Document:

EXHIBIT 10.1

 

AMENDMENT TO EMPLOYMENT AGREEMENT BETWEEN

DTS, INC. AND MR. BRIAN TOWNE

 

This amendment (Amendment),
effective as of 28 June 2010, is made and entered into by and between DTS, Inc.,
having a principal place of business at 5220 Las Virgenes Road, Calabasas,
California 91302 U.S.A. (hereinafter referred to as “DTS”) and Mr. Brian
Towne (“Employee”), having a permanent residence at 29743 Quail Run Dr., Agoura
Hills, CA 91301.

 

WHEREAS,
DTS and Employee have previously entered into an Employment Agreement effective
14 April 2009 (hereinafter referred to as the “Agreement”); and

 

WHEREAS, the parties wish to
Amend Mr. Towne’s Title, Duties and Base Salary set forth in the
Agreement.

 

NOW,
THEREFORE, in consideration of the respective covenants contained herein, the
parties agree as follows:

 

The following Sections of
the Agreement are hereby replaced in their entirety to read as follows:

 

	
  Title:

  	
  Executive Vice
  President & Chief Operating Officer

  
	
   

  	
   

  
	
  Duties:

  	
  You agree to serve the
  Company as its Executive Vice President & Chief Operating Officer.
  Your duties are as defined in the Company’s job description for the position
  or as otherwise specified by the Chairman and Chief Executive Officer of the
  Company. During the Term of this Agreement, you will devote full time to, and
  use your best efforts to advance, the business and welfare of the Company.

  
	
   

  	
   

  
	
  Base
  Salary:

  	
  $325,000 per year payable
  biweekly and subject to payroll deductions as may be necessary or customary
  in respect of the Company’s salaried employees in general.

  

 

All
capitalized terms not otherwise defined in this Amendment shall have the same
meaning as in the Agreement.

 

This
Amendment does not delete, terminate or replace any provision of Agreement
except as specifically provided herein.

 

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

 

	
  MR.
  BRIAN TOWNE

  	
   

  	
  DTS, INC.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Brian D. Towne

  	
   

  	
  By:

  	
  /s/ Jon E. Kirchner

  
	
   

  	
  Mr. Brian Towne

  	
   

  	
   

  	
  Jon Kirchner

  
	
   

  	
   

  	
   

  	
   

  	
  Chairman & CEO

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Date:

  	
  June 28, 2010

  	
   

  	
  Date: 

  	
  June 28, 2010EXHIBIT 10.2

 

2003 EQUITY INCENTIVE PLAN

OF

DTS, INC.

 

1.                                  Purpose of this Plan

 

The
purpose of this 2003 Equity Incentive Plan is to enhance the long-term
stockholder value of DTS, Inc. by offering opportunities to eligible
individuals to participate in the growth in value of the equity of
DTS, Inc.

 

2.                                  Definitions and Rules of Interpretation

 

2.1         Definitions

 

This
Plan uses the following defined terms:

 

(a)         “Administrator” means the
Board, the Committee, or any officer or employee of the Company to whom the
Board or the Committee delegates authority to administer this Plan.

 

(b)         “Affiliate” means a “parent”
or “subsidiary” (as each is defined in Section 424 of the Code) of the
Company and any other entity that the Board or Committee designates as an “Affiliate”
for purposes of this Plan.

 

(c)         “Applicable
Law” means any and all laws of whatever jurisdiction,
within or without the United States, and the rules of any stock exchange
or quotation system on which Shares are listed or quoted, applicable to the
taking or refraining from taking of any action under this Plan, including the
administration of this Plan and the issuance or transfer of Awards or Award
Shares.

 

(d)         “Award” means a Stock
Award, SAR, Cash Award, or Option granted in accordance with the terms of this
Plan.

 

(e)         “Award
Agreement” means the document evidencing the grant of an
Award.

 

(f)          “Award Shares” means Shares covered by an
outstanding Award or purchased under an Award.

 

(g)         “Awardee” means:
(i) a person to whom an Award has been granted, including a holder of a
Substitute Award, (ii) a person to whom an Award has been transferred in
accordance with all applicable requirements of Sections 6.5, 7(h), and 17.

 

(h)         “Board” means the
Board of Directors of the Company.

 

(i)          “Cash Award” means the right to receive cash as described
in Section 8.3.

 

(j)          “Change in Control” means any transaction or
event that the Board specifies as a Change in Control under Section 10.4.

 

(k)         “Code” means the
Internal Revenue Code of 1986.

 

(l)          “Committee” means a committee composed of Company
Directors appointed in accordance with the Company’s charter documents and
Section 4.

 

(m)        “Company” means
DTS, Inc., a Delaware corporation.

 

(n)         “Company
Director” means a member of the Board.

 

(o)         “Consultant” means an
individual who, or an employee of any entity that, provides bona fide services
to the Company or an Affiliate not in connection with the offer or sale of
securities in a capital-raising transaction, but who is not an Employee.

 

 

(p)         “Director” means a member
of the Board of Directors of the Company or an Affiliate.

 

(q)         “Divestiture” means any
transaction or event that the Board specifies as a Divestiture under
Section 10.5.

 

(r)         “Domestic Relations Order”
means a “domestic relations order” as defined in, and otherwise meeting the
requirements of, Section 414(p) of the Code, except that reference to
a “plan” in that definition shall be to this Plan.

 

(s)         “Effective
Date” means the first date of the sale by the Company of shares
of its capital stock in an initial public offering pursuant to a registration
statement on Form S-1 filed with the SEC.

 

(t)          “Employee” means a regular employee of the Company or
an Affiliate, including an officer or Director, who is treated as an employee
in the personnel records of the Company or an Affiliate, but not individuals
who are classified by the Company or an Affiliate as: (i) leased from or
otherwise employed by a third party, (ii) independent contractors, or
(iii) intermittent or temporary workers.  The Company’s or an
Affiliate’s classification of an individual as an “Employee” (or as not an “Employee”)
for purposes of this Plan shall not be altered retroactively even if that
classification is changed retroactively for another purpose as a result of an
audit, litigation or otherwise.  An Awardee shall not cease to be an
Employee due to transfers between locations of the Company, or between the
Company and an Affiliate, or to any successor to the Company or an Affiliate
that assumes the Awardee’s Options under Section 10.  Neither service
as a Director nor receipt of a director’s fee shall be sufficient to make a
Director an “Employee”.

 

(u)         “Exchange
Act” means the Securities Exchange Act of 1934.

 

(v)         “Executive” means, if the
Company has any class of any equity security registered under Section 12
of the Exchange Act, an individual who is subject to Section 16 of the
Exchange Act or who is a “covered employee” under Section 162(m) of
the Code, in either case because of the individual’s relationship with the
Company or an Affiliate.  If the Company does not have any class of any
equity security registered under Section 12 of the Exchange Act, “Executive”
means any (i) Director, (ii) officer elected or appointed by the
Board, or (iii) beneficial owner of more than 10% of any class of the
Company’s equity securities.

 

(w)        “Expiration
Date” means, with respect to an Award, the date stated in
the Award Agreement as the expiration date of the Award or, if no such date is
stated in the Award Agreement, then the last day of the maximum exercise period
for the Award, disregarding the effect of an Awardee’s Termination or any other
event that would shorten that period.

 

(x)         “Fair
Market Value” means the value of Shares as determined under
Section 18.2.

 

(y)         “Fundamental
Transaction” means any transaction or event described in
Section 10.3.

 

(z)         “Grant
Date” means the date the Administrator approves the grant
of an Award.  However, if the Administrator specifies that an Award’s
Grant Date is a future date or the date on which a condition is satisfied, the
Grant Date for such Award is that future date or the date that the condition is
satisfied.

 

(aa)      “Incentive Stock Option” means an Option intended to
qualify as an incentive stock option under Section 422 of the Code and
designated as an Incentive Stock Option in the Award Agreement for that Option.

 

(bb)      “Nonstatutory Option” means any Option other than
an Incentive Stock Option.

 

(cc)       “Non-Employee Director” means any person who is a
member of the Board but is not an Employee of the Company or any Affiliate of
the Company and has not been an Employee of the Company or any Affiliate of the
Company at any time during the preceding twelve months. Service as a Director
does not in itself constitute employment for purposes of this definition.

 

(dd)      “Objectively Determinable Performance Condition” shall mean a
performance condition (i) that is established (A) at the time an
Award is granted or (B)  no later than the earlier of (1) 90 days
after the beginning of the period of service to which it relates, or
(2) before the elapse of 25% of the period of service to which it relates,
(ii) that is uncertain of achievement at the time it is established, and
(iii) the achievement of which is determinable by a third party with
knowledge of the relevant facts.  Examples of measures that may be used in
Objectively Determinable Performance Conditions include net order dollars, net
profit dollars, net profit growth, net revenue dollars, revenue growth,
individual 

 

 

performance, earnings per
share, return on assets, return on equity, and other financial objectives,
objective customer satisfaction indicators and efficiency measures, each with
respect to the Company and/or an Affiliate or individual business unit.

 

(ee)       “Officer” means an officer of the Company as defined
in Rule 16a-1 adopted under the Exchange Act.

 

(ff)         “Option” means a right to purchase Shares of the Company
granted under this Plan.

 

(gg)      “Option Price” means the price payable
under an Option for Shares, not including any amount payable in respect of
withholding or other taxes.

 

(hh)      “Option Shares” means Shares covered by an
outstanding Option or purchased under an Option.

 

(ii)        “Plan” means this 2003 Equity Incentive Plan of
DTS, Inc.

 

(jj)         “Prior Plans” means
the Company’s 1997 Stock Option Plan and the 2002 Stock Option Plan in effect.

 

(kk)      “Purchase Price” means the price payable
under a Stock Award for Shares, not including any amount payable in respect of
withholding or other taxes.

 

(ll)        “Rule 16b-3” means Rule 16b-3
adopted under Section 16(b) of the Exchange Act.

 

(mm)   “SAR” or “Stock
Appreciation Right” means a right to receive
cash based on a change in the Fair Market Value of a specific number of Shares
pursuant to an Award Agreement, as described in Section 8.1.

 

(nn)      “Securities Act” means the Securities Act of
1933.

 

(oo)      “Share” means a share of the common stock of the Company or
other securities substituted for the common stock under Section 10.

 

(pp)      “Stock Award” means an offer by the Company to sell shares
subject to certain restrictions pursuant to the Award Agreement as described in
Section 8.2.

