference to or use of the Disclosing Party’s
Confidential Information; (d) the Recipient rightfully obtains from a third
party without restriction on use or disclosure; or (e) is disclosed with the
prior written approval of the Disclosing Party. 
Information shall not be deemed to be in the public domain as a result
of the individual elements being separately found in the public domain.


“DTS Direct Liability Payments” means
any amount DTS pays to any third party to satisfy any liability of or claim
against Avica pursuant to the terms and conditions of the Escrow Agreement.


“Encumbrance” shall have the meaning set forth in the Exclusive License Agreement.


“Escrow Agreement” shall have the
meaning set forth in the Exclusive License Agreement.


“Exchange” means the applicable
principal public market, exchange or trading system on which *** Shares *** are
traded.


“Exchange Act” means the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder.


“GAAP” means United States generally
accepted accounting principles consistently applied.


“Governmental Authority” (whether
such term is capitalized or not) means any United States (federal, state or
local) or foreign government, or governmental, regulatory or administrative
authority, agency or commission.


“Indebtedness” means, as applied to any person, (a) all
indebtedness for borrowed money, whether current or funded, or secured or
unsecured, (b) all indebtedness for the deferred purchase price of property or
services represented by a note or other security, (c) all indebtedness created
or arising under any conditional sale or other title retention agreement with
respect to property acquired (even though the rights and remedies of the seller
or lender under such agreement in the event of default are limited to
repossession or sale of such property), (d) all indebtedness secured by a
purchase money mortgage or other lien to secure all or part of the purchase
price of property subject to such mortgage or lien, (e) all obligations under
leases which shall have been or must be, in accordance with GAAP, recorded as
capital leases in respect of which such person is liable as lessee, (f) any
liability in respect of banker’s acceptances or letters of credit, and (g) all
indebtedness referred to in clauses (a), (b), (c), (d), (e) or (f) above which
is directly or indirectly guaranteed by or which such person has agreed
(contingently or otherwise) to purchase or otherwise acquire or in respect of
which it has otherwise assured a creditor against loss.


“Liability Escrow” shall have the
meaning set forth in the Exclusive License Agreement.


“License Closing” means the
closing under the Exclusive License Agreement.


“License Term” shall have the meaning set forth in the Exclusive
License Agreement.






***  Portions of this page have been omitted
pursuant to a request for Confidential Treatment and filed separately with the
Commission.



 17
 






 



“Licensed IP” shall have the meaning
set forth in the Exclusive License Agreement.


“Material Adverse Effect” means with
respect to Avica or DTS, as the case may be, any change or effect that, when
taken individually or together with all other adverse changes or effects, is or
is reasonably likely to be materially adverse to the business, results of
operations and financial condition of Avica or DTS, as the case may be, and
their respective Subsidiaries, taken as a whole.


“Option Expiration Date” means the
last day of the Option Period.


“Option Period” means the period
beginning upon the License Closing and ending on expiration or earlier
termination of the License Term.


“person” means an individual,
corporation, partnership, limited partnership, limited liability company,
syndicate, person (including a “person” as defined in Section 13(d)(3) of the
Exchange Act), trust, association or entity or government, political
subdivision, agency or instrumentality of a government.


“Prohibited Transaction” means (a)
any transaction or series of related transactions other than the transactions
contemplated by this Agreement involving the purchase of all or any significant
portion of the capital stock or assets of Avica, (b) any agreement to enter
into a business combination with Avica, (c) any agreement made, other than in
the ordinary course of business, with regard to the Intellectual Property owned
or licensed by Avica, and (d) any other extraordinary business transaction
involving the license of all or substantially all of the Intellectual Property
owned or licensed by Avica.


“Related Agreements” means the
Exclusive License Agreement, the Voting Agreement and all other agreements
entered into in connection therewith.


“SEC” means the United States
Securities and Exchange Commission.


“Securities” means all shares of
Avica Common Stock, all outstanding options, warrants, convertible notes,
rights of conversion and other rights to acquire capital stock of Avica, and
all shares issuable upon exercise or conversion of all options, warrants,
convertible notes, rights of conversion and other rights to acquire stock of
Avica, outstanding from time to time, whether or not then currently vested,
exercisable or convertible.


