EXHIBIT
10.3


 


NEITHER THIS WARRANT NOR ANY OF THE SECURITIES ISSUABLE UPON
EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAW. NO TRANSFER OF
THIS WARRANT OR OF THE SECURITIES ISSUABLE UPON EXERCISE HEREOF SHALL BE VALID
OR EFFECTIVE UNLESS (A) SUCH TRANSFER IS MADE PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND IN COMPLIANCE WITH ANY
APPLICABLE STATE SECURITIES LAW, OR (B) THE HOLDER SHALL DELIVER TO THE COMPANY
AN OPINION OF COUNSEL IN FORM AND SUBSTANCE REASONABLY ACCEPTABLE TO THE
COMPANY THAT SUCH TRANSFER IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND OF ANY APPLICABLE STATE SECURITIES LAW.


 


	
  WARRANT NO. 1

  	
   

  	
  SEPTEMBER 23,
  2004

  



 


COMING HOME STUDIOS LLC


 


CLASS A UNIT PURCHASE WARRANT


 


This
Class A Unit Purchase Warrant (this “Warrant”) is being issued as of September
23, 2004 in connection with that certain CHS/SRS LLC Operating Agreement dated
September 23, 2004 (the “LLC Agreement”) between SRS Labs, Inc., a Delaware
corporation (“SRS”) and Coming Home Studios LLC, a California limited liability
company (the “Company”).  For
consideration of $40,000, the Company hereby grants to SRS, or its permitted
assigns or transferees (SRS and each such permitted assignee or transferee
being referred to herein as a “Holder” and collectively as the “Holders”) the
right to purchase, at any time after the Original Issue Date (as defined below)
and from time to time on and after the date hereof until the Expiration Date
(as defined below), up to 122,000 units of Class A membership interests in the
Company (the “Class A Units”) at a price per Class A Unit of $9.836 (the
“Exercise Price”), on the terms and subject to the conditions set forth below.


 


This
Warrant was originally issued on September 23, 2004 (the “Original Issue
Date”). This Warrant shall expire and be of no further force or effect on the
later of the following dates (the “Expiration Date”):  (i) July 9, 2006; and (ii) 60 days after the Closing
(as defined below).  Appropriate
provisions shall be made in accordance with Section 3.2 below so that Holder
shall have the right to receive a similar warrant for the remainder of such
term in the event of a merger, consolidation, reorganization or similar
transaction.


 

















 


Article I.

Exercise Of Warrant


 


1.1                                 Exercise.


 


(a)                                  Subject
to adjustment as hereinafter provided, the rights represented by this Warrant
are exercisable on and after the Original Issue Date until the Expiration Date,
at a price per Class A Unit issuable hereunder (hereinafter, “Warrant Units”)
equal to the Exercise Price. The Exercise Price shall be payable in cash, by
certified or official bank check or wire transfer as hereinafter provided.  This Warrant is fully vested as of the
Original Issue Date.


 


(b)                                 This
Warrant may be exercised in full or in part by the Holder by surrender of this
Warrant, together with the form of subscription attached hereto as Annex A,
duly executed by the Holder, to the Company at its principal office,
accompanied by payment, in cash or by certified or official bank check payable
to the order of the Company, of the Exercise Price of the Warrant Units to be
purchased hereunder in an amount equal to such Exercise Price.  For any partial exercise hereof, the Holder
shall designate in a subscription in the form of Annex A attached hereto
delivered to the Company the number of Warrant Units that it wishes to
purchase.  On any such partial exercise,
the Company at its expense shall forthwith issue and deliver to the Holder a
new warrant of like tenor, in the name of the Holder, which shall be
exercisable for such number of Class A Units represented by this Warrant which
have not been purchased upon such exercise.


 


(c)                                  Upon
surrender of this Warrant with a duly executed Notice of Exercise in the form
of Annex A hereto, together with payment, if applicable, of the Exercise
Price for the Warrant Units purchased, at the Company’s principal executive
offices presently located at 6161 Santa Monica Boulevard, Suite 100, Los
Angeles, California  90038, or at such
other address as the Company shall have advised the Holder in writing (the
“Designated Office”), the Holder shall be entitled to receive a certificate or
certificates for the Warrant Units so purchased. The Company agrees that the
Warrant Units shall be deemed to have been issued to the Holder as of the close
of business on the date on which this Warrant shall have been surrendered
together with the Notice of Exercise and payment, if applicable, for such
Warrant Units.


 


Article II.

Transfer; Issuance of Certificates; Restrictive Legends


 


2.1                                 Transfer.
Subject to compliance with the restrictions on transfer set forth in this
Article II, each transfer of this Warrant and all rights hereunder, in whole or
in part, shall be registered on the books of the Company to be maintained for
such purpose, upon surrender of this Warrant at the Designated Office, together
with a written assignment of this Warrant in the form of Annex B hereto
duly executed by the Holder or its agent or attorney. Upon such surrender and
delivery, the Company shall execute and 


 


2

















 


deliver a new Warrant or
Warrants in the name of the assignee or assignees and in the denominations
specified in such instrument of assignment, and shall issue to the assignor a
new Warrant evidencing the portion of this Warrant not so assigned, if any. A
Warrant, if properly assigned in compliance with the provisions hereof, may be
exercised by the new Holder for the purchase of Warrant Units without having a
new Warrant issued. All Warrants issued upon any assignment of Warrants shall
be the valid obligations of the Company, evidencing the same rights, and
entitled to the same benefits as the Warrants surrendered upon such
registration of transfer or exchange.


