Document:

Exhibit 10.2

 

 

€5,370,157

 

FACILITY
AGREEMENT

 

 

Dated 30 April 2005

 

 

for

 

 

VIA NET.WORKS, INC.

as Borrower

 

 

with

 

 

CLARA.NET HOLDINGS LIMITED

acting as Lender

 

 

 

 

Ref:
NYN

 

 

CONTENTS

 

	
  CLAUSE

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  SECTION 1

  	
   

  
	
   

  	
  INTERPRETATION

  	
   

  
	
  1.

  	
  Definitions and
  interpretation

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  SECTION 2

  	
   

  
	
   

  	
  THE
  FACILITY

  	
   

  
	
  2.

  	
  The Facility

  	
   

  
	
  3.

  	
  Purpose

  	
   

  
	
  4.

  	
  Conditions of Utilisation

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  SECTION 3

  	
   

  
	
   

  	
  UTILISATION

  	
   

  
	
  5.

  	
  Utilisation

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  SECTION 4

  	
   

  
	
   

  	
  REPAYMENT,
  PREPAYMENT AND CANCELLATION

  	
   

  
	
  6.

  	
  Repayment

  	
   

  
	
  7.

  	
  Prepayment and
  cancellation

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  SECTION 5

  	
   

  
	
   

  	
  COSTS OF UTILISATION

  	
   

  
	
  8.

  	
  Interest

  	
   

  
	
  9.

  	
  Arrangement
  fees

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  SECTION 6

  	
   

  
	
   

  	
  ADDITIONAL PAYMENT
  OBLIGATIONS

  	
   

  
	
  10.

  	
  Tax gross up and
  indemnities

  	
   

  
	
  11.

  	
  Other indemnities

  	
   

  
	
  12.

  	
  Enforcement costs

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  SECTION 7

  	
   

  
	
   

  	
  REPRESENTATIONS AND
  UNDERTAKINGS

  	
   

  
	
  13.

  	
  Representations

  	
   

  
	
  14.

  	
  Operational Undertakings

  	
   

  
	
  15.

  	
  Margin regulation
  undertakings

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  SECTION 8

  	
   

  
	
   

  	
  ACCELERATION

  	
   

  
	
  16.

  	
  Acceleration

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  SECTION 9

  	
   

  
	
   

  	
  MISCELLANEOUS

  	
   

  
	
  17.

  	
  Changes
  to the Parties

  	
   

  
	
  18.

  	
  No set-off by the Borrower

  	
   

  
	
  19.

  	
  Business Days

  	
   

  
	
  20.

  	
  Currency of account

  	
   

  
	
  21.

  	
  Set-off

  	
   

  
	
  22.

  	
  Notices

  	
   

  
	
  23.

  	
  Partial invalidity

  	
   

  
	
  24.

  	
  Remedies
  and waivers

  	
   

  
	
  25.

  	
  Amendments
  and waivers

  	
   

  

 

 

	
  26.

  	
  Counterparts

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  SECTION 10

  	
   

  
	
   

  	
  GOVERNING LAW AND ENFORCEMENT

  	
   

  
	
  27.

  	
  Governing
  law

  	
   

  
	
  28.

  	
  Enforcement

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  THE SCHEDULES

  	
   

  
	
   

  	
   

  	
   

  
	
  SCHEDULE

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  SCHEDULE 1 Conditions precedent

  	
   

  
	
  SCHEDULE 2 Utilisation Request

  	
   

  
				

 

 

THIS
AGREEMENT is dated 30 April 2005 and made between:

 

(1)                            VIA NET.WORKS, INC. as borrower (the “Borrower”); and

 

(2)                            CLARA.NET HOLDINGS LIMITED as lender
(the “Lender”).

 

IT IS
AGREED as follows:

 

SECTION 1

INTERPRETATION

 

1.                                 Definitions and
interpretation

 

1.1                           Definitions

 

Unless
a contrary indication appears herein, all terms in this Agreement shall have
the same definition and construction as in the Acquisition Agreement, and:

 

“Acquisition Agreement” means the sale and
purchase agreement dated on or about the date of this Agreement between the
Obligors, Clara.net Holdings Limited and Claranet Group Limited relating to the
operating subsidiaries and certain assets and liabilities of the Obligors.

 

“Alternative Currency” means a currency
other than euro.

 

“Authorisation” means an authorisation, consent, approval,
resolution, licence, exemption, filing, notarisation or registration.