 

(qq)      “Substitute Award” means a Substitute Option,
Substitute SAR or Substitute Stock Award granted in accordance with the terms
of this Plan.

 

(rr)        “Substitute Option” means an Option granted in
substitution for, or upon the conversion of, an option granted by another
entity to purchase equity securities in the granting entity.

 

(ss)        “Substitute SAR” means a SAR granted in
substitution for, or upon the conversion of, a stock appreciation right granted
by another entity with respect to equity securities in the granting entity.

 

(tt)        “Substitute Stock Award” means a Stock Award granted
in substitution for, or upon the conversion of, a stock award granted by
another entity to purchase equity securities in the granting entity.

 

(uu)      “Termination” means that the Awardee has ceased to be,
with or without any cause or reason, an Employee, Director or Consultant. 
However, unless so determined by the Administrator, or otherwise provided in this
Plan, “Termination” shall not include a change in status from an Employee,
Consultant or Director to another such status.  An event that causes an
Affiliate to cease being an Affiliate shall be treated as the “Termination” of
that Affiliate’s Employees, Directors, and Consultants.

 

2.2         Rules of Interpretation

 

Any
reference to a “Section,” without more, is to a Section of this
Plan.  Captions and titles are used for convenience in this Plan and shall
not, by themselves, determine the meaning of this Plan.  Except when
otherwise indicated by the context, the singular includes the plural and vice
versa.  Any reference to a statute is also a reference to the applicable
rules and regulations adopted under that statute.  Any reference to a
statute, rule or regulation, or to a section of a statute, 

 

 

rule or regulation, is
a reference to that statute, rule, regulation, or section as amended from time
to time, both before and after the Effective Date and including any successor
provisions.

 

3.           Shares
Subject to this Plan; Term of this Plan

 

3.1         Number of Award Shares

 

The
Shares issuable under this Plan shall be authorized but unissued or
reacquired Shares, including Shares repurchased by the Company on the open
market. The number of Shares initially reserved for issuance over the term of
this Plan shall not exceed 3,000,000 Shares.  Such reserve shall consist
of (i) the number of Shares available for issuance, as of the Effective
Date, under the Prior Plans as last approved by the Company’s stockholders,
including the Shares subject to outstanding options under the Prior Plans, plus
(ii) those Shares issued under the Prior Plans that are forfeited or
repurchased by the Company or that are issuable upon exercise of options
granted pursuant to the Prior Plans that expire or become unexercisable for any
reason without having been exercised in full after the Effective Date, plus
(iii) an additional increase of approximately 928,949 Shares to be
approved by the Company’s stockholders prior to the Effective Date.  The maximum
number of Shares shall be cumulatively increased on the first January 1
after the Effective Date and each January 1 thereafter for 10 years, by a
number of Shares equal to the least of (a) 4% of the number of Shares
issued and outstanding on the immediately preceding December 31,
(b) 1,500,000 Shares, and (c) a number of Shares set by the
Board.  When an Award is granted, the maximum number of Shares that may be
issued under this Plan shall be reduced by the number of Shares covered by that
Award.  However, if an Award later terminates or expires without having
been exercised in full, the maximum number of shares that may be issued under
this Plan shall be increased by the number of Shares that were covered by, but
not purchased under, that Award.  By contrast, the repurchase of Shares by
the Company shall not increase the maximum number of Shares that may be issued
under this Plan.  Notwithstanding anything in this Plan to the contrary,
at no time during the eighteen (18) months following the Effective Date may the
sum of the number of Shares subject to Awards under this Plan and the number of
Shares subject to options under the Prior Plans exceed 15% of the outstanding
Shares on a “fully diluted” basis.  For the purposes of this
Section 3.1, outstanding Shares on a “fully diluted” basis shall be the
number of Shares that is equal to (x) the number of Shares issued and
outstanding plus (y) all Shares subject to or available for Awards or
options under this Plan and the Prior Plans, respectively, and 50% of the
Shares then issuable upon the exercise of warrants that were outstanding on the
Effective Date of the Plan.

 

3.2         Source of Shares

 

Award
Shares may be:  (a) Shares that have never been issued,
(b) Shares that have been issued but are no longer outstanding, or
(c) Shares that are outstanding and are acquired to discharge the Company’s
obligation to deliver Award Shares.

 

3.3         Term of this Plan

 

(a)         This Plan shall be effective on, and Awards may be
granted under this Plan on and after, the earliest the date on which the Plan
has been both adopted by the Board and approved by the Company’s stockholders.

 

(b)         Subject to the provisions of Section 14, Awards
may be granted under this Plan for a period of ten years from the earlier of
the date on which the Board approves this Plan and the date the Company’s
stockholders approve this Plan.  Accordingly, Awards may not be granted
under this Plan after the earlier of those dates.

 

4.                                  Administration

 

4.1         General

 

(a)         The Board shall have ultimate responsibility for
administering this Plan.  The Board may delegate certain of its
responsibilities to a Committee, which shall consist of at least two members of
the Board.  The Board or the Committee may further delegate its
responsibilities to any Employee of the Company or any Affiliate.  Where
this Plan specifies that an action is to be taken or a determination made by
the Board, only the Board may take that action or make that
determination.  Where this Plan specifies that an action is to be taken or
a determination made by the Committee, only the Committee may take that action
or make that determination.  Where this Plan references the “Administrator,”
the action may be taken or determination made by the Board, the Committee, or
other Administrator.  However, only the Board or the Committee may approve
grants of Awards to Executives, and an Administrator other than the Board or
the Committee may grant Awards only within guidelines established by the Board
or Committee.  Moreover, all actions and determinations by any
Administrator are subject to the provisions of this Plan.

 

 

(b)         So long as the Company has registered and
outstanding a class of equity securities under Section 12 of the Exchange
Act, the Committee shall consist of Company Directors who are “Non-Employee
Directors” as defined in Rule 16b-3 and, after the expiration of any
transition period permitted by Treasury Regulations
Section 1.162-27(h)(3), who are “outside directors” as defined in
Section 162(m) of the Code.

 

4.2         Authority of the Board or
the Committee

 

Subject
to the other provisions of this Plan, the Board or the Committee shall have the
authority to:

 

(a)         grant Awards, including Substitute Awards;

 

(b)         determine the Fair Market Value of Shares;

 

(c)         determine the Option Price and the Purchase Price of
Awards;

 

(d)         select the Awardees;

 

(e)         determine the times Awards are granted;

 

(f)          determine the number of Shares subject to each
Award;

 

(g)         determine the methods of payment that may be used to
purchase Award Shares;

 

(h)         determine the methods of payment that may be used to
satisfy withholding tax obligations;

 

(i)          determine the other terms of each Award, including
but not limited to the time or times at which Awards may be exercised, whether
and under what conditions an Award is assignable, and whether an Option is a
Nonstatutory Option or an Incentive Stock Option;

 

(j)          modify or amend any Award;

 

(k)         authorize any person to sign any Award Agreement or
other document related to this Plan on behalf of the Company;

 

(l)          determine the form of any Award Agreement or other
document related to this Plan, and whether that document, including signatures,
may be in electronic form;

 

(m)        interpret this Plan and any Award Agreement or
document related to this Plan;

 

(n)         correct any defect, remedy any omission, or
reconcile any inconsistency in this Plan, any Award Agreement or any other
document related to this Plan;

 

(o)         adopt, amend, and revoke rules and regulations
under this Plan, including rules and regulations relating to sub-plans and
Plan addenda;

 

(p)         adopt, amend, and revoke special rules and
procedures which may be inconsistent with the terms of this Plan, set forth (if
the Administrator so chooses) in sub-plans regarding (for example) the
operation and administration of this Plan and the terms of Awards, if and to
the extent necessary or useful to accommodate non-U.S. Applicable Laws and
practices as they apply to Awards and Award Shares held by, or granted or
issued to, persons working or resident outside of the United States or employed
by Affiliates incorporated outside the United States;

 

(q)         determine whether a transaction or event should be
treated as a Change in Control, a Divestiture or neither;

 

(r)         determine the effect of a Fundamental Transaction
and, if the Board determines that a transaction or event should be treated as a
Change in Control or a Divestiture, then the effect of that Change in Control
or Divestiture; and

 

(s)         make all other determinations the Administrator
deems necessary or advisable for the administration 

 

 

of this Plan.

 

4.3         Scope of Discretion

 

Subject
to the provisions of this Section 4.3, on all matters for which this Plan
confers the authority, right or power on the Board, the Committee, or other
Administrator to make decisions, that body may make those decisions in its sole
and absolute discretion.  Those decisions will be final, binding and
conclusive.  In making its decisions, the Board, Committee or other
Administrator need not treat all persons eligible to receive Awards, all
Awardees, all Awards or all Award Shares the same way.  Notwithstanding
anything herein to the contrary, and except as provided in Section 14.3,
the discretion of the Board, Committee or other Administrator is subject to the
specific provisions and specific limitations of this Plan, as well as all
rights conferred on specific Awardees by Award Agreements and other agreements.

 

5.           Persons
Eligible to Receive Awards

 

5.1         Eligible Individuals

 

Awards
(including Substitute Awards) may be granted to, and only to, Employees,
Directors and Consultants, including to prospective Employees, Directors and
Consultants conditioned on the beginning of their service for the Company or an
Affiliate.  However, Incentive Stock Options may only be granted to
Employees, as provided in Section 7(g).

 

5.2         Section 162(m) Limitation

 

(a)         Options and SARs  Subject
to the provisions of this Section 5.2, for so long as the Company is a “publicly
held corporation” within the meaning of Section 162(m) of the Code:
(i) no Employee may be granted one or more SARs and Options within any
fiscal year of the Company under this Plan to purchase more than 1,500,000
Shares under Options or to receive compensation calculated with reference to
more than that number of Shares under SARs, subject to adjustment pursuant to
Section 10, (ii) Options and SARs may be granted to an Executive only
by the Committee (and, notwithstanding anything to the contrary in
Section 4.1(a), not by the Board).  If an Option or SAR is cancelled
without being exercised or if the Option Price of an Option is reduced, that
cancelled or repriced Option or SAR shall continue to be counted against the
limit on Awards that may be granted to any individual under this
Section 5.2.  Notwithstanding anything herein to the contrary, a new
Employee of the Company or an Affiliate shall be eligible to receive up to a
maximum of 2,000,000 Shares under Options in the calendar year in which they
commence employment, or such compensation calculated with reference to such
number of Shares under SARs, subject to adjustment pursuant to Section 10.