 


2.2                                 Certificates.
Certificates for the Warrant Units shall be delivered to the Holder within a
reasonable time after the rights represented by this Warrant shall have been
exercised pursuant to Article I, and a new Warrant representing the Class A
Units or fraction of a Class A Unit, if any, with respect to which this Warrant
shall not then have been exercised shall also be issued to the Holder within
such time. The issuance of certificates for Warrant Units upon the exercise of
this Warrant shall be made without charge to the Holder including, without
limitation, any tax that may be payable in respect thereof; provided, however,
that the Company shall not be required to pay any income tax to which the Holder
may be subject in connection with the issuance of this Warrant or the Warrant
Units.


 


2.3                                 Restrictive
Legends.


 


(a)                                  Except
as otherwise provided in this Article II, each certificate for Warrant Units
initially issued upon the exercise of this Warrant, and each certificate for
Warrant Units issued to any subsequent transferee of any such certificate,
shall be stamped or otherwise imprinted with a legend in substantially the
following form:


 


THE UNITS REPRESENTED BY
THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAW. NO TRANSFER OF THE
UNIT REPRESENTED BY THIS CERTIFICATE SHALL BE VALID OR EFFECTIVE UNLESS (A)
SUCH TRANSFER IS MADE PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS, OR
(B) THE HOLDER SHALL DELIVER TO THE COMPANY AN OPINION OF COUNSEL IN FORM AND
SUBSTANCE REASONABLY ACCEPTABLE TO THE COMPANY THAT SUCH PROPOSED TRANSFER IS EXEMPT
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND OF ANY APPLICABLE
STATE SECURITIES LAWS.


 


3

















 


(b)                                 Except
as otherwise provided in this Article II, each Warrant shall be stamped or
otherwise imprinted with a legend in substantially the following form:


 


NEITHER THIS WARRANT NOR
ANY OF THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE
SECURITIES LAW. NO TRANSFER OF THIS WARRANT OR OF THE SECURITIES ISSUABLE UPON
EXERCISE HEREOF SHALL BE VALID OR EFFECTIVE UNLESS (A) SUCH TRANSFER IS MADE
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND IN
COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAW, OR (B) THE HOLDER SHALL
DELIVER TO THE COMPANY AN OPINION OF COUNSEL IN FORM AND SUBSTANCE REASONABLY
ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND OF ANY APPLICABLE STATE SECURITIES LAW.


 


(c)                                  Notwithstanding
the foregoing, the legend requirements of this Section 2.3 shall terminate as
to any particular Warrant or Warrant Unit when the Company shall have received
from the holder thereof an opinion of counsel in form and substance reasonably
acceptable to the Company that such legend is not required in order to ensure
compliance with the Securities Act and any applicable state securities laws.
Whenever the restrictions imposed by this Section 2.3 shall terminate, the Holder
or of Warrant Units, as the case may be, shall be entitled to receive from the
Company without cost to such Holder a new Warrant or certificate for Warrant
Units of like tenor, as the case may be, without such restrictive legend.


 


Article III.

Adjustment of Number of Warrant Units; Exercise Price; Nature of Securities
Issuable Upon Exercise of Warrants


 


3.1                                 Exercise
Price; Adjustment of Number of Warrant Units. The Exercise Price set forth
in Article I hereof and the number of Class A Units purchasable hereunder shall
be subject to adjustment from time to time as hereinafter provided.


 


3.2                                 Reorganization,
Reclassification, Consolidation, Merger or Sale. If any capital
reorganization or reclassification of the capital of the Company, or any
consolidation or merger of the Company with another entity, or the sale of all
or substantially all of the Company’s assets to another person or entity
(collectively referred to as a “Transaction”) shall be effected in such a way
that holders of units of any class of membership interest in the Company
(“Units”) shall be entitled to receive stock, securities, cash or assets with
respect to or in exchange for Units, then, as a condition of 


 


4

















 


such Transaction,
reasonable, lawful and adequate provisions shall be made whereby the Holder
shall thereafter have the right to purchase and receive upon the basis and upon
the terms and conditions specified in this Warrant, upon exercise of this
Warrant and in lieu of the Warrant Units immediately theretofore purchasable
and receivable upon the exercise of the rights represented hereby, such number,
amount and like kind of shares of stock, securities, cash or assets as may be
issued or payable pursuant to the terms of the Transaction with respect to or
in exchange for the number of Units immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby as if such shares
were outstanding immediately prior to the Transaction, and in any such case appropriate
provision shall be made with respect to the rights and interest of the Holders
to the end that the provisions hereof (including, without limitation,
provisions for adjustments of the Exercise Price and of the number of Warrant
Units purchasable and receivable upon the exercise of this Warrant and the
remaining term of this Warrant) shall thereafter be applicable, as nearly as
may be practicable, in relation to any shares of stock or securities thereafter
deliverable upon the exercise hereof.