 

“Availability Period” means the period from and including 10 June 2005
to and including the day immediately before the Termination Date.

 

“Available Commitment” means the Current Commitment minus:

 

(a)                                   the Euro Amount of any outstanding Loans; and

 

(b)                                  in relation to any proposed Utilisation, the Euro Amount of any
Loans that are due to be made on or before the proposed Utilisation Date.

 

“Belgian Share Pledge” means the Share
Pledge Agreement in respect of the shares of PSINet Belgium BVBA/SPRL granted
by the Pledgor to the Lender on or about the date of this Agreement.

 

“Board” means the Board of Governors of the Federal Reserve
System of the US (or any successor).

 

“Borrower Termination” means the termination
of the Acquisition Agreement by the Borrower pursuant to clause 5.5.4 of the
Acquisition Agreement.

 

“Break Costs” means the amount (if any) by which:

 

(a)                                   the interest which the Lender should have received for the period
from the date of receipt of all or any part of a Loan to the Termination Date
in respect of that Loan, had the principal amount received been paid on the
Termination Date;

 

exceeds:

 

1

 

(b)                                  the amount which the Lender would be able to obtain by placing an
amount equal to the principal amount received by it on deposit with a leading
bank in London for a period starting on the Business Day following receipt or
recovery and ending on the Termination Date.

 

“Business Day” means a day (other than a Saturday or Sunday)
on which banks are open for general business in London and Amsterdam.

 

“Cash Requests” means the cash requests to
accompany each Utilisation Request pursuant to Clause 5.2(a)(iv) (Completion of a Utilisation Request).

 

“Commitment” means the Current Commitment at the time and at
all times thereafter (which shall at no time exceed €5,370,157), to the extent not cancelled or reduced pursuant to
the terms of this Agreement.

 

“Current Commitment” means:

 

	
  (a)

  	
   

  	
  From 10 June 2005

  	
   

  	
  to 23 June 2005 (inclusive):

  	
   

  	
  €

  	
  958,957

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (b)

  	
   

  	
  From 24 June 2005

  	
   

  	
  to 9 July 2005 (inclusive):

  	
   

  	
  €

  	
  1,917,913

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (c)

  	
   

  	
  From 10 July 2005

  	
   

  	
  to 23 July 2005 (inclusive):

  	
   

  	
  €

  	
  3,260,453

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (d)

  	
   

  	
  From 24 July 2005

  	
   

  	
  to 9 August 2005 (inclusive):

  	
   

  	
  €

  	
  4,411,201

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (e)

  	
   

  	
  From 10 August 2005

  	
   

  	
  to the Termination Date (inclusive):

  	
   

  	
  €

  	
  5,370,157

  	
   

  

 

to the
extent not cancelled or reduced pursuant to the terms of this Agreement and
provided that up to €767,165 of the Current Commitment of €958,957 shown to be
available from 10 June 2005 shall be made available from 1 June 2005
(with the balance of such €958,957 being vailable on 10 June 2005) in
accordance with and subject to the provisions of Clause 5.4(c).

 

“Dutch Share Pledge” means the Right of Pledge in respect of the
shares of PSINet Netherlands B.V. granted by the Pledgor to the Lender on or
about the date of this Agreement.

 

“Euro Amount” means, in relation to a Loan,
the amount specified in the Utilisation Request delivered by the Borrower for
that Loan (or, if the amount requested is not denominated in euro, that amount
converted into euro at a rate agreed between the Lender and the Borrower on or
prior to the date of the Utilisation Request as being applicable to that Loan).

 

“Facility” means the term loan facility made available under
this Agreement as described in Clause 2 (The Facility).

 

“Finance Document” means this Agreement, any Security
Document and any other document designated as such by the Lender and the
Borrower.

 

“French Share Pledge” means the Financial
Instruments Account Pledge Agreement (Convention de Nantissement De Compte D’Instruments
Financiers) in respect of the shares of Agence des Médias Numériques S.A.S.
granted by the Pledgor to the Lender on or about the date of this Agreement.

 

“German Share Pledge” means the Share Pledge
Agreement (Geschäftsanteilsverpfändung) in respect of the shares of PSINet
Germany GmbH, granted by the Pledgor to the Lender on or about the date of this
Agreement.

 

2

 

“Loan” means a loan made or to be made under the Facility or
the principal amount outstanding for the time being of that loan.

 

“Margin Stock” means margin stock or margin security within
the meaning of Regulation T, U or X.