 

(b)         Cash Awards and Stock Awards  Any Cash
Award or Stock Award intended as “qualified performance-based compensation”
within the meaning of Section 162(m) of the Code must vest or become
exercisable contingent on the achievement of one or more Objectively
Determinable Performance Conditions.  The Committee shall have the
discretion to determine the time and manner of compliance with
Section 162(m) of the Code.

 

6.                                  Terms and Conditions of Option

 

The
following rules apply to all Options:

 

6.1         Price

 

No
Nonstatutory Option may have an Option Price less than 85% of the Fair Market
Value of the Shares on the Grant Date.  No Option intended as “qualified
incentive-based compensation” within the meaning of Section 162(m) of
the Code may have an Option Price less than 100% of the Fair Market Value of
the Shares on the Grant Date.  In no event will the Option Price of any
Option be less than the par value of the Shares issuable under the Option if
that is required by Applicable Law.  The Option Price of an Incentive
Stock Option shall be subject to Section 7(f).

 

6.2         Term

 

No
Option shall be exercisable after its Expiration Date.  No Option may have
an Expiration Date that is more than ten years after its Grant Date. 
Additional provisions regarding the term of Incentive Stock Options are
provided in Sections 7(a) and 7(e).

 

 

6.3         Vesting

 

Options
shall be exercisable: (a) on the Grant Date, or (b) in accordance
with a schedule related to the Grant Date, the date the Optionee’s
directorship, employment or consultancy begins, or a different date specified
in the Option Agreement.  Additional
provisions regarding the vesting of Incentive Stock Options are provided in
Section 7(c).  No Option granted to an individual who is subject to
the overtime pay provisions of the Fair Labor Standards Act may be exercised
before the expiration of six months after the Grant Date.

 

6.4         Form and Method of
Payment

 

(a)         The Board or Committee shall determine the
acceptable form and method of payment for exercising an Option.

 

(b)         Acceptable forms of payment for all Option Shares
are cash, check or wire transfer, denominated in U.S. dollars except as
specified by the Administrator for non-U.S. Employees or non-U.S. sub-plans.

 

(c)         In addition, the Administrator may permit payment to
be made by any of the following methods:

 

(i)         other Shares, or the designation of other Shares,
which (A) are “mature” shares for purposes of avoiding variable accounting
treatment under generally accepted accounting principles (generally mature
shares are those that have been owned by the Optionee for more than six months
on the date of surrender), and (B) have a Fair Market Value on the date of
surrender equal to the Option Price of the Shares as to which the Option is
being exercised;

 

(ii)        provided that a public
market exists for the Shares, consideration received by the Company under a
procedure under which a licensed broker-dealer advances funds on behalf of an
Optionee or sells Option Shares on behalf of an Optionee (a “ 
Cashless Exercise Procedure   “), provided that if
the Company extends or arranges for the extension of credit to an Optionee
under any Cashless Exercise Procedure, no Officer or Director may participate
in that Cashless Exercise Procedure;

 

(iii)      with respect only to Optionees
who are neither Officers nor Directors as of the date of exercise, one or more
promissory notes meeting the requirements of Section 6.4(e) provided,
however, that promissory notes may not be used for any portion of an Award
which is not vested at the time of exercise;

 

(iv)       cancellation of any debt
owed by the Company or any Affiliate to the Optionee by the Company including
without limitation waiver of compensation due or accrued for services
previously rendered to the Company; and

 

(v)        any combination of the methods of payment permitted
by any paragraph of this Section 6.4.

 

(d)         The Administrator may also permit any other form or
method of payment for Option Shares permitted by Applicable Law.

 

(e)       The promissory notes referred to in
Section 6.4(c)(iii) shall be full recourse.  Unless the
Committee specifies otherwise after taking into account any relevant accounting
issues, the promissory notes shall bear interest at a fair market value rate
when the Option is exercised.  Interest on the promissory notes shall also
be at least sufficient to avoid imputation of interest under Sections 483,
1274, and 7872 of the Code.  The promissory notes and their administration
shall at all times comply with any applicable margin rules of the Federal
Reserve.  The promissory notes may also include such other terms as the
Administrator specifies.  Payment may not be made by promissory note by
Officers or Directors if Shares are registered under Section 12 of the
Exchange Act.

 

6.5         Nonassignability of Options

 

Except
as determined by the Administrator, no Option shall be assignable or otherwise
transferable by the Optionee except by will or by the laws of descent and
distribution.  However, Options may be transferred and exercised in
accordance with a Domestic Relations Order and may be exercised by a guardian
or conservator appointed to act for the Optionee.  Incentive Stock Options
may only be assigned in compliance with Section 7(h).

 

6.6         Substitute Options

 

The
Board may cause the Company to grant Substitute Options in connection with the
acquisition by the 

 

 

Company or an Affiliate of
equity securities of any entity (including by merger, tender offer, or other
similar transaction) or of all or a portion of the assets of any entity. 
Any such substitution shall be effective on the effective date of the
acquisition.  Substitute Options may be Nonstatutory Options or Incentive
Stock Options.  Unless and to the extent specified otherwise by the Board,
Substitute Options shall have the same terms and conditions as the options they
replace, except that (subject to the provisions of Section 10) Substitute
Options shall be Options to purchase Shares rather than equity securities of
the granting entity and shall have an Option Price determined by the Board.

 

6.7         Repricings

 

In
furtherance of, and not in limitation of the provisions of Section 10,
Options may be repriced, replaced or regranted through cancellation or
modification without stockholder approval.

 

7.           Incentive
Stock Options

 

The
following rules apply only to Incentive Stock Options and only to the
extent these rules are more restrictive than the rules that would
otherwise apply under this Plan.  With the consent of the Optionee, or
where this Plan provides that an action may be taken notwithstanding any other
provision of this Plan, the Administrator may deviate from the requirements of
this Section, notwithstanding that any Incentive Stock Option modified by the
Administrator will thereafter be treated as a Nonstatutory Option.

 

(a)         The Expiration Date of an Incentive Stock Option
shall not be later than ten years from its Grant Date, with the result that no
Incentive Stock Option may be exercised after the expiration of ten years from
its Grant Date.

 

(b)         No Incentive Stock Option may be granted more than
ten years from the date this Plan was approved by the Board.

 

(c)         Options intended to be incentive stock options under
Section 422 of the Code that are granted to any single Optionee under all
incentive stock option plans of the Company and its Affiliates, including
incentive stock options granted under this Plan, may not vest at a rate of more
than $100,000 in Fair Market Value of stock (measured on the grant dates of the
options) during any calendar year.  For this purpose, an option vests with
respect to a given share of stock the first time its holder may purchase that
share, notwithstanding any right of the Company to repurchase that share. 
Unless the administrator of that option plan specifies otherwise in the related
agreement governing the option, this vesting limitation shall be applied by, to
the extent necessary to satisfy this $100,000 rule, treating certain stock
options that were intended to be incentive stock options under Section 422
of the Code as Nonstatutory Options.  The stock options or portions of
stock options to be reclassified as Nonstatutory Options are those with the
highest option prices, whether granted under this Plan or any other equity
compensation plan of the Company or any Affiliate that permits that
treatment.  This Section 7(c) shall not cause an Incentive Stock
Option to vest before its original vesting date or cause an Incentive Stock
Option that has already vested to cease to be vested.

 

(d)         In order for an Incentive Stock Option to be
exercised for any form of payment other than those described in
Section 6.4(b), that right must be stated at the time of grant in the
Option Agreement relating to that Incentive Stock Option.

 

(e)         Any Incentive Stock Option granted to a Ten Percent
Stockholder, must have an Expiration Date that is not later than five years
from its Grant Date, with the result that no such Option may be exercised after
the expiration of five years from the Grant Date.  A “ 
Ten Percent Stockholder   “ is any person who,
directly or by attribution under Section 424(d) of the Code, owns
stock possessing more than ten percent of the total combined voting power of
all classes of stock of the Company or of any Affiliate on the Grant Date.

 

(f)          The Option Price of an Incentive Stock Option shall
never be less than the Fair Market Value of the Shares at the Grant Date. 
The Option Price for the Shares covered by an Incentive Stock Option granted to
a Ten Percent Stockholder shall never be less than 110% of the Fair Market
Value of the Shares at the Grant Date.

 

(g)         Incentive Stock Options may be granted only to
Employees.  If an Optionee changes status from an Employee to a
Consultant, that Optionee’s Incentive Stock Options become Nonstatutory Options
if not exercised within the time period described in
Section 7(i) (determined by treating that change in status as a
Termination solely for purposes of this Section 7(g)).

 

 

(h)         No rights under an Incentive Stock Option may be
transferred by the Optionee, other than by will or the laws of descent and
distribution.  During the life of the Optionee, an Incentive Stock Option
may be exercised only by the Optionee.  The Company’s compliance with a
Domestic Relations Order, or the exercise of an Incentive Stock Option by a
guardian or conservator appointed to act for the Optionee, shall not violate
this Section 7(h).

 

(i)          An Incentive Stock Option shall be treated as a
Nonstatutory Option if it remains exercisable after, and is not exercised
within, the three-month period beginning with the Optionee’s Termination for
any reason other than the Optionee’s death or disability (as defined in
Section 22(e) of the Code).  In the case of Termination due to
death, an Incentive Stock Option shall continue to be treated as an Incentive
Stock Option if it remains exercisable after, and is not exercised within, the
three-month period after the Optionee’s Termination provided it is exercised
before the Expiration Date.  In the case of Termination due to disability,
an Incentive Stock Option shall be treated as a Nonstatutory Option if it
remains exercisable after, and is not exercised within, one year after the
Optionee’s Termination.

 

(j)          An Incentive Stock Option may only be modified by
the Board.

 

8.           Stock
Appreciation Rights, Stock Awards and Cash Awards

 

8.1         Stock Appreciation Rights

 

The
following rules apply to SARs:

 

(a)         General.  SARs
may be granted either alone, in addition to, or in tandem with other Awards
granted under this Plan. The Administrator may grant SARs to eligible
participants subject to terms and conditions not inconsistent with this Plan
and determined by the Administrator. The specific terms and conditions
applicable to the Awardee shall be provided for in the Award Agreement. SARs
shall be exercisable, in whole or in part, at such times as the Administrator
shall specify in the Award Agreement.  The grant or vesting of a SAR may
be made contingent on the achievement of Objectively Determinable Performance
Conditions.