 


3.3                                 Stock
Splits, Stock Dividends and Reverse Stock Splits. In case at any time the
Company shall subdivide its outstanding Units into a greater number of units,
or shall declare and pay any dividend with respect to its outstanding Units
that has the effect of increasing the number of outstanding Units, the Exercise
Price in effect immediately prior to such subdivision or dividend shall be
proportionately reduced and the number of Warrant Units purchasable pursuant to
this Warrant immediately prior to such subdivision or dividend shall be
proportionately increased, and conversely, in case at any time the Company
shall combine its outstanding Units into a smaller number of units, the
Exercise Price in effect immediately prior to such combination shall be
proportionately increased and the number of Warrant Units purchasable upon the
exercise of this Warrant immediately prior to such combination shall be
proportionately reduced.


 


3.4                                 Dissolution,
Liquidation or Winding-Up. In case the Company shall, at any time prior to
the exercise of this Warrant, dissolve, liquidate or wind up its affairs, the
Holder shall be entitled, upon the exercise of this Warrant, to receive, in
lieu of the Warrant Units which the Holder would have been entitled to receive,
the same kind and amount of assets as would have been issued, distributed or
paid to such Holder upon any such dissolution, liquidation or winding up with
respect to such Warrant Units, had such Holder been the Holder of record of the
Warrant Units receivable upon the exercise of this Warrant on the record date
for the determination of those persons entitled to receive any such liquidating
distribution.


 


3.5                                 Issuance
of Additional Units.


 


(a)                                  Next
Round of Equity Financing.  If, upon
the closing of the Company’s first round of equity financing following the
Original Issue Date (including the issuance of convertible debt) that raises
not less than $1,500,000 in new equity (the “Closing”), the pre-money valuation
of the Company immediately prior to the 


 


5

















 


Closing is less than
$12,000,000, the Exercise Price shall be adjusted to equal 10% of the pre-money
valuation of the Company immediately prior to the Closing divided by the number
of Warrant Units.


 


(b)                                 Other
Issuances.  If at any time or from
time to time after the Original Issue Date, the Company issues or sells, or is
deemed by the provisions of this Section 3.5 to have issued or sold, Additional
Units (as hereinafter defined), otherwise than in connection with a Transaction
as provided in Section 3.2 or a dividend or split as provided in Section 3.3,
for an Effective Price (as hereinafter defined) that is less than the Exercise
Price, then,


 


(i)                           the
number of Warrant Units shall be adjusted to equal the product obtained by multiplying
the number of Warrant Units immediately prior to such issuance or sale by a
fraction (A) the numerator of which shall be the sum of (1) the number of
Unit Equivalents Outstanding (as hereinafter defined) immediately prior to such
issue or sale plus (2) the number of Additional Units so issued or sold
(or deemed so issued and sold); and (B) the denominator of which shall be the
sum of (1) the number of Unit Equivalents Outstanding immediately prior to
such issue or sale of Additional Units plus (2) the quotient obtained by
dividing the Aggregate Consideration Received (as hereinafter defined) by the
Company for the total number of Additional Units so issued or sold (or deemed
so issued and sold) by the Exercise Price in effect immediately prior to such
issue or sale; and


 


(ii)                        the
Exercise Price shall be adjusted by multiplying such Exercise Price in effect
prior to such adjustment by a fraction (A) the numerator of which shall be the
number of Warrant Units immediately prior to such issue or sale; and (B) the
denominator of which shall be the number of Warrant Units immediately after
such issue or sale.


 


(c)                                  Certain
Definitions.  For the  purpose of making any adjustment required
under this Section 3.5:


 


(i)                           “Additional
Units” shall mean all Units issued by the Company, whether or not
subsequently reacquired or retired by the Company, other than:  (1) Units issued in connection with the
Closing; (2) Units (or options, warrants or rights therefor) issued to employees,
officers or directors of, or contractors, consultants or advisers to, the
Company or any subsidiary pursuant to equity purchase or option plans, equity
bonuses or awards, incentive equity arrangements, warrants, contracts or other
arrangements, provided that the exercise price for such options, warrants and
rights are at the fair market values of such securities as determined by the
Management Committee of the Company at the time of issuance and are approved by
the Management Committee of the Company; and (3) Units issued upon the exercise
of the outstanding options and warrants described in Section 5.4 of this
Warrant.