 

“Obligor” means the Borrower or the Pledgor.

 

“Party” means a party to this Agreement.

 

“Permitted Utilisation Date” means any of 10
June 2005, 24 June 2005, 10 July 2005, 24 July 2005 and 10 August 2005,
or if any of the foregoing is not a Business Day, the next day which is a
Business Day, provided that in the case of notification by the Borrower in
accordance with Clause 5.4(c), “Permitted Utilisation Date” shall include 1 June 2005.

 

“Pledged Companies” means collectively each
of PSINet Netherlands B.V., Agence des Médias Numériques S.A.S., PSINet Belgium
BVBA/SPRL and PSINet Germany GmbH and “Pledged
Company” means any one of them.

 

“Pledgor” means VIA NET.WORKS Holdco, Inc..

 

“Regulation T”, “Regulation U”
or “Regulation X” means Regulation T, U or,
as the case may be, X of the Board as from time to time in effect and all
official rulings and interpretations thereunder or thereof.

 

“Repayment Date” means the earlier of the
Termination Date and the date any Loan is accelerated pursuant to Clause 16 (Acceleration).

 

“Repeating Representations” means each of the representations
set out in Clauses 13.1 (Status) to 13.4
(Power and authority), 13.6 (Governing law and enforcement) and 13.7 (Pari passu ranking) to 13.10 (US regulation representations).

 

“Security” means a mortgage, charge, pledge, lien or other
security interest securing any obligation of any person or any other agreement
or arrangement having a similar effect.

 

“Security Document” means any of:

 

(a)                                  the French Share Pledge;

 

(b)                                 the German Share Pledge;

 

(c)                                  the Dutch Share Pledge;

 

(d)                                 the Belgian Share Pledge; and

 

(e)                                  any other document that may at any time be designated as such by the
Lender and the Borrower.

 

“Tax” means any tax, levy, impost, duty or other charge or
withholding of a similar nature (including any penalty or interest payable in
connection with any failure to pay or any delay in paying any of the same).

 

“Termination Date” means the date which is the earlier of the
Closing Date and 9 September 2005.

 

3

 

“Unpaid Sum” means any sum due and payable but unpaid by any
Obligor under the Finance Documents.

 

“US” or “United States”
means the United States of America.

 

“US Bankruptcy Law” means the United States Bankruptcy Code
of 1978, as amended, or any other United States federal or state bankruptcy,
liquidation, receivership, moratorium, conservatorship, assignment for the
benefit of creditors, insolvency or similar law for the relief of debtors.

 

“US Insolvency Event” means any of the following in respect
of the Borrower:

 

(a)                                   it makes a general assignment for the benefit of creditors;

 

(b)                                  it commences a voluntary case or proceeding under any US Bankruptcy
Law;

 

(c)                                   an involuntary proceeding under any US Bankruptcy Law is commenced
against it and is not challenged by appropriate means within ten (10) days
and is not dismissed or stayed within sixty (60) days after commencement of
such case;

 

(d)                                  a custodian, conservator, receiver, liquidator, assignee, trustee,
sequestrator or other similar official is appointed under any US Bankruptcy Law
for, or takes charge of, all or a substantial part of the property of the
Borrower or any other VIA Group Company; or

 

(e)                                   any corporate action is taken by the Borrower or any other VIA Group
Company for the purpose of effecting any of the foregoing.

 

“Utilisation” means a utilisation of the Facility.

 

“Utilisation Date” means the date of a Utilisation, being the
date on which the relevant Loan is to be made.

 

“Utilisation Request” means a notice substantially in the
form set out in Schedule 2 (Utilisation
Request).

 

“VAT” means value added tax as provided for in the United
Kingdom Value Added Tax Act 1994 and any other tax of a similar nature.

 

“VIA Group Companies” means collectively the
Obligors and the Group Companies and “VIA
Group Company” means any of them.

 

“VIA Termination Event” means any of:

 

(a)                                   the Lender becoming entitled to terminate the Acquisition Agreement
under clause 5.5 or clause 6.7.1 of the Acquisition Agreement;

 

(b)                                  a material failure by an Obligor to comply with any provision of the
Finance Documents;

 

(c)                                   it being or becoming unlawful for an Obligor to perform any of its
obligations under the Finance Documents; or

 

(d)                                  any Security Document being not in full force and effect or not
creating in favour of the Lender the Security which it is expressed to create
with the ranking and priority it is expressed to have.