 

(b)         Exercise
of SARs.  Upon the exercise of an SAR, in whole or in
part, an Awardee shall be entitled to a payment in an amount equal to the
excess of the Fair Market Value of a fixed number of Shares covered by the
exercised portion of the SAR on the date of exercise, over the Fair Market
Value of the Shares covered by the exercised portion of the SAR on the Grant Date. 
The amount due to the Awardee upon the exercise of a SAR shall be paid in cash,
Shares or a combination thereof, over the period or periods specified in the
Award Agreement.  An Award Agreement may place limits on the amount that
may be paid over any specified period or periods upon the exercise of a SAR, on
an aggregate basis or as to any Awardee.  A SAR shall be considered
exercised when the Company receives written notice of exercise in accordance
with the terms of the Award Agreement from the person entitled to exercise the
SAR.  If a SAR has been granted in tandem with an Option, upon the
exercise of the SAR, the number of shares that may be purchased pursuant to the
Option shall be reduced by the number of shares with respect to which the SAR
is exercised.

 

(c)         Nonassignability
of SARs.  Except as determined by the Administrator, no
SAR shall be assignable or otherwise transferable by the Awardee except by will
or by the laws of descent and distribution.  Notwithstanding anything
herein to the contrary, SARs may be transferred and exercised in accordance
with a Domestic Relations Order.

 

(d)         Substitute
SARs.  The Board may cause the Company to grant
Substitute SARs in connection with the acquisition by the Company or an
Affiliate of equity securities of any entity (including by merger) or all or a
portion of the assets of any entity.  Any such substitution shall be
effective on the effective date of the acquisition.  Unless and to the
extent specified otherwise by the Board, Substitute SARs shall have the same
terms and conditions as the options they replace, except that (subject to the
provisions of Section 10) Substitute SARs shall be exercisable with
respect to the Fair Market Value of Shares rather than equity securities of the
granting entity and shall be on terms that, as determined by the Board in its
sole and absolute discretion, properly reflects the substitution.

 

(e)         Repricings.  A SAR
may be repriced, replaced or regranted, through cancellation or modification
without stockholder approval.

 

8.2         Stock Awards

 

The
following rules apply to all Stock Awards:

 

 

(a)         General.  The specific terms and conditions of a Stock
Award applicable to the Awardee shall be provided for in the Award Agreement.
The Award Agreement shall state the number of Shares that the Awardee shall be
entitled to receive or purchase, the terms and conditions on which the Shares
shall vest, the price to be paid and, if applicable, the time within which the
Awardee must accept such offer. The offer shall be accepted by execution of the
Award Agreement.  The Administrator may require that all Shares subject to
a right of repurchase or risk of forfeiture be held in escrow until such
repurchase right or risk of forfeiture lapses.  The grant or vesting of a
Stock Award may be made contingent on the achievement of Objectively
Determinable Performance Conditions.

 

(b)         Right of Repurchase.  If so provided in
the Award Agreement, Award Shares acquired pursuant to a Stock Award may be
subject to repurchase by the Company or an Affiliate if not vested in
accordance with the Award Agreement.

 

(c)         Form of Payment.  The Administrator
shall determine the acceptable form and method of payment for exercising a
Stock Award.  Acceptable forms of payment for all Award Shares are cash,
check or wire transfer, denominated in U.S. dollars except as specified by the
Administrator for non-U.S. Employees or non-U.S. sub-plans.  In addition,
the Administrator may permit payment to be made by any of the methods permitted
with respect to the exercise of Options pursuant to Section 6.4.

 

(d)         Nonassignability of Stock Awards.  Except
as determined by the Administrator, no Stock Award shall be assignable or
otherwise transferable by the Awardee except by will or by the laws of descent
and distribution.  Notwithstanding anything to the contrary herein, Stock
Awards may be transferred and exercised in accordance with a Domestic Relations
Order.

 

(e)         Substitute Stock Award.  The Board may cause
the Company to grant Substitute Stock Awards in connection with the acquisition
by the Company or an Affiliate of equity securities of any entity (including by
merger) or all or a portion of the assets of any entity.  Unless and to
the extent specified otherwise by the Board, Substitute Stock Awards shall have
the same terms and conditions as the stock awards they replace, except that (subject
to the provisions of Section 10) Substitute Stock Awards shall be Stock
Awards to purchase Shares rather than equity securities of the granting entity
and shall have a Purchase Price that, as determined by the Board in its sole
and absolute discretion, properly reflects the substitution.  Any such
Substituted Stock Award shall be effective on the effective date of the
acquisition.

 

8.3         Cash Awards

 

The following
rules apply to all Cash Awards:

 

Cash Awards may be granted
either alone, in addition to, or in tandem with other Awards granted under this
Plan. After the Administrator determines that it will offer a Cash Award, it
shall advise the Awardee, by means of an Award Agreement, of the terms,
conditions and restrictions related to the Cash Award.

 

9.                                  Exercise of
Awards

 

9.1         In General

 

An Award shall be
exercisable in accordance with this Plan and the Award Agreement under which it
is granted.

 

9.2         Time of
Exercise

 

Options and Stock Awards
shall be considered exercised when the Company receives: (a) written
notice of exercise from the person entitled to exercise the Option or Stock
Award, (b) full payment, or provision for payment, in a form and method
approved by the Administrator, for the Shares for which the Option or Stock
Award is being exercised, and (c) with respect to Nonstatutory Options,
payment, or provision for payment, in a form approved by the Administrator, of
all applicable withholding taxes due upon exercise.  An Award may not be
exercised for a fraction of a Share.  SARs shall be considered exercised
when the Company receives written notice of the exercise from the person
entitled to exercise the SAR.

 

9.3         Issuance of
Award Shares

 

The Company shall issue
Award Shares in the name of the person properly exercising the Award.  If
the 

 

 

Awardee is that person and
so requests, the Award Shares shall be issued in the name of the Awardee and
the Awardee’s spouse.  The Company shall endeavor to issue Award Shares
promptly after an Award is exercised or after the Grant Date of a Stock Award,
as applicable.  Until Award Shares are actually issued, as evidenced by
the appropriate entry on the stock register of the Company or its transfer
agent, the Awardee will not have the rights of a stockholder with respect to
those Award Shares, even though the Awardee has completed all the steps
necessary to exercise the Award.  No adjustment shall be made for any
dividend, distribution, or other right for which the record date precedes the
date the Award Shares are issued, except as provided in Section 10.

 

9.4         Termination

 

(a)         In General  Except as provided in an Award
Agreement or in writing by the Administrator, including in an Award Agreement,
and as otherwise provided in Sections 9.4(b), (c), (d) and
(e) after an Awardee’s Termination, the Awardee’s Awards shall be
exercisable to the extent (but only to the extent) they are vested on the date
of that Termination and only during the three months after the Termination, but
in no event after the Expiration Date.  To the extent the Awardee does not
exercise an Award within the time specified for exercise, the Award shall
automatically terminate.

 

(b)         Leaves of Absence  Unless otherwise
provided in the Award Agreement, no Award may be exercised more than three
months after the beginning of a leave of absence, other than a personal or
medical leave approved by an authorized representative of the Company with
employment guaranteed upon return.  Awards shall not continue to vest
during a leave of absence, unless otherwise determined by the Administrator
with respect to an approved personal or medical leave with employment
guaranteed upon return.

 

(c)         Death or Disability  Unless otherwise
provided by the Administrator, if an Awardee’s Termination is due to death or
disability (as determined by the Administrator with respect to all Awards other
than Incentive Stock Options and as defined by Section 22(e) of the
Code with respect to Incentive Stock Options), all Awards of that Awardee to
the extent exercisable at the date of that Termination may be exercised for one
year after that Termination, but in no event after the Expiration Date. 
In the case of Termination due to death, an Award may be exercised as provided
in Section 17.  In the case of Termination due to disability, if a
guardian or conservator has been appointed to act for the Awardee and been
granted this authority as part of that appointment, that guardian or
conservator may exercise the Award on behalf of the Awardee.  Death or
disability occurring after an Awardee’s Termination shall not cause the
Termination to be treated as having occurred due to death or disability. 
To the extent an Award is not so exercised within the time specified for its
exercise, the Award shall automatically terminate.

 

(d)         Divestiture  If an Awardee’s Termination is due to
a Divestiture, the Board may take any one or more of the actions described in
Section 10.3 or 10.4 with respect to the Awardee’s Awards.

 

(e)         Termination for Cause  In the discretion of
the Administrator, which may be exercised on the date of grant, or at a date later
in time, if an Awardee’s Termination is due to Cause, all of the Awardee’s
Awards shall automatically terminate and cease to be exercisable at the time of
Termination and the Administrator may rescind any and all exercises of Awards
by the Awardee that occurred after the first event constituting Cause.  “Cause”
means employment-related dishonesty, fraud, misconduct or disclosure or misuse
of confidential information, or other employment-related conduct that is likely
to cause significant injury to the Company, an Affiliate, or any of their
respective employees, officers or directors (including, without limitation,
commission of a felony or similar offense), in each case as determined by the
Administrator.  “Cause” shall not require that a civil judgment or
criminal conviction have been entered against or guilty plea shall have been
made by the Awardee regarding any of the matters referred to in the previous
sentence.  Accordingly, the Administrator shall be entitled to determine “Cause”
based on the Administrator’s good faith belief.  If the Awardee is
criminally charged with a felony or similar offense, that shall be a
sufficient, but not a necessary, basis for such a belief.

 

(f)          Administrator Discretion  Notwithstanding the
provisions of Section 9.4 (a)-(e), the Plan Administrator shall have
complete discretion, exercisable either at the time an Award is granted or at
any time while the Award remains outstanding, to:

 

(i)          Extend the period of time
for which the Award is to remain exercisable, following the Awardee’s
Termination, from the limited exercise period otherwise in effect for that
Award to such greater period of time as the Administrator shall deem
appropriate, but in no event beyond the Expiration Date; and/or

 

(ii)        Permit the Award to be
exercised, during the applicable post-Termination exercise period, not only
with respect to the number of vested Shares for which such Award may be
exercisable at the time of the 

 

 

Awardee’s Termination but
also with respect to one or more additional installments in which the Awardee
would have vested had the Awardee not been subject to Termination.

 

(g)         Consulting or Employment Relationship  Nothing
in this Plan or in any Award Agreement, and no Award or the fact that Award
Shares remain subject to repurchase rights, shall:  (A) interfere
with or limit the right of the Company or any Affiliate to terminate the
employment or consultancy of any Awardee at any time, whether with or without
cause or reason, and with or without the payment of severance or any other
compensation or payment, or (B) interfere with the application of any
provision in any of the Company’s or any Affiliate’s charter documents or
Applicable Law relating to the election, appointment, term of office, or
removal of a Director.