 


6

















 


(ii)                        The “Aggregate
Consideration Received” by the Company for any issue or sale (or deemed
issue or sale) of securities shall (1) to the extent it consists of cash,
be computed at the gross amount of cash received by the Company before
deduction of any underwriting or similar commissions, compensation or
concessions paid or allowed by the Company in connection with such issue or
sale and without deduction of any expenses payable by the Company; (2) to
the extent it consists of property other than cash, be computed at the fair
value of that property as determined in good faith by the Management Committee;
and (3) if Additional Units, Convertible Securities or Rights or Options
to purchase either Additional Units or Convertible Securities are issued or
sold together with other stock or securities or other assets of the Company for
a consideration which covers both, be computed as the portion of the
consideration so received that may be reasonably determined in good faith by
the Management Committee to be allocable to such Additional Units, Convertible
Securities or Rights or Options.


 


(iii)                     “Unit
Equivalents Outstanding” shall mean the number of Units that is equal to
the sum of (1) all Units of the Company that are outstanding at the time
in question, plus (2) all Units of the Company issuable upon conversion of
all Convertible Securities that are outstanding at the time in question, plus
(3) all Units of the Company that are issuable upon the exercise of Rights
or Options that are outstanding at the time in question assuming the full
conversion or exchange into Units of all such Rights or Options that are Rights
or Options to purchase or acquire convertible Securities into or for Units.


 


(iv)                    “Convertible
Securities” shall mean units or other securities convertible into or
exchangeable for Units.


 


(v)                       The “Effective
Price” of Additional Units shall mean the quotient determined by dividing
the total number of Additional Units issued or sold, or deemed to have been
issued or sold, by the Company under this Section 3.5, into the Aggregate
Consideration Received, or deemed to have been received, by the Company under
this Section 3.5, for the issue of such Additional Units;


 


(vi)                    “Rights or
Options” shall mean warrants, options or other rights to purchase or
acquire Units or Convertible Securities.


 


(d)                                 Deemed
Issuances.  For the purpose of
making any adjustment required under this Section 3.5, if the Company issues or
sells any Rights or Options or Convertible Securities and if the Effective
Price of the Units issuable upon exercise of such Rights or Options and/or the
conversion or exchange of Convertible Securities (computed without reference to
any additional or similar protective or antidilution clauses) is less than the
Exercise Price then in effect, then the Company shall be deemed to have issued,
at the time of the issuance of such Rights, Options or Convertible Securities,
that number of Additional Units that is equal to the maximum number of Units
issuable upon exercise of conversion of such Rights or Options or 


 


7

















 


Convertible Securities
upon their issuance and to have received, as the Aggregate Consideration
Received for the issuance of such shares, an amount equal to the total amount
of the consideration, if any, received by the Company for the issuance of such
Rights or Options or Convertible Securities, plus, in the case of such Rights
or Options, the minimum amounts of consideration, if any, payable to the
Company upon the exercise in full of such Rights or Options, plus, in the case
of Convertible Securities, the minimum amounts of consideration, if any,
payable to the Company (other than by cancellation of liabilities or
obligations evidenced by such Convertible Securities) upon the conversion or
exchange thereof; provided  that:


 


(i)                           if the
minimum amounts of such consideration cannot be ascertained, but are a function
of antidilution or similar protective clauses, then the Company shall be deemed
to have received the minimum amounts of consideration without reference to such
clauses;


 


(ii)                        if the
minimum amount of consideration payable to the Company upon the exercise of
Rights or Options or the conversion or exchange of Convertible Securities is
reduced over time or upon the occurrence or non-occurrence of specified events
other than by reason of antidilution or similar protective adjustments, then
the Effective Price shall be recalculated using the figure to which such
minimum amount of consideration is reduced; and


 


(iii)                     if the
minimum amount of consideration payable to the Company upon the exercise of
such Rights or Options or the conversion or exchange of Convertible Securities
is subsequently increased, then the Effective Price shall again be recalculated
using the increased minimum amount of consideration payable to the Company upon
the exercise of such Rights or Options or the conversion or exchange of such
Convertible Securities.


 


No further adjustment of the Exercise Price or number
of Warrant Units, adjusted upon the issuance of such Rights or Options or
Convertible Securities, shall be made as a result of the actual issuance of
Units on the exercise of any such Rights or Options or the conversion or
exchange of any such Convertible Securities. 
If any such Rights or Options or the conversion rights represented by
any such Convertible Securities shall expire without having been fully
exercised, then the as adjusted upon the issuance of such Rights or Options or
Convertible Securities shall be readjusted to the Exercise Price or number of
Warrant Units which would have been in effect had an adjustment been made on
the basis that the only Units so issued were the Units, if any, that were
actually issued or sold on the exercise of such Rights or Options or rights of
conversion or exchange of such Convertible Securities, and such Units, if any,
were issued or sold for the consideration actually received by the Company upon
such exercise, plus the consideration, if any, actually received by the Company
for the granting of all such Rights or Options, whether or not exercised, plus
the consideration received for issuing or selling all such Convertible
Securities actually converted or exchanged, plus the 


 


8

















 


consideration, if any, actually received by the
Company (other than by cancellation of liabilities or obligations evidenced by
such Convertible Securities) on the conversion or exchange of such Convertible
Securities.