 

4

 

1.2                           Construction

 

(a)                            Unless a contrary indication appears, any reference in this
Agreement to:

 

(i)                                      the “Lender” shall be
construed so as to include its successors in title, permitted assigns and
permitted transferees;

 

(ii)                                   “assets” includes present and
future properties, revenues and rights of every description;

 

(iii)                                a “Finance Document” or any other
agreement or instrument is a reference to that Finance Document or other
agreement or instrument as amended or novated;

 

(iv)                               “indebtedness” includes any
obligation (whether incurred as principal or as surety) for the payment or
repayment of money, whether present or future, actual or contingent;

 

(v)                                  a “person” includes any person, firm
company, corporation, government, state or agency of a state or any
association, trust or partnership (whether or not having separate legal
personality) or two or more of the foregoing;

 

(vi)                               a “regulation” includes any
regulation, rule, official directive, request or guideline (whether or not
having the force of law) of any governmental, intergovernmental or
supranational body, agency, department or regulatory, self-regulatory or other
authority or organisation; and

 

(vii)                            a provision of law is a reference to that provision as amended or
re-enacted.

 

(b)                           Section, Clause and Schedule headings are for ease of reference
only, and a reference to a “Section”,  “Clause”
or “Schedule” shall be a reference
to a section, clause or schedule respectively of this Agreement.

 

(c)                            Unless a contrary indication appears, a term used in any other
Finance Document or in any notice given under or in connection with any Finance
Document has the same meaning in that Finance Document or that notice as in
this Agreement.

 

1.3                           Third party rights

 

A
person who is not a Party has no right under the United Kingdom Contracts
(Rights of Third Parties) Act 1999 to enforce or to enjoy the benefit of any
term of this Agreement, save that each of the Purchasers and the Sellers may
enforce Clause 21(b) (Set-off)
as if it were a party to this Agreement.

 

5

 

SECTION 2

THE FACILITY

 

2.                                 The Facility

 

2.1                           The Facility

 

Subject
to the terms of this Agreement, the Lender makes available to the Borrower a
term loan facility in an amount equal to the Commitment.

 

3.                                 Purpose

 

3.1                           Purpose

 

The
Borrower shall apply all amounts borrowed by it under the Facility towards
funding the VIA Group Companies’ working capital requirements in a manner
consistent with the Working Capital Projections.

 

3.2                           Monitoring

 

Without
prejudice to its rights under this Agreement, the Lender is not bound to
monitor or verify the application of any amount borrowed pursuant to this
Agreement.

 

4.                                 Conditions of Utilisation

 

4.1                           Initial conditions precedent

 

(a)                            The Borrower may not deliver a Utilisation Request unless the Lender
has received all of the documents and other evidence listed in Schedule 1
(Conditions precedent) in form and
substance reasonably satisfactory to the Lender. The Lender shall notify the
Borrower promptly in writing upon being so satisfied.

 

(b)                           The Borrower will procure that the conditions precedent are
satisfied as soon as practicable on or after the date of this Agreement.

 

4.2                           Further conditions precedent

 

The
Lender will only be obliged to comply with Clause 5.4 (Availability
of Loans) if on the date of the Utilisation Request and on the
proposed Utilisation Date:

 

(a)                            no VIA Termination Event or Borrower Termination has occurred or
would result from the proposed Loan;

 

(b)                           the Repeating Representations to be made by the Borrower are true in
all material respects; and

 

(c)                            the Lender is satisfied (acting reasonably) that the Cash Requests
accompanying the Utilisation Request pursuant to Clause 5.2(a)(iv) (Completion of a Utilisation Request) have
been prepared based on fair and reasonable assumptions.

 

6

 

SECTION 3

UTILISATION

 

5.                                 Utilisation

 

5.1                           Delivery of a Utilisation Request

 

The
Borrower may utilise the Facility by delivery to the Lender of a duly completed
Utilisation Request not later than five (5), and no earlier than seven (7),
Business Days before the Utilisation Date.

 

5.2                           Completion of a Utilisation Request

 

(a)                            Each Utilisation Request is irrevocable and will not be regarded as
having been duly completed unless:

 

(i)                                      the proposed Utilisation Date is a Permitted Utilisation Date within
the Availability Period;

 

(ii)                                   the currency and amount of the Utilisation comply with Clause 5.3 (Currency and amount);

 

(iii)                                it specifies the account and bank (which must be in London or
Amsterdam) to which the proceeds of the Utilisation are to be credited; and

 

(iv)                               it is accompanied by copies of cash requests from each VIA Group
Company to be funded by the proceeds of the proposed Loan, current as of a date
no earlier than five (5) Business Days prior to the date of the
Utilisation Request and setting out in reasonable detail each of the
expenditure items to be met by such funding.