 

10.                           Certain Transactions
and Events

 

10.1       In General

 

Except as provided in this
Section 10, no change in the capital structure of the Company, merger,
sale or other disposition of assets or a subsidiary, change in control,
issuance by the Company of shares of any class of securities or securities
convertible into shares of any class of securities, exchange or conversion of
securities, or other transaction or event shall require or be the occasion for
any adjustments of the type described in this Section 10.  Additional
provisions with respect to the foregoing transactions are set forth in
Section 14.3.

 

10.2       Changes in
Capital Structure

 

In the event of any stock
split, reverse stock split, recapitalization, combination or reclassification
of stock, stock dividend, spin-off, or similar change to the capital structure
of the Company (not including a Fundamental Transaction or Change in Control),
the Board shall make whatever adjustments it concludes are appropriate to:
(a) the number and type of Awards that may be granted under this Plan,
(b) the number and type of Options that may be granted to any individual
under this Plan, (c) the terms of any SAR, (d) the Purchase Price of
any Stock Award, (e) the Option Price and number and class of securities
issuable under each outstanding Option, and (f) the repurchase price of
any securities substituted for Award Shares that are subject to repurchase
rights.  The specific adjustments shall be determined by the Board. 
Unless the Board specifies otherwise, any securities issuable as a result of
any such adjustment shall be rounded down to the next lower whole
security.  The Board need not adopt the same rules for each Award or
each Awardee.

 

10.3       Fundamental
Transactions

 

Except for grants to
Non-Employee Directors pursuant to Section 11 herein, in the event of
(a) a merger or consolidation in which the Company is not the surviving
corporation (other than a merger or consolidation with a wholly-owned
subsidiary, a reincorporation of the Company in a different jurisdiction, or
other transaction in which there is no substantial change in the stockholders
of the Company or their relative stock holdings and the Awards granted under
this Plan are assumed, converted or replaced by the successor corporation,
which assumption shall be binding on all Participants), (b) a merger in
which the Company is the surviving corporation but after which the stockholders
of the Company immediately prior to such merger (other than any stockholder
that merges, or which owns or controls another corporation that merges, with
the Company in such merger) cease to own their shares or other equity interest
in the Company, (c) the sale of all or substantially all of the assets of
the Company, or (d) the acquisition, sale, or transfer of more than 50% of
the outstanding shares of the Company by tender offer or similar transaction
(each, a “  Fundamental Transaction  
“), any or all outstanding Awards may be assumed, converted or replaced by the
successor corporation (if any), which assumption, conversion or replacement
shall be binding on all participants under this Plan.  In the alternative,
the successor corporation may substitute equivalent Awards or provide
substantially similar consideration to participants as was provided to
stockholders (after taking into account the existing provisions of the
Awards).  The successor corporation may also issue, in place of
outstanding Shares held by the participants, substantially similar shares or
other property subject to repurchase restrictions no less favorable to the participant.
In the event such successor corporation (if any) does not assume or substitute
Awards, as provided above, pursuant to a transaction described in this
Subsection 10.3, the vesting with respect to such Awards shall fully and
immediately accelerate or the repurchase rights of the Company shall fully and
immediately terminate, as the case may be, so that the Awards may be exercised
or the repurchase rights shall terminate before, or otherwise in connection
with the closing or completion of the Fundamental Transaction or event, but
then terminate.  Notwithstanding anything in this Plan to the contrary,
the Committee may, in its sole discretion, provide that the vesting of any or
all Award Shares subject to vesting or a right of repurchase shall accelerate
or lapse, as the case may be, upon a transaction described in this
Section 10.3. If the Committee exercises such discretion with respect to
Options, such Options shall become exercisable in full prior to the
consummation of such event at such time and on such conditions as the Committee
determines, and if such Options are not exercised prior to the consummation of
the Fundamental Transaction, they shall terminate at such time as determined by
the 

 

 

Committee.  Subject to
any greater rights granted to participants under the foregoing provisions of
this Section 10.3, in the event of the occurrence of any Fundamental
Transaction, any outstanding Awards shall be treated as provided in the
applicable agreement or plan of merger, consolidation, dissolution, liquidation,
or sale of assets.

 

10.4       Changes of
Control

 

The Board may also, but need
not, specify that other transactions or events constitute a “Change in Control “. 
The Board may do that either before or after the transaction or event
occurs.  Examples of transactions or events that the Board may treat as
Changes of Control are: (a) any person or entity, including a “group” as
contemplated by Section 13(d)(3) of the Exchange Act, acquires
securities holding 30% or more of the total combined voting power or value of
the Company, or (b) as a result of or in connection with a contested
election of Company Directors, the persons who were Company Directors
immediately before the election cease to constitute a majority of the
Board.  In connection with a Change in Control, notwithstanding any other
provision of this Plan, the Board may, but need not, take any one or more of
the actions described in Section 10.3.  In addition, the Board may
extend the date for the exercise of Awards (but not beyond their original Expiration
Date).  The Board need not adopt the same rules for each Award or
each Awardee.  Notwithstanding anything in this Plan to the contrary, in
the event of a Termination of services for any reason other than death,
disability or Cause, within 18 months following the consummation of a
Fundamental Transaction or Change in Control, any Awards, assumed or
substituted in a Fundamental Transaction or Change in Control, which are
subject to vesting conditions and/or the right of repurchase in favor of the Company
or a successor entity, shall accelerate fully so that such Award Shares are
immediately exercisable upon Termination or, if subject to the right of
repurchase in favor of the Company, such repurchase rights shall lapse as of
the date of Termination. Such Awards shall be exercisable for a period of three
(3) months following termination.

 

10.5       Divestiture

 

If the Company or an
Affiliate sells or otherwise transfers equity securities of an Affiliate to a
person or entity other than the Company or an Affiliate, or leases, exchanges
or transfers all or any portion of its assets to such a person or entity, then
the Board may specify that such transaction or event constitutes a “ 
Divestiture   “.  In connection with a
Divestiture, notwithstanding any other provision of this Plan, the Board may,
but need not, take one or more of the actions described in Section 10.3 or
10.4 with respect to Awards or Award Shares held by, for example, Employees,
Directors or Consultants for whom that transaction or event results in a
Termination.  The Board need not adopt the same rules for each Award
or each Awardee.

 

10.6       Dissolution

 

If the Company adopts a plan
of dissolution, the Board may cause Awards to be fully vested and exercisable
(but not after their Expiration Date) before the dissolution is completed but
contingent on its completion and may cause the Company’s repurchase rights on
Award Shares to lapse upon completion of the dissolution.  The Board need
not adopt the same rules for each Award or each Awardee.  Notwithstanding
anything herein to the contrary, in the event of a dissolution of the Company,
to the extent not exercised before the earlier of the completion of the
dissolution or their Expiration Date, Awards shall terminate immediately prior
to the dissolution.

 

10.7       Cut-Back to
Preserve Benefits

 

If the Administrator
determines that the net after-tax amount to be realized by any Awardee, taking
into account any accelerated vesting, termination of repurchase rights, or cash
payments to that Awardee in connection with any transaction or event set forth
in this Section 10 would be greater if one or more of those steps were not
taken or payments were not made with respect to that Awardee’s Awards or Award
Shares, then, at the election of the Awardee, to such extent, one or more of
those steps shall not be taken and payments shall not be made.

 

11.         Automatic
Option Grants to Non-Employee Directors and Non-Employee Director Fee Option
Grants

 

11.1       Automatic
Option Grants to Non-Employee Directors

 

(a)         Grant Dates  Option
grants to Non-Employee Directors shall be made on the dates specified below:

 

(i)         Each Non-Employee Director
who is then serving as a member of the Board on the Effective Date (the “ 
Current Directors   “) and each Non-Employee
Director who is first elected or appointed to the Board 

 

 

at any time after the
effective date of this Plan shall automatically be granted, on the date of such
initial election or appointment, a Nonstatutory Option to purchase 7,500 Shares
(the “  Initial Grant   “).

 

(ii)        Commencing in 2004, on the
date of each annual stockholders meeting, each individual who is to continue to
serve as a Non-Employee Director shall automatically be granted a Nonstatutory
Option to purchase 3,750 Shares (the “  Annual Grant  “), provided, however, that such individual
has served as a Non-Employee Director for at least six (6) months.

 

(b)         Exercise
Price

 

(i)         The Option Price shall be
equal to one hundred percent (100%) of the Fair Market Value of the Shares on
the Option grant date.

 

(ii)        The Option Price shall be
payable in one or more of the alternative forms authorized pursuant to
Section 6.4.  Except to the extent the sale and remittance procedure
specified thereunder is utilized, payment of the Option Price must be made on
the date of exercise.

 

(c)         Option Term  
Each Option shall have a term of ten (10) years measured from the Option
grant date.

 

(d)         Exercise
and Vesting of Options  Except as otherwise determined by the
whole Board, the Shares underlying each Option granted pursuant to Section 11.1
shall vest and be exercisable as set forth below.

 

(i)         Initial Grant.  The Shares underlying each
Option issued pursuant to the Initial Grant shall vest and be exercisable as to
4.1666% of the Shares at the end of each full succeeding month from the date of
grant, rounded down to the nearest whole Share, for so long as the Non-Employee
Director continuously remains a Director of, or a Consultant to, the Company
provided, however, that the Shares underlying each Option issued to Current
Directors, pursuant to the Initial Grant, shall be fully vested and immediately
exercisable on the grant date.

 

(ii)        Annual Grant.  The Shares underlying each
Option issued pursuant to the Annual Grant shall vest and be exercisable as to
8.3333% of the Shares at the end of each full succeeding month from the date of
grant, rounded down to the nearest whole Share, for so long as the Non-Employee
Director continuously remains a Director of, or a Consultant to, the Company.

 

(e)         Termination
of Board Service  The following provisions shall govern the
exercise of any Options held by the Awardee at the time the Awardee ceases to
serve as a Non-Employee Director:

 

(i)         In General  Except as otherwise provided in
Section 11.3, after cessation of service as a Director (the “ 
Cessation Date   “), the Awardee’s Options shall be
exercisable to the extent (but only to the extent) they are vested on the
Cessation Date and only during the three months after such Cessation Date, but
in no event after the Expiration Date.  To the extent the Awardee does not
exercise an Option within the time specified for exercise, the Option shall
automatically terminate.