 


3.6                                 Accountant’s
Certificate.  In each case of an
adjustment in the Exercise Price, number of Warrant Units or other stock,
securities or property receivable upon the exercise of this Warrant, the
Company shall compute, and upon the Holder’s request shall at the Company’s
expense cause independent public accountants of recognized standing selected by
the Company and reasonably acceptable to the Holder to certify such
computation, such adjustment in accordance with the terms of this Warrant and
prepare a certificate setting forth such adjustment and showing in detail the
facts upon which such adjustment is based, including a statement of
(i) the number of Units of each class outstanding or deemed to be outstanding,
(ii) the adjusted Exercise Price and (iii) the number of Warrant
Units issuable upon exercise of this Warrant. 
The Company will forthwith mail a copy of each such certificate to the
Holder.  In the event that the Holder
disputes such adjustment, the Holder shall be entitled to select an additional
firm of independent certified public accountants of national standing and paid
for by the Holder to certify such adjustment and the Company and the Holder
shall use their good faith best efforts to agree on such adjustment based on
the reports of the two accounting firms. In the event that the Company and the
Holder are still unable to reach agreement as to such adjustment, the Company
and the Holder agree to submit such determination to binding arbitration pursuant
to Article XII.  Upon determination
of such adjustment, the Management Committee shall forthwith make the
adjustments described therein.


 


3.7                                 Certain
Other Events.  If any change in the
outstanding Units of the Company or any other event occurs as to which the
other provisions of this Article III are not strictly applicable or if strictly
applicable would not fairly protect the purchase rights of the Holder of the
Warrant in accordance with such provisions, then the Management Committee of
the Company shall make an adjustment in the number and class of Warrant Units,
the Exercise Price or the application of such provisions, so as to protect such
purchase rights as aforesaid.  The
adjustment shall be such as will give the Holder of the Warrant upon exercise for
the same aggregate Exercise Price the total number, class and kind of shares as
the Holder would have owned has the Warrant been exercised prior to the event
and had the Holder continued to hold such shares until after the event
requiring adjustment.


 


Article IV.

 Registration; Exchange and
Replacement of Warrant; Reservation of Units


 


4.1                                 The
Company shall keep at the Designated Office a register in which the Company
shall provide for the registration, transfer and exchange of this Warrant. The
Company shall not at any time, except upon the dissolution, liquidation or
winding-up of the Company, close such register so as to result in preventing or
delaying the exercise or transfer of this Warrant.


 


9

















 


4.2                                 The
Company may deem and treat the person in whose name this Warrant is registered
as the Holder and owner hereof for all purposes and shall not be affected by
any notice to the contrary, until presentation of this Warrant for registration
or transfer as provided in this Article IV.


 


4.3                                 Upon
receipt by the Company of evidence reasonably satisfactory to it of the loss,
theft, destruction or mutilation of this Warrant, and upon surrender and
cancellation of this Warrant, if mutilated, the Company will make and deliver a
new Warrant of like tenor, in lieu of this Warrant without requiring the
posting of any bond or the giving of any security.


 


4.4                                 The
Company shall at all times reserve and keep available out of its authorized
Units, solely for the purpose of issuance upon the exercise of this Warrant,
such number of Units as shall be issuable upon the exercise hereof.  The Company covenants and agrees that, upon
exercise of this Warrant and payment of the Exercise Price therefor, if
applicable, all Warrant Units issuable upon such exercise shall be duly and
validly issued, fully paid and non-assessable.


 


Article V.

Representations and Warranties of the Company 


 


The
Company hereby represents and warrants to each Purchaser as follows:


 


5.1                                 Organization;
Good Standing; Qualification.  The
Company is a limited liability company duly organized, validly existing and in
good standing under the laws of the State of California and has full power and
authority to conduct its business as presently conducted and as proposed to be
conducted by it and to enter into this Warrant and to carry out the
transactions contemplated in this Warrant.


 


5.2                                 Authorization.  The Company has taken all limited liability
company action required to authorize the execution and delivery of this Warrant
and the performance of its obligations hereunder including the issuance of the
Warrant Units. This Agreement is a legal, valid and binding agreement of the
Company enforceable against the Company in accordance with its terms, except as
enforcement may be limited by bankruptcy, insolvency, moratorium or other
similar laws relating to creditors’ rights generally and except that the
availability of equitable remedies, including specific performance, is subject
to the discretion of the court before which any proceeding therefor may be
brought.


 


5.3                                 Valid
Issuance of Warrant Units.  When
issued to and paid for by the Holder in accordance with the terms of this
Warrant, the Warrant Units will be duly authorized, validly issued, fully paid
and nonassessable free and clear of all liens, pledges, restrictions and
encumbrances, and the issuance of the Warrant Units will not be subject to any
preemptive or similar rights.  The
Company shall at all times reserve and keep available, out of its authorized
but unissued Units, solely for the purpose of 


 


10

















 


effecting the
exercise of this Warrant, the full number of Class A Units issuable upon the
exercise of this Warrant.