“Securities Act” means the Securities
Act of 1933, as amended, and the rules and regulations promulgated thereunder.


“Securityholder” means any holder of
Securities.


“Subsidiary or Subsidiaries” (whether
or not capitalized) of any person means (i) any corporation of which such
person (either alone or through or together with any other Subsidiary), owns,
directly or indirectly, more than 50% of the stock the holders of which are
generally entitled to vote for the election of the board of directors of such
corporation, or (ii) any partnership, limited liability company, association,
trust, joint venture, or other non-corporate entity in which such person
(either alone or through or together with any other Subsidiary) holds, directly
or indirectly, an equity interest.


“Unexercised Option Expiration Amount”
shall mean a one time payment equal to $500,000, which shall be payable solely
as described in Sections 1.3 and 6(b).


“Voting Agreement” means that certain
Voting Agreement in substantially the form of Exhibit C attached hereto.


8.3           Severability.  If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of
applicable law, or public policy, all other conditions and provisions of this
Agreement shall nevertheless remain in full force and effect so long as the
economic or legal substance of the matters referred to herein are not affected
in any manner materially adverse to any 



 18
 






 



party.  Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith
to modify this Agreement so as to effect the original intent of the parties as
closely as possible in a mutually acceptable manner in order that the matters
referred to herein be consummated as originally contemplated to the fullest
extent possible.


8.4           Entire Agreement;
Assignment.  This Agreement, together with the Related
Agreements, constitutes the entire agreement among the parties with respect to
the subject matter hereof and thereof and supersedes all prior agreements and
undertakings, both written and oral, among the parties, or any of them, with
respect to the subject matter hereof and thereof.  DTS shall have the right to assign all of its
rights and obligations under this Agreement to any entity which is, at the time
of assignment, an Affiliate of DTS, notwithstanding that the assignee may not
continue to be an Affiliate of DTS thereafter; provided, that no such
assignment to an Affiliate shall relieve the assigning party of its obligations
hereunder.  In the event of such an
assignment, all rights and obligations of DTS hereunder shall be deemed to be
rights and obligations of such assignee. 
DTS or its assignee shall also have the right to assign all of its
rights and obligations under this Agreement to any person that acquires a
majority by voting power of all of the capital stock, or substantially all of
the assets, of DTS or its assignee or the division or business unit of DTS or
its assignee responsible for the business of Avica; provided, that such
person assumes this Agreement, in writing, and agrees to be bound by and to
comply with all of the terms and conditions hereof.  Avica shall not assign, delegate or transfer
its rights and obligations under this Agreement to any third party without the
prior written consent of DTS.  For purposes of this Agreement, an “assignment”
by Avica under this Section 8.4 shall be deemed to include each of the
following: (a) a change in beneficial ownership of Avica of greater than twenty
percent (20%) (whether in a single transaction or series of transactions); (b)
a merger of Avica with another party, whether or not Avica is the surviving
entity; (c) the acquisition of more than twenty percent (20%) of any class of
Avica’s voting stock (or any class of non-voting security convertible into
voting stock) by a person who is not
currently a shareholder of Avica (whether in a single transaction or
series of transactions); and (d) the sale of more than twenty percent (20%) of
Avica’s assets (whether in a single transaction or series of transactions); provided, however, that an assignment shall
not be deemed to include (i) any change in beneficial ownership resulting
from the conversion of convertible securities, outstanding as of the Effective
Date, by existing Avica Stockholders, or (ii) any change in beneficial
ownership resulting from a transfer of Avica shares made in compliance with
Avica’s Bylaws, as in effect on the Effective Date, to any third party who is
not in DTS’ judgment a competitor or potential competitor of DTS and so long as
each permitted transferee agrees in writing to be bound by and comply with the
terms and conditions of the Voting Agreement as if such transferee were a
Shareholder (as defined in such Voting Agreement) and a signatory to such
Voting Agreement.  Subject to the
foregoing, this Agreement shall inure to the benefit of and be binding upon the
respective permitted successors and assigns of the parties.