 

(ii)        Death or Disability  If an Awardee’s
cessation of service on the Board is due to death or disability (as determined
by the Board), all Options of that Awardee, to the extent exercisable upon such
Cessation Date, may be exercised for one year after the Cessation Date, but in
no event after the Expiration Date.  In the case of a cessation of service
due to death, an Option may be exercised as provided in Section 17. 
In the case of a cessation of service due to disability, if a guardian or
conservator has been appointed to act for the Awardee and been granted this
authority as part of that appointment, that guardian or conservator may
exercise the Option on behalf of the Awardee.  Death or disability
occurring after an Awardee’s cessation of service shall not cause the cessation
of service to be treated as having occurred due to death or disability. 
To the extent an Option is not so exercised within the time specified for its
exercise, the Option shall automatically terminate.

 

11.2       Director
Fee Option Grants

 

(a)         Option
Grants.  The Board shall have the sole and exclusive
authority to determine the calendar year or years for which the Director fee
option grant program (the “  Director Fee Option Program  “) is to be in effect.  For each such
calendar year the program is in effect, each Non-Employee Director may elect to
apply all or any portion of the annual retainer fee otherwise payable in cash,
for his or her service on the Board for that year, to the acquisition 

 

 

of a special Option grant
under this Director Fee Option Program.  Such election must be filed with
the Company’s Chief Financial Officer prior to first day of the calendar year
for which the annual retainer fee which is the subject of that election is
otherwise payable.  Each Non-Employee Director who files such a timely
election shall automatically be granted an Option under this Director Fee
Option Program on the first trading day in January in the calendar year
for which the annual retainer fee which is the subject of that election would
otherwise be payable in cash.

 

(b)         Option
Terms  Each Option shall be a Nonstatutory Option governed
by the terms and conditions specified below.

 

(i)         Exercise Price

 

A.          The Purchase Price shall be
thirty-three and one-third percent (33-1/3%) of the Fair Market Value per Share
on the Option grant date.

 

B.          The Purchase Price shall
become immediately due upon exercise of the Option and shall be payable in one
or more of the alternative forms authorized pursuant to Section 6.4 of
this Plan.  Except to the extent the sale and remittance procedure
specified thereunder is utilized, payment of the Purchase Price must be made on
the date that the Option is exercised.

 

(ii)        Number of Option Shares.  The number of Shares
subject to the Option shall be determined pursuant to the following formula
(rounded down to the nearest whole number):

 

X = A ÷ (B x 66-2/3%), where

 

X is the number of Option
Shares,

 

A is the portion of the
annual retainer fee subject to the Non-Employee Director’s election, and

 

B is the Fair Market Value
of a Share on the option grant date.

 

(iii)      Exercise and Term of Options  The Option shall
become exercisable in a series of twelve (12) equal monthly installments upon
the Awardee’s completion of each month of Board service over the twelve
(12)-month period measured from the grant date.  Each Option shall have a
maximum term of ten (10) years measured from the Option grant date.

 

(iv)       Termination of Board Service  Should the Awardee cease
Board service for any reason (other than death or permanent disability) while
holding one or more Options under this Director Fee Option Program, then each
such Option shall remain exercisable, for any or all of the Shares for which
the Option is exercisable at the time of such cessation of Board service, until
the earlier of (x) the expiration of the ten (10)-year Option term or
(y) the expiration of the three (3)-year period measured from the date of
such cessation of Board service.  However, each Option held by the Awardee
under this Director Fee Option Program at the time of his or her cessation of
Board service shall immediately terminate and cease to remain outstanding with
respect to any and all Shares for which the Option is not otherwise at that
time exercisable.

 

(v)        Death or Permanent Disability  Should the Awardee’s
service as a Board member cease by reason of death or permanent disability,
then each Option held by such Awardee under this Director Fee Option Program
shall immediately become exercisable for all the Shares at the time subject to
that Option, and the Option may be exercised for any or all of those Shares as
fully-vested Shares until the earlier of (x) the expiration of the ten
(10)-year option term or (y) the expiration of the three (3)-year period
measured from the date of such cessation of Board service.

 

Should the Awardee die after
cessation of his or her Board service but while holding one or more Options
under this Director Fee Option Program, then each such Option may be exercised,
for any or all of the shares for which the Option is exercisable at the time of
the Awardee’s cessation of Board service (less any Shares subsequently
purchased by the Awardee prior to death), by the personal representative of the
Awardee’s estate or by the person or persons to whom the Option is transferred
pursuant to the Awardee’s will or in accordance with the laws of descent and
distribution or by the designated beneficiary or beneficiaries of such
option.  Such right of exercise shall lapse, and the Option shall
terminate, upon the earlier of (xx) the expiration of the ten (10)-year
Option term or (yy) the three (3)-year period measured from the date of the
Awardee’s cessation of Board service.

 

 

11.3       Certain
Transactions and Events

 

(a)         In the event of a
Fundamental Transaction while the Awardee remains a Non-Employee Director, the
Shares at the time subject to each outstanding Option held by such Awardee
pursuant to Section 11, but not otherwise vested, shall automatically vest
in full so that each such Option shall, immediately prior to the effective date
of the Fundamental Transaction, become exercisable for all the Shares as fully
vested Shares and may be exercised for any or all of those vested Shares.
Immediately following the consummation of the Fundamental Transaction, each
Option shall terminate and cease to be outstanding, except to the extent
assumed by the successor corporation (or Affiliate thereof).

 

(b)         In the event of a Change in
Control while the Awardee remains a Non-Employee Director, the Shares at the
time subject to each outstanding Option held by such Awardee pursuant to
Section 11, but not otherwise vested, shall automatically vest in full so
that each such Option shall, immediately prior to the effective date of the
Change in Control, become exercisable for all the Shares as fully vested Shares
and may be exercised for any or all of those vested Shares. Each such Option
shall remain exercisable for such fully vested Shares until the expiration or
sooner termination of the Option term in connection with a Change in Control.

 

(c)         Each Option which is assumed
in connection with a Fundamental Transaction shall be appropriately adjusted,
immediately after such Fundamental Transaction, to apply to the number and
class of securities which would have been issuable to the Awardee in
consummation of such Fundamental Transaction had the Option been exercised
immediately prior to such Fundamental Transaction. Appropriate adjustments
shall also be made to the Option Price payable per share under each outstanding
Option, provided the aggregate Option Price payable for such securities shall
remain the same. To the extent the actual holders of the Company’s outstanding
Common Stock receive cash consideration for their Common Stock in consummation
of the Fundamental Transaction, the successor corporation may, in connection
with the assumption of the outstanding Options granted pursuant to
Section 11, substitute one or more shares of its own common stock with a
fair market value equivalent to the cash consideration paid per share of Common
Stock in such Fundamental Transaction.

 

(d)         The grant of Options
pursuant to Section 11 shall in no way affect the right of the Company to
adjust, reclassify, reorganize or otherwise change its capital or business
structure or to merge, consolidate, dissolve, liquidate or sell or transfer all
or any part of its business or assets.

 

(e)         The remaining terms of each
Option granted pursuant to Section 11 shall, as applicable, be the same as
terms in effect for Awards granted under this Plan.  Notwithstanding the
foregoing, the provisions of Section 9.4 and Section 10 shall not
apply to Options granted pursuant to Section 11.

 

11.4       Limited
Transferability of Options

 

Each Option granted pursuant
to Section 11 may be assigned in whole or in part during the Awardee’s
lifetime to one or more members of the Awardee’s family or to a trust
established exclusively for one or more such family members or to an entity in
which the Awardee is majority owner or to the Awardee ‘s former spouse, to the
extent such assignment is in connection with the Awardee ‘s estate or financial
plan or pursuant to a Domestic Relations Order. The assigned portion may only
be exercised by the person or persons who acquire a proprietary interest in the
Option pursuant to the assignment. The terms applicable to the assigned portion
shall be the same as those in effect for the Option immediately prior to such
assignment and shall be set forth in such documents issued to the assignee as
the Administrator may deem appropriate. The Awardee may also designate one or
more persons as the beneficiary or beneficiaries of his or her outstanding
Options under Section 11, and those Options shall, in accordance with such
designation, automatically be transferred to such beneficiary or beneficiaries
upon the Awardee ‘s death while holding those Options. Such beneficiary or
beneficiaries shall take the transferred Options subject to all the terms and
conditions of the applicable Award Agreement evidencing each such transferred
Option, including (without limitation) the limited time period during which the
Option may be exercised following the Awardee ‘s death.

 

12.                           Withholding
and Tax Reporting

 

12.1       Tax Withholding
Alternatives

 

(a)         General  Whenever Award Shares are issued or become
free of restrictions, the Company may require the Awardee to remit to the
Company an amount sufficient to satisfy any applicable tax withholding
requirement, whether the related tax is imposed on the Awardee or the
Company.  The Company shall have no obligation to deliver Award Shares or
release Award Shares from an escrow or permit a transfer of Award Shares until
the Awardee has 

 

 

satisfied those tax
withholding obligations.  Whenever payment in satisfaction of Awards is
made in cash, the payment will be reduced by an amount sufficient to satisfy
all tax withholding requirements.

 

(b)         Method of Payment  The Awardee shall pay
any required withholding using the forms of consideration described in
Section 6.4(b), except that, in the discretion of the Administrator, the
Company may also permit the Awardee to use any of the forms of payment
described in Section 6.4(c).  The Administrator, in its sole
discretion, may also permit Award Shares to be withheld to pay required
withholding.  If the Administrator permits Award Shares to be withheld,
the Fair Market Value of the Award Shares withheld, as determined as of the
date of withholding, shall not exceed the amount determined by the applicable
minimum statutory withholding rates.

 

12.2       Reporting
of Dispositions

 

Any holder of Option Shares
acquired under an Incentive Stock Option shall promptly notify the
Administrator, following such procedures as the Administrator may require, of the
sale or other disposition of any of those Option Shares if the disposition
occurs during:  (a) the longer of two years after the Grant Date of
the Incentive Stock Option and one year after the date the Incentive Stock
Option was exercised, or (b) such other period as the Administrator has
established.