 


5.4                                 Capitalization.  As of the Original Issue Date, the
authorized and outstanding capitalization of the Company consists of (i) a
total of 600,000 Class A Units, all of which are outstanding; (ii) a total of
400,000 units of Class B Membership (“Class B Units”), all of which are
outstanding.  All of such outstanding
Units are validly issued, fully paid and nonassessable, and have been issued in
compliance with the applicable federal and state securities laws, and none of
such outstanding shares was issued in violation of any preemptive rights or
similar rights to subscribe for or purchase securities.  In addition to the foregoing, as of the
Original Issuance Date, the following options and warrants are
outstanding:  (i) an option to purchase
a total of up to 60,000 Class A Units at an exercise price of $5.00 per Class A
Unit issued to Steven Savluk; (ii) an option to purchase up to 10,000 Class B
Units at an exercise price of $4.00 per Class B Unit issued to John Bendheim;
and (iii) a warrant to purchase up to 28,000 Class A Units issued to SBI
Advisors, LLC.  All Units issuable upon
exercise of such options and warrants, upon issuance in accordance with the
terms thereof, will be validly issued, fully paid and nonassessable.  Except as set forth in this Section 5.4,
there are no other outstanding options, warrants or similar agreements or
rights for the purchase from the Company of any Units or any securities
convertible into or ultimately exchangeable or exercisable for any Units,
whether or not having anti-dilution rights. 
Without limiting the foregoing, no preemptive right, co-sale right,
right of first refusal, registration right, or other similar right exists with
respect to the issuance and sale of the Warrant Units.


 


5.5                                 Defaults.  Neither the issuance and sale of the Warrant
Units hereunder nor execution and delivery of this Warrant and the performance
of the Company’s other obligations hereunder will (A) violate or conflict with,
result in a breach of or constitute a default (or an event that, with notice or
lapse of time, would constitute a default) under (i) the articles of
organization or operating agreement of the Company; (ii) any decree, judgment,
order or determination of any court, governmental agency or body, or any
arbitrator having jurisdiction over the Company or any of the Company’s assets;
(iii) any law, rule or regulation applicable to the Company; or (iv) any
contract, agreement, mortgage, indebtedness, indenture, or instrument by which
the Company is bound or to which any property or assets of the Company is
subject, or (B) result in the creation or imposition of any lien, encumbrance,
claim, security interest or restriction whatsoever upon any of the properties
or assets of the Company or an acceleration of indebtedness pursuant to any
obligation, agreement or condition contained in any bond, debenture, note or
any other evidence of indebtedness or any indenture, mortgage, deed of trust or
any other agreement or instrument to which the Company is a party or by which
it is bound or to which any of the property or assets of the Company is
subject.


 


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Article VI.

Amendment to Operating
Agreement of the Company


 


Immediately
following the execution of this Agreement the Company shall cause the Coming
Home Studios LLC Operating Agreement dated March 21, 2003 (the “Operating
Agreement”)  to be amended and restated
as follows:


 


6.1                                 Units of Interest in the Company. 
Section 3.3 of the Operating Agreement shall be deleted and replaced in
its entirety as follows:


 


3.3  Units of Interest in the Company.  The Company shall issue 400,000 Units of
Class A membership interests to Daniel E. Catullo III and 200,000 Units of
Class A membership interests to Tilton Gardener (each such Unit being a “Class
A Unit”).  The Company shall issue
400,000 Units of Class B membership interests to Arthur Sterling (each such
Unit being a “Class B Unit”).  The
Company shall not initially issue any Units of Class C Membership interests
(each such Unit being a “Class C Unit”). 
The term “Unit” means a Class A Unit, a Class B Unit or a Class C
Unit.  Immediately upon the exercise of
the warrant to purchase Class A Units issued to SRS Labs, Inc. on September 23,
2004 pursuant to a warrant agreement between SRS Labs, Inc. and the Company
(the “Warrant Agreement”):  (i)  the Company shall issue that number of Class
A Units to SRS Labs, Inc. determined in accordance with the terms and
conditions of the Warrant Agreement, (ii) SRS Labs, Inc. shall become a Member
of the Company with all attendant rights and obligations and (iii) Exhibit A
hereto shall be amended to set forth the ownership interest of SRS Labs, Inc.
in the Company.


 


6.2                                 Tag Along Rights.  New
Section 7.5 shall be added to the Operating Agreement as follows:


 


7.5.                              Tag
Along Rights.  Notwithstanding the
foregoing:


 


(a)                                  If
any holder of Units (an “Offering Unitholder”) desires to transfer all or any
portion of such holder’s Units pursuant to a bona fide offer from a proposed
acquiror (a “Proposed Acquiror”), it shall be a  condition precedent to such sale by such Offering Unitholder that
each of the other Unit holders have the right to sell to the Proposed Acquiror,
at the same price per Unit and on the same terms and conditions as the sale by
such Offering Unitholder, a pro rata portion of the number of Units proposed to
be sold to the Proposed Acquiror.  A
Unit holder who elects to participate in a sale to a Proposed Acquiror under
this section is referred to herein as a “Participating Unitholder”  The pro rata portion of Units which any
Participating Unitholder shall be entitled to sell to the Proposed Acquiror
shall be that number of Units as shall equal the total number of Units proposed
to be sold to the Proposed Acquiror multiplied by a fraction, the numerator of
which is the number of Units then owned by such Participating Unitholder, and
the denominator of which is the number of Units owned by all Participating
Unitholders.