8.5           Parties in Interest.  This
Agreement shall be binding upon and inure solely to the benefit of each party
hereto and nothing in this Agreement, express or implied is intended to or
shall confer upon any other person any right, benefit or remedy of any nature
whatsoever under or by reason of this Agreement.


8.6           Specific Performance.  The
parties hereto agree that irreparable damage would occur in the event that any
provision of this Agreement was not performed in accordance with the terms
hereof and that the parties shall be entitled to specific performance of the
terms hereof, in addition to any other remedy at law or equity.


8.7           Governing Law.  This
Agreement shall be governed by, and construed in accordance with the laws of
the State of California applicable to contracts executed in and to be performed
in that state.


8.8           Consent to
Jurisdiction.  Avica and DTS consent
to jurisdiction and venue in the state and federal courts in Los Angeles,
California.



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8.9           Headings;
Interpretation.  The descriptive headings contained in this
Agreement are included for convenience of reference only and shall not affect
in any way the meaning or interpretation of this Agreement.  Whenever the word “include,” “includes,” or “including”
appears in this Agreement, it shall be deemed in each instance to be followed
by the words “without limitation.”


8.10         Counterparts.  This
Agreement may be executed and delivered (including by facsimile or pdf
transmission) in any number of counterparts, and by the different parties
hereto in separate counterparts, each of which when executed and delivered
shall be deemed to be an original but all of which taken together shall
constitute one and the same agreement.


8.11         Fees and Expenses.  All
costs and expenses incurred in connection with this Agreement and the Asset
Purchase by Avica shall be paid by Avica. 
All costs and expenses incurred in connection with this Agreement and
the Asset Purchase by DTS shall be paid by DTS.


8.12         Amendment.  Any waiver, modification or amendment of any
provision of this Agreement will be effective only if in writing and signed by
duly authorized representatives of the parties.


8.13         Waiver.  At
any time prior to the Asset Closing, DTS and Avica may agree to (a) extend
the time for the performance of any obligation or other act of the other party
hereto, (b) waive any inaccuracy in the representations and warranties of
the other contained herein or in any document delivered pursuant hereto, and
(c) waive compliance by the other, as the case may be, with any agreement
or condition contained herein.  Any such
extension or waiver shall be valid if set forth in an instrument in writing
signed by the party or parties to be bound thereby.  The failure by either party to enforce any
provision of this Agreement will not constitute a waiver of future enforcement
of that or any other provision.


8.14         Remedies.  No remedy referred to in this Agreement is
intended to be exclusive, but each shall be cumulative and in addition to any
other remedy referred to herein or otherwise available at law, in equity or
otherwise.


8.15         Force Majeure.  Except with respect to the payment of money,
neither party will be responsible for any failure or delay in its performance
under this Agreement due to causes beyond its reasonable control, including
labor disputes, strikes, lockouts, shortages of or inability to obtain labor,
energy, raw materials or supplies, war, riot, act of God or governmental
action.


[The
remainder of the page is intentionally left blank.]



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In Witness Whereof, DTS and Avica have duly
executed this Option Agreement as of the date first above written.


	
  

  	
  DTS, Inc.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  /s/ Jon E. Kirchner

  	
   

  
	
   

  	
   

  	
  Jon Kirchner

  
	
   

  	
   

  	
  President and Chief Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Avica Technology
  Corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  /s/ Nicholas J. Clay

  	
   

  
	
   

  	
   

  	
  Nicholas J. Clay

  
	
   

  	
   

  	
  Chairman and Chief Executive Officer

  



 


 


Signature
page to Option Agreement









 



LIST OF EXHIBITS


Exhibit A                                                 Form of
Asset Purchase Agreement


Exhibit B                                                Purchase
Election Notice


Exhibit C                                                Form of
Voting Agreement









 



EXHIBIT A


Form of Asset Purchase Agreement


Intentionally
Omitted.









 



EXHIBIT B


Purchase Election Notice


Intentionally
Omitted.









 



EXHIBIT C


Form of Voting Agreement


Intentionally
Omitted.