 

13.         Compliance
with Law

 

The grant of Awards and the
issuance and subsequent transfer of Award Shares shall be subject to compliance
with all Applicable Law, including all applicable securities laws.  Awards
may not be exercised, and Award Shares may not be transferred, in violation of
Applicable Law.  Thus, for example, Awards may not be exercised
unless:  (a) a registration statement under the Securities Act is
then in effect with respect to the related Award Shares, or (b) in the
opinion of legal counsel to the Company, those Award Shares may be issued in
accordance with an applicable exemption from the registration requirements of
the Securities Act and any other applicable securities laws.  The failure
or inability of the Company to obtain from any regulatory body the authority
considered by the Company’s legal counsel to be necessary or useful for the
lawful issuance of any Award Shares or their subsequent transfer shall relieve
the Company of any liability for failing to issue those Award Shares or
permitting their transfer.  As a condition to the exercise of any Award or
the transfer of any Award Shares, the Company may require the Awardee to
satisfy any requirements or qualifications that may be necessary or appropriate
to comply with or evidence compliance with any Applicable Law.

 

14.         Amendment
or Termination of this Plan or Outstanding Awards

 

14.1       Amendment
and Termination

 

The Board may at any time
amend, suspend, or terminate this Plan.

 

14.2       Stockholder
Approval

 

The Company shall obtain the
approval of the Company’s stockholders for any amendment to this Plan if
stockholder approval is necessary or desirable to comply with any Applicable
Law or with the requirements applicable to the grant of Awards intended to be
Incentive Stock Options.  The Board may also, but need not, require that
the Company’s stockholders approve any other amendments to this Plan.

 

14.3       Effect

 

No amendment, suspension, or
termination of this Plan, and no modification of any Award even in the absence
of an amendment, suspension, or termination of this Plan, shall impair any
existing contractual rights of any Awardee unless the affected Awardee consents
to the amendment, suspension, termination, or modification.  Notwithstanding
anything herein to the contrary, no such consent shall be required if the Board
determines, in its sole and absolute discretion, that the amendment,
suspension, termination, or modification:  (a) is required or
advisable in order for the Company, this Plan or the Award to satisfy
Applicable Law, to meet the requirements of any accounting standard or to avoid
any adverse accounting treatment, or (b) in connection with any
transaction or event described in Section 10, is in the best interests of
the Company or its stockholders.  The Board may, but need not, take the
tax or accounting consequences to affected Awardees into consideration in
acting under the preceding sentence.  Those decisions shall be final,
binding and conclusive.  Termination of this Plan shall not affect the
Administrator’s ability to exercise the powers granted to it under this Plan
with respect to Awards granted before the termination of Award Shares issued
under such Awards even if those Award Shares are issued after the termination.

 

 

15.         Reserved
Rights

 

15.1       Nonexclusivity
of this Plan

 

This Plan shall not limit
the power of the Company or any Affiliate to adopt other incentive arrangements
including, for example, the grant or issuance of stock options, stock, or other
equity-based rights under other plans.

 

15.2       Unfunded
Plan

 

This Plan shall be
unfunded.  Although bookkeeping accounts may be established with respect
to Awardees, any such accounts will be used merely as a convenience.  The
Company shall not be required to segregate any assets on account of this Plan,
the grant of Awards, or the issuance of Award Shares.  The Company and the
Administrator shall not be deemed to be a trustee of stock or cash to be
awarded under this Plan.  Any obligations of the Company to any Awardee
shall be based solely upon contracts entered into under this Plan, such as
Award Agreements.  No such obligations shall be deemed to be secured by
any pledge or other encumbrance on any assets of the Company.  Neither the
Company nor the Administrator shall be required to give any security or bond
for the performance of any such obligations.

 

16.         Special
Arrangements Regarding Award Shares

 

16.1       Escrow of
Stock Certificates

 

To enforce any restrictions
on Award Shares, the Administrator may require their holder to deposit the
certificates representing Award Shares, with stock powers or other transfer
instruments approved by the Administrator endorsed in blank, with the Company
or an agent of the Company to hold in escrow until the restrictions have lapsed
or terminated.  The Administrator may also cause a legend or legends
referencing the restrictions to be placed on the certificates.

 

16.2       Repurchase
Rights

 

(a)         General  If a Stock Award is subject to vesting
conditions, the Company shall have the right, during the seven months after the
Awardee’s Termination, to repurchase any or all of the Award Shares that were
unvested as of the date of that Termination.  The repurchase price shall
be determined by the Administrator in accordance with this Section 16.2
which shall be either (i) the Purchase Price for the Award Shares (minus
the amount of any cash dividends paid or payable with respect to the Award
Shares for which the record date precedes the repurchase) or (ii) the
lower of (A) the Purchase Price for the Shares or (B) the Fair Market
Value of those Award Shares as of the date of the Termination.  The
repurchase price shall be paid in cash.  The Company may assign this right
of repurchase.

 

(b)         Procedure  The Company or its assignee may choose
to give the Awardee a written notice of exercise of its repurchase rights under
this Section 16.2.  However, the Company’s failure to give such a
notice shall not affect its rights to repurchase Award Shares.  The
Company must, however, tender the repurchase price during the period specified
in this Section 16.2 for exercising its repurchase rights in order to
exercise such rights.

 

17.         Beneficiaries

 

An Awardee may file a
written designation of one or more beneficiaries who are to receive the Awardee’s
rights under the Awardee’s Awards after the Awardee’s death.  An Awardee
may change such a designation at any time by written notice.  If an
Awardee designates a beneficiary, the beneficiary may exercise the Awardee’s
Awards after the Awardee’s death.  If an Awardee dies when the Awardee has
no living beneficiary designated under this Plan, the Company shall allow the
executor or administrator of the Awardee’s estate to exercise the Award or, if
there is none, the person entitled to exercise the Option under the Awardee’s
will or the laws of descent and distribution.  In any case, no Award may
be exercised after its Expiration Date.

 

18.         Miscellaneous

 

18.1       Governing
Law

 

This Plan, the Award
Agreements and all other agreements entered into under this Plan, and all actions
taken under this Plan or in connection with Awards or Award Shares, shall be
governed by the laws of the State of Delaware.

 

 

18.2       Determination
of Value

 

Fair
Market Value shall be determined as follows:

 

(a)         Listed Stock.  If the Shares are traded on any
established stock exchange or quoted on a national market system, Fair Market
Value shall be the closing sales price for the Shares as quoted on that stock
exchange or system for the date the value is to be determined (the “ 
Value Date   “) as reported in    The
Wall Street Journal    or
a similar publication.  If no sales are reported as having occurred on the
Value Date, Fair Market Value shall be that closing sales price for the last
preceding trading day on which sales of Shares are reported as having
occurred.  If no sales are reported as having occurred during the five
trading days before the Value Date, Fair Market Value shall be the closing bid
for Shares on the Value Date.  If Shares are listed on multiple exchanges
or systems, Fair Market Value shall be based on sales or bid prices on the
primary exchange or system on which Shares are traded or quoted.

 

(b)         Stock Quoted by Securities Dealer  If Shares are
regularly quoted by a recognized securities dealer but selling prices are not
reported on any established stock exchange or quoted on a national market
system, Fair Market Value shall be the mean between the high bid and low asked
prices on the Value Date.  If no prices are quoted for the Value Date,
Fair Market Value shall be the mean between the high bid and low asked prices
on the last preceding trading day on which any bid and asked prices were
quoted.

 

(c)         No Established Market  If Shares are not
traded on any established stock exchange or quoted on a national market system
and are not quoted by a recognized securities dealer, the Administrator
(following guidelines established by the Board or Committee) will determine
Fair Market Value in good faith.  The Administrator will consider the
following factors, and any others it considers significant, in determining Fair
Market Value: (i) the price at which other securities of the Company have
been issued to purchasers other than Employees, Directors, or Consultants,
(ii) the Company’s stockholder’s equity, prospective earning power,
dividend-paying capacity, and non-operating assets, if any, and (iii) any
other relevant factors, including the economic outlook for the Company and the
Company’s industry, the Company’s position in that industry, the Company’s
goodwill and other intellectual property, and the values of securities of other
businesses in the same industry.

 

18.3       Reservation
of Shares

 

During the term of this
Plan, the Company shall at all times reserve and keep available such number of
Shares as are still issuable under this Plan.

 

18.4       Electronic
Communications

 

Any Award Agreement, notice
of exercise of an Award, or other document required or permitted by this Plan
may be delivered in writing or, to the extent determined by the Administrator,
electronically.  Signatures may also be electronic if permitted by the
Administrator.

 

18.5       Notices

 

Unless the Administrator
specifies otherwise, any notice to the Company under any Option Agreement or
with respect to any Awards or Award Shares shall be in writing (or, if so
authorized by Section 18.4, communicated electronically), shall be
addressed to the Secretary of the Company, and shall only be effective when
received by the Secretary of the Company.

 

 

Amendment to

2003 Equity Incentive Plan

of DTS, Inc.

 

Notwithstanding the
provisions of Section 11 of the 2003 Equity Incentive Plan (the “Plan”) of
DTS, Inc. (the “
Company” ), the Plan was amended on May 9, 2005 to provide
as follows:

 

Any automatic option grant
to newly elected or appointed non-employee directors under the Plan made during
the period from May 19, 2005 to December 31, 2005 shall consist of an
option to purchase 30,000 shares of the Company’s common stock, vesting monthly
over a three year period starting on the date of the grant.

 

Any annual automatic option
grant to non-employee directors under the Plan made during the period from
May 19, 2005 to December 31, 2005 shall consist of an option to
purchase 10,000 shares of the Company’s common stock, vesting monthly over a
one year period starting on the date of the grant, provided that such
individual has served as a non-employee director for at least 6 months.

 

Any automatic option grant
to newly elected or appointed non-employee directors under the Plan made at any
time on or after January 1, 2006 shall consist of an option to purchase
15,000 shares of the Company’s common stock, vesting monthly over a three year
period starting on the date of the grant.

 

Any annual automatic option
grant to non-employee directors under the Plan made at any time on or after
January 1, 2006 shall consist of an option to purchase 5,000 shares of the
Company’s common stock, vesting monthly over a one year period starting on the
date of the grant, provided that such individual has served as a non-employee
director for at least 6 months.

 

Each non-employee director
first elected or appointed to the Board at any time on or after January 1,
2006 shall automatically be granted on the date of such initial election or appointment,
7,500 shares of restricted stock under the Plan, which shall vest over a period
of three years in equal installments at the end of each full month from the
date of the grant for so long as the non-employee director continuously remains
a director of, or a consultant to, the Company.

 

On the date of each annual
stockholders’ meeting held on or after January 1, 2006, each individual
who is to continue to serve as a non-employee director shall automatically be
granted 2,500 shares of restricted stock under the Plan, provided that such
individual has served as a non-employee director for at least 6 months. 
Such restricted stock shall vest over a period of one year in equal
installments at the end of each full month from the date of grant for so long
as the non-employee director continuously remains a director of, or a
consultant to, the Company.