 


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(b)                                 Each
Participating Unitholder who wishes to transfer units to a Proposed Acquiror shall
give to each other Unitholder notice that the Offering Unitholder proposes to
transfer offered Units to the Proposed Acquiror, and that the other Unitholders
have the right to participate in such transfer on a pro rata basis.  Such notice shall be given at least twenty
(20) days prior to the date of the proposed sale of the Proposed Acquiror.  Each Participating Unitholder wishing to
participate in any transfer pursuant shall notify the Offering Unitholder in
writing of such intention within fifteen (15) days after such Unit holder’s
receipt of the notice described in the preceding sentence, and if such Unit
holder fails to give notice within such time period, will conclusively deemed
to have waived such right.


 


(c)                                  The
Offering Unitholder and each Participating Unitholder shall sell to the
Proposed Acquiror all, or at the option of the Proposed Acquiror, any part of
the Units proposed to be sold by them at a price and upon the other terms and
conditions not more favorable to the Proposed Acquiror than those set forth in
the notice provided by the Offering Unitholder provided, however, that any
purchase of less than all of such Units by the Proposed Acquiror shall be made
from the Offering Unitholder and each Participating Unitholder pro rata based
upon the relative number of Units that the Offering Unitholder and each
Participating Unitholder is otherwise entitled to sell.


 


6.3                                 Bring-Along  Rights. 
New Section 7.6 shall be added to the Operating Agreement as follows:


 


7.6                                 Bring-Along
Rights.  If the holders of more than 50% of the issued and outstanding common
Units of the Company (the “Selling Unitholders”) propose to sell or otherwise
dispose of all of their Units to a third-party buyer in a single transactions
or related series of transactions, then each Unit holder who is not a Selling
Unitholder (collectively the “Minority Unitholders”) shall, at the Company’s
election, (i) sell or otherwise dispose of all of its Units pursuant to
the terms and conditions negotiated by the Selling Unitholders for the sale or
other disposition of the Selling Unitholders’ Units; and (ii) exercise or
convert any option, warrant or other security exercisable for or convertible
into common Units, including, without limitation, this Warrant, and sell or
otherwise dispose of the common Units resulting therefrom pursuant to the terms
and conditions negotiated by the Selling Unitholders for the sale or other
disposition of their Units; provided, however, that the terms and
conditions (including the price per Unit and form of consideration) for such
sale shall be no less favorable to each Minority Unitholder than to the Selling
Unitholders.  Subject to the foregoing,
each Minority Unitholder hereby agrees, at the Company’s request, (i) to
execute and deliver a definitive agreement providing for the sale of his
minority Units, together with any related documents, in such form as determined
by the Company, and (ii) to vote all of its minority Units in favor of
approval and 


 


13

















 


adoption of a merger or other acquisition agreement
between the Company, the Selling Unitholders and the third-party buyer, in such
form as determined by the Company; provided, further, that in no
event shall any Minority Unitholder be required to make any representations or
warranties (other than as to title to its minority Units) or provide any
indemnities (other than as to title to its minority Units) to the third-party
buyer in connection with any sale or other disposition of the minority Units
pursuant to this Section 5.2. 
Notwithstanding anything in this Agreement to the contrary, the Minority
Unitholders shall have no obligation to reimburse the Company or the Selling
Unitholders for any expenses or fees incurred by the Company or the Selling
Unitholders.


 


Article VII.

Notices


 


All
notices, requests, consents and other communications hereunder shall be in
writing and shall be deemed to have been duly made when delivered personally,
or mailed by registered or certified mail, return receipt requested, or telecopied
or telexed and confirmed in writing and delivered personally or mailed by
registered or certified mail, return receipt requested:


 


(a)                                  If
to the Holder, to the address of such Holder as shown on the books of the
Company; or


 


(b)                                 If
to the Company, to the Designated Office;


 


or at such other address as the Holder or the Company
may hereafter have advised the other.


 


Article VIII.

Successors


 


All
the covenants, agreements, representations and warranties contained in this
Warrant shall bind the parties hereto and their respective heirs, executors,
administrators, distributees, successors, assigns and transferees.


 


Article IX.

Law Governing


 


This
Warrant shall be construed and enforced in accordance with, and governed by,
the laws of the State of California (not including the choice of law rules
thereof) regardless of the jurisdiction of creation or domicile of the Company
or its successors or of the Holder at any time hereof.


 


14

















 


Article X.

Entire Agreement; Amendments and Waivers


 


This
Warrant sets forth the entire understanding of the parties with respect to the
transactions contemplated hereby. The failure of any party to seek redress for
the violation or to insist upon the strict performance of any term of this
Warrant shall not constitute a waiver of such term and such party shall be
entitled to enforce such term without regard to such forbearance. This Warrant
may be amended, and any breach of or compliance with any covenant, agreement,
warranty or representation may be waived, only if the Company has obtained the
written consent or written waiver of the Holder, and then such consent or
waiver shall be effective only in the specific instance and for the specific
purpose for which given.