 

(b)                           Only one (1) Loan may be requested in each Utilisation Request.

 

(c)                            The Borrower shall use reasonable endeavours to furnish promptly any
further details and explanations reasonably requested by the Lender in respect
of any Cash Request, or the assumptions underlying the same.

 

5.3                           Currency and amount

 

(a)                            The currency specified in a Utilisation Request must be euro unless
the Borrower and the Lender have agreed in writing that the  proposed Loan shall be denominated in an Alternative
Currency in which case it shall be in such Alternative Currency.

 

(b)                           The amount of the proposed Loan must be:

 

(i)                                      if the currency of the proposed Loan is to be euro, less than or
equal to the Available Commitment; or

 

(ii)                                   if the currency of the proposed Loan is to be an Alternative
Currency, such that its Euro Amount is less than or equal to the Available
Commitment.

 

5.4                           Availability of Loans

 

(a)                            Subject to paragraph (b) below, if the conditions set out in
this Agreement have been met, the Lender shall make each Loan available by the
Utilisation Date.

 

(b)                           If, on the Business Day before any Utilisation Date:

 

7

 

(i)                                      the Alternative Currency requested is not readily available to the
Lender in the amount required; or

 

(ii)                                   compliance with the Lender’s obligation to make available a Loan in
the proposed Alternative Currency would contravene a law or regulation
applicable to it,

 

the Lender
will give notice to the Borrower to that effect by 12.00 noon on that day.  In this event the Lender will make the Loan
available in euro in an amount equal to the Euro Amount of that Loan (to such
alternate account and bank as the Borrower shall specify, if any) unless otherwise
advised by the Borrower prior to 5.00pm on that day.

 

(c)                            The first Utilisation Date shall be 10 June 2005, provided that
upon written notification requesting such change to the Lender by the Borrower
(which notification shall be irrevocable) no later than 16 May 2005, the
first Utilisation Date shall be 1 June 2005 and the defined term “Current
Commitment” shall be construed accordingly.

 

8

 

SECTION 4

REPAYMENT,
PREPAYMENT AND CANCELLATION

 

6.                                 Repayment

 

6.1                           Repayment of Loans

 

The
Borrower shall repay each Loan, together with accrued interest, on the
Termination Date.

 

6.2                           Reborrowing

 

The
Borrower may not reborrow any part of the Facility which is repaid.

 

7.                                 Prepayment and cancellation

 

7.1                           Mandatory prepayment and cancellation

 

If it
becomes unlawful in any applicable jurisdiction for the Lender to perform any
of its obligations as contemplated by this Agreement or to fund or maintain any
Loan:

 

(i)                                      the Lender shall promptly notify the Borrower upon becoming aware of
that event;

 

(ii)                                   upon the Lender notifying the Borrower, the Commitment will be
immediately cancelled; and

 

(iii)                                the Borrower shall repay the Loans, together with accrued interest,
on the date specified by the Lender in the notice delivered to the Borrower
(being no earlier than fifteen (15) Business Days from the date of such notice
or the last day of any applicable grace period permitted by law, whichever is
later).

 

7.2                           Voluntary prepayment

 

(a)                            The Borrower may, if it gives the Lender not less than five (5) Business
Days’ prior notice, prepay the whole or any part of any Loan (but, if in part,
being an amount that reduces the Euro Amount of the Loan by a minimum amount of
€50,000).

 

(b)                           The Borrower shall, within three (3) Business Days of demand by
the Lender, pay to the Lender its Break Costs attributable to all or any part
of a Loan prepaid by the Borrower pursuant to paragraph (a) above.

 

7.3                           Restrictions

 

(a)                            Any notice of cancellation or prepayment given by any Party under
this Clause 7 shall be irrevocable and, unless a contrary indication appears in
this Agreement, shall specify the date or dates upon which the relevant
cancellation or prepayment is to be made and the amount of that cancellation or
prepayment.

 

(b)                           Any prepayment under this Agreement shall be made together with
accrued interest on the amount prepaid and, subject to any Break Costs in the
case of a prepayment under Clause 7.2 (Voluntary
prepayment) only, without premium or penalty.