 

None of the above-referenced
compensation shall be paid to any member of the Board (or committees thereof)
who is an employee of the Company.

 

 

Amendment to

2003 Equity Incentive Plan

of DTS, Inc.

 

The 2003 Equity Incentive
Plan of DTS, Inc., as amended on May 9, 2005, was further amended on
May 15, 2008, by adding a new Section 5.2(c). The new
Section 5.2(c) reads in its entirety as follows:

 

(c)                                 Cash Awards.  Subject to the provisions of this
Section 5.2, so long as the Company is a “publicly held corporation”
within the meaning of Code Section 162(m), no Employee may be granted one
or more Cash Awards within a single fiscal year of the Company having an aggregate
amount of more than $3,000,000, considered without regard to any number of
Options, SARs or Stock Awards that may have been granted or awarded to such
Employee during the applicable fiscal year. With respect to any Cash Award that
is granted with the intent of having it qualify as “qualified performance-based
compensation” under Code Section 162(m), such Cash Awards may be granted
to an Executive only by the Committee (and, notwithstanding anything to the
contrary in Section 4.1(a), not by the Board). Any Cash Award intended as “qualified
performance-based compensation” within the meaning of
Section 162(m) of the Code must be awarded, vest or become
exercisable contingent on the achievement of one or more Objectively
Determinable Performance Conditions. If a Cash Award is cancelled, the
cancelled Cash Award shall continue to be counted toward the foregoing
limitation.

 

 

Amendment to

2003 Equity Incentive Plan

of DTS, Inc.

 

Notwithstanding the
provisions of Section 11 of the 2003 Equity Incentive Plan (the “Plan”) of
DTS, Inc., as previously amended on May 9, 2005 and May 15,
2008, on February 19, 2009 Section 11 of the Plan was further amended
to provide as follows:

 

Any
annual automatic option grant to non-employee directors under the Plan made at
any time after February 19, 2009 shall consist of an option to purchase
7,500 shares of the Company’s common stock, vesting monthly over a one year
period starting on the date of the grant, provided that such individual has
served as a non-employee director for at least 6 months.

 

Each
non-employee director first elected or appointed to the Board at any time after
February 19, 2009 shall automatically be granted on the date of such
initial election or appointment, 5,000 shares of restricted stock under the
Plan, which shall vest over a period of three years in equal installments on
each annual anniversary of the date of grant for so long as the non-employee
director continuously remains a director of, or a consultant to, the Company.

 

Each
restricted stock award automatically granted to a non-employee director on the
date of each annual stockholders’ meeting shall vest in a single installment on
the one-year anniversary of the date of grant so long as the non-employee
director continuously remains a director of, or a consultant to, the Company.

 

Except as set forth above,
the terms and conditions of Section 11 of the Plan, as amended on
May 9, 2005, shall remain in effect.

 

The above-referenced equity
compensation shall not be paid to any member of the Board (or committees
thereof) who is an employee of the Company.

 

 

Amendment to

2003 Equity Incentive Plan

of DTS, Inc.

 

The 2003 Equity Incentive
Plan of DTS, Inc., as amended on May 9, 2005, May 15, 2008 and
February 19, 2009 (as amended, the “Plan”), was further amended on
February 15, 2010 to provide as follows:

 

1. 
Section 2.1(d) shall be amended in its entirety to read as follows:

 

(d)     “Award” means a Stock Award, SAR, Cash Award, Option, or
Restricted Stock Unit granted in accordance with the terms of this Plan.

 

2. 
Section 2.1 shall be amended by the addition of a new
Section 2.11(vv) as follows:

 

(vv)   “Restricted
Stock Unit” means a right granted to a Participant pursuant to
Section 8.4 to receive on a future date a Share.

 

3.         Section 8 of the Plan
shall be amended by the addition of a new Section 8.4 as follows:

 

8.4               The following
rules apply to Restricted Stock Units Awards:

 

Restricted Stock Units may
be granted under this Plan.  Restricted Stock Unit Awards shall be
evidenced by Award Agreements specifying the number of Restricted Stock Units
subject to the Award, in such form as the Administrator shall from time to time
establish.  Award Agreements evidencing Restricted Stock Units may
incorporate all or any of the terms of the Plan by reference and shall comply
with and be subject to the following terms and conditions:

 

(a)  Grant of Restricted Stock Unit Awards

 

Restricted Stock Unit Awards
may be granted upon such conditions as the Administrator shall determine,
including, without limitation, upon the attainment of one or more Objectively
Determinable Performance Conditions.

 

(b)  Purchase Price

 

No monetary payment (other
than applicable tax withholding, if any) shall be required as a condition of
receiving a Restricted Stock Unit Award, the consideration for which shall be
services actually rendered to the Company or an Affiliate. 
Notwithstanding the foregoing, if required by applicable state corporate law,
the Participant shall furnish consideration in the form of cash or past
services having a value not less than the par value of the Shares issued upon
settlement of the Restricted Stock Unit Award.

 

(c)  Vesting

 

Restricted Stock Unit Awards
may (but need not) be made subject to vesting conditions based upon the
satisfaction of such service requirements, conditions, restrictions or
performance criteria set forth in the Award Agreement evidencing such Award.

 

(d)  Voting Rights, Dividend Equivalent Rights and
Distributions

 

Participants shall have no
voting rights with respect to Shares represented by Restricted Stock Units
until the date of the issuance of such Shares (as evidenced by the appropriate
entry on the books of the Company or of a duly authorized transfer agent of the
Company).  However, the Award Agreement evidencing any Restricted Stock
Unit Award may provide that the Participant shall be entitled to dividend
equivalent rights with respect to the payment of cash dividends on Shares
during the period beginning on the date such Award is granted and ending, with
respect to each Share subject to the Award, on the earlier of the date the
Award is settled or the date on which it is terminated.  Such dividend
equivalent rights, if any, shall be paid by crediting the Participant with
additional whole Restricted Stock Units as of the date of payment of such cash
dividends on Shares.  The number of additional Restricted Stock Units
(rounded to the nearest whole number) to be so credited shall be determined by
dividing (i) the amount of cash dividends paid on such date with respect
to the number of Shares represented by the Restricted Stock Units previously
credited to the Participant by (ii) the Fair Market Value per Share on
such date.  

 

 

Such additional Restricted
Stock Units shall be subject to the same terms and conditions and shall be settled
in the same manner and at the same time as the Restricted Stock Units
originally subject to the Restricted Stock Unit Award.  In the event of a
dividend or distribution paid in Shares or other property or any other
adjustment made upon a change in the capital structure of the Company as
described in Section 10.2, appropriate adjustments shall be made in the
Participant’s Restricted Stock Unit Award so that it represents the right to
receive upon settlement any and all new, substituted or additional securities
or other property (other than regular, periodic cash dividends) to which the
Participant would be entitled by reason of the Shares issuable upon settlement
of the Award, and all such new, substituted or additional securities or other
property shall be immediately subject to the same vesting conditions as are
applicable to the Award.

 

(e)    Effect of
Termination of Service

 

Unless otherwise set forth
in the Award Agreement evidencing a Restricted Stock Unit Award, if a
Participant’s service terminates for any reason, whether voluntary or
involuntary (including the Participant’s death or disability), then the
Participant shall forfeit to the Company any Restricted Stock Units pursuant to
the Award which remain subject to vesting conditions as of the date of the
Participant’s termination of service.

 

(f)      Settlement
of Restricted Stock Unit Awards

 

The Company shall issue to a
Participant on the date on which Restricted Stock Units subject to the
Participant’s Restricted Stock Unit Award vest or on such other date set forth
in the Award Agreement one (1) Share (and/or any other new, substituted or
additional securities or other property pursuant to an adjustment described
above) for each Restricted Stock Unit then becoming vested or otherwise to be
settled on such date, subject to the withholding of applicable taxes, if
any.  If permitted by the Administrator, the Participant may elect,
consistent with the requirements of Section 409A of the Code, to defer
receipt of all or any portion of the Shares or other property otherwise
issuable to the Participant, and such deferred issuance date(s) and
amount(s) elected by the Participant shall be set forth in the Award
Agreement.

 

(g)   Nontransferability
of Restricted Stock Unit Awards

 

The right to receive Shares
pursuant to a Restricted Stock Unit Award shall not be subject in any manner to
anticipation, alienation, sale, exchange, transfer, assignment, pledge,
encumbrance, or garnishment by creditors of the Participant or the Participant’s
beneficiary, except transfer by will or by the laws of descent and
distribution.  All rights with respect to a Restricted Stock Unit Award
granted to a Participant hereunder shall be exercisable during his or her
lifetime only by such Participant or the Participant’s guardian or legal
representative.

 

Except as set forth above,
the terms and conditions of the Plan, as amended hereby, shall remain in
effect.

 

 

Amendment to

2003 Equity Incentive Plan

of DTS, Inc.

 

Notwithstanding the
provisions of Section 11 of the 2003 Equity Incentive Plan (the “Plan”) of DTS, Inc.,
as previously amended on May 9, 2005, May 15, 2008, February 19, 2009 and
February 15, 2010, on June 3, 2010 Section 11 of the Plan was further amended
to provide as follows:

 

Any
annual automatic option grant to non-employee directors under the Plan made at
any time after May 31, 2010 shall consist of an option to purchase 6,000 shares
of the Company’s common stock, vesting monthly over a one year period starting
on the date of the grant, provided that such individual has served as a
non-employee director for at least 6 months. 
In addition, any such non-employee director shall receive a grant of
2,000 shares of restricted stock.   Each
restricted stock award automatically granted to a non-employee director on the
date of each annual stockholders’ meeting shall vest in a single installment on
the one-year anniversary of the date of grant so long as the non-employee
director continuously remains a director of, or a consultant to, the Company.

 

Each
non-employee director first elected or appointed to the Board at any time on or
after May 31, 2010 shall automatically be granted on the date of such initial
election or appointment, 3,000 shares of restricted stock under the Plan, which
shall vest over a period of three years in equal installments on each annual
anniversary of the date of grant for so long as the non-employee director
continuously remains a director of, or a consultant to, the Company.  Further, such a non-employee director shall
also receive an option to purchase 9,000 shares of the Company’s common stock,
vesting monthly over a three year period starting on the date of the grant.

 

Except as set forth above,
the terms and conditions of Section 11 of the Plan, as amended prior to the
date hereof, shall remain in effect.

 

The above-referenced equity
compensation shall not be paid to any member of the Board (or committees
thereof) who is an employee of the Company.

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