 


Article XI.

Severability; Headings.


 


If any
term of this Warrant as applied to any person or to any circumstance is
prohibited, void, invalid or unenforceable in any jurisdiction, such term
shall, as to such jurisdiction, be ineffective to the extent of such
prohibition or invalidity without in any way affecting any other term of this
Warrant or affecting the validity or enforceability of this Warrant or of such
provision in any other jurisdiction. The Article and Section headings in this
Warrant have been inserted for purposes of convenience only and shall have no
substantive effect.


 


Article XII.

Arbitration


 


In the
event a dispute occurs with respect to any claim, dispute or other matter
arising out of or relating to this Warrant, the parties hereto will promptly
attempt to settle such dispute through consultation and negotiation in good
faith and in a spirit of mutual cooperation. If agreement is reached concerning
the resolution of such dispute, then such agreement shall be final, conclusive
and binding on the parties hereto. If, on or before the tenth day after written
notice of such dispute is given by one party to the other parties, such dispute
has not been resolved by the agreement of all the parties, such dispute shall
be settled by an expedited arbitration proceeding conducted in accordance with
the then-current CPR Non-Administered Arbitration Rules and the Federal Rules
of Evidence by a panel of three arbitrators who shall have experience relating
to the dispute or matter to be resolved. Each of the Company and the Holder
shall select an arbitrator, and those two arbitrators shall select a third
arbitrator. The parties hereto shall provide such arbitrators with such
information as may be reasonably requested in connection with the arbitration
of such dispute and shall otherwise cooperate with each other and such
arbitrators in good faith and with the goal of resolving such dispute as
promptly as reasonably practicable. The arbitrators’ decision and award with
respect to the dispute referred to shall be final and binding on the parties
hereto and may be entered in any court with jurisdiction, and the parties
hereto shall abide by such decision and award. The cost of the arbitration 


 


15

















 


proceeding
and any proceeding in court to confirm or to vacate any arbitration award, as
applicable (including, without limitation, attorneys’ fees and costs), shall be
borne by the unsuccessful party (if any) and shall be awarded as part of the
arbitrators’ award; provided however, that if the arbitrators do not find one
party to be unsuccessful then the cost of the arbitral proceeding shall be paid
equally by the parties hereto.


 


16

















 


IN
WITNESS WHEREOF, the Company has caused this Warrant to be duly executed as of
the date first written above.


 


	
   

  	
  COMING HOME STUDIOS LLC

  
	
   

  	
   

  
	
   

  	
  By:

  	
          /S/
  DANIEL E. CATULLO III

  
	
   

  	
  Name:

  	
    Daniel E.
  Catullo III

  
	
   

  	
  Title:

  	
     Manager

  
	
   

  	
   

  
	
  Accepted and agreed:

  	
   

  
	
   

  	
   

  
	
   

  	
  SRS LABS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
          /S/
  THOMAS C.K. YUEN

  
	
   

  	
  Name: 

  	
    Thomas C.K.
  Yuen

  
	
   

  	
  Title:

  	
      Chairman
  and Chief Executive Officer

  
					



 


17

















 


ANNEX A


 


NOTICE OF EXERCISE


 


(TO BE EXECUTED
UPON PARTIAL OR


FULL EXERCISE OF
THE WITHIN WARRANT)


 


The undersigned hereby
irrevocably elects to exercise the right to purchase
                    
Units of Coming Home Studios LLC covered by the within Warrant according to the
conditions hereof and herewith makes payment of the Exercise Price of such
Units in full in the amount of
$                                  .


 


 


	
   

  	
   

  
	
   

  	
   

  	
  (Print Name)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  (Signature of
  Registered Holder)

  
	
   

  	
   

  	
   

  
	
   Dated:                      

  	
   

  	
   

  



 


18

















 


ANNEX B


 


ASSIGNMENT FORM


 


FOR VALUE RECEIVED the
undersigned registered owner of this Warrant hereby sells, assigns and
transfers unto the Assignee named below all of the rights of the undersigned
under this Warrant, with respect to the number of Units set forth below:


 




	
  No. of Units

  	
   

  	
  Name and
  Address of Assignee

  
	
   

  	
   

  	
   

  






 


and does hereby
irrevocably constitute and appoint
                                          
attorney-in-fact to register such transfer onto the books of Coming Home
Studios LLC maintained for the purpose, with full power of substitution in the
premises.


 


 


	
   

  	
   

  
	
   

  	
   

  	
  (Print Name)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  (Signature of
  Registered Holder)

  
	
   

  	
   

  	
   

  
	
  Dated:                   

  	
   

  	
   

  



 


NOTICE: The signature on
this assignment must correspond with the name as written upon the face of this
Warrant in every particular, without alteration or enlargement or any change
whatsoever.


 


19