 

(c)                            The Borrower may not reborrow any part of the Facility which is prepaid,
and accordingly the Commitment in respect of that part of the Facility which is
prepaid shall be deemed to have been cancelled.

 

9

 

(d)                           The Borrower shall not repay or prepay all or any part of the Loans
or cancel all or any part of the Commitment except at the times and in the
manner expressly provided for in this Agreement.

 

(e)                            No amount of the Commitment cancelled under this Agreement may be
subsequently reinstated.

 

10

 

SECTION 5

COSTS OF
UTILISATION

 

8.                                 Interest

 

8.1                           Accrual

 

(a)                            Interest shall accrue daily on each Loan at the rate of 8.00 per
cent per annum.

 

(b)                           Any interest accruing under paragraph (a) above shall be
compounded daily (and shall thereafter itself bear interest at the rate set out
in paragraph (a) above) and shall be payable in accordance with Clause 6 (Repayment), Clause 7 (Prepayment and cancellation) and Clause 16
(Acceleration).

 

8.2                           Default interest

 

(a)                            Interest shall accrue on any Unpaid Sum from the due date up to the
date of actual payment (both before and after judgment) at a rate which is the
sum of 2.00 per cent. and the rate which would have been payable if the Unpaid
Sum had, during the period of non-payment, constituted a Loan. Any interest
accruing under this Clause 8.2 (Default
Interest) shall be immediately payable by the Borrower on demand by
the Lender.

 

(b)                           Default interest (if unpaid) arising on an Unpaid Sum will be
compounded with the overdue amount at the end of each day but will remain
immediately due and payable.

 

9.                                 Arrangement fees

 

9.1                           Arrangement fees

 

If
Closing has not taken place by the Repayment Date, the Borrower shall pay to
the Lender an arrangement fee of €306,866 on the Repayment Date.  For the avoidance of doubt, no such amount
shall be payable if Closing occurs on or prior to the Repayment Date.

 

11

 

SECTION 6

ADDITIONAL
PAYMENT OBLIGATIONS

 

10.                           Tax gross up and indemnities

 

10.1                     Definitions

 

(a)                            In this Agreement:

 

“Tax Credit” means a credit against, relief or remission for,
or repayment of any Tax.

 

“Tax Deduction” means a deduction or withholding for or on
account of Tax from a payment under a Finance Document.

 

“Tax Payment” means either the increase in a payment made by
the Borrower to the Lender under Clause 10.2 (Tax gross-up)
or a payment under Clause 10.3 (Tax indemnity).

 

(b)                           Unless a contrary indication appears, in this Clause 10 a reference
to “determines” or “determined” means a determination made in the absolute
discretion of the person making the determination.

 

10.2                     Tax gross-up

 

(a)                            The Borrower shall make all payments to be made by it under the
Finance Documents without any Tax Deduction, unless a Tax Deduction is required
by law.

 

(b)                           The Borrower shall promptly upon becoming aware that it must make a
Tax Deduction (or that there is any change in the rate or the basis of a Tax
Deduction) notify the Lender accordingly.

 

(c)                            If a Tax Deduction is required by law to be made by the Borrower,
the amount of the payment due from the Borrower shall be increased to an amount
which (after making any Tax Deduction) leaves an amount equal to the payment
which would have been due if no Tax Deduction had been required.

 

(d)                           If the Borrower is required to make a Tax Deduction, the Borrower
shall make that Tax Deduction and any payment required in connection with that
Tax Deduction within the time allowed and in the minimum amount required by
law.

 

(e)                            Within thirty (30) days of making either a Tax Deduction or any
payment required in connection with that Tax Deduction, the Borrower shall
deliver to the Lender evidence reasonably satisfactory to the Lender that the
Tax Deduction has been made or (as applicable) any appropriate payment paid to
the relevant taxing authority.

 

10.3                     Tax indemnity

 

(a)                            If the Lender is or will be subject to any liability, or required to
make any payment, for or on account of Tax in relation to a sum received or
receivable (or any sum deemed for the purposes of Tax to be received or
receivable) under a Finance Document, then the Borrower shall (within three (3) Business
Days of demand by the Lender) pay to the Lender an amount equal to the loss,
liability or cost which the Lender determines will be or has been (directly or
indirectly) suffered for or on account of Tax by it in respect of a Finance
Document.

 

(b)                           Paragraph (a) above shall not apply:

 

12

 

(i)                                      with respect to any Tax assessed on the Lender under the law of the
jurisdiction in which the Lender is incorporated or, if different, the
jurisdiction (or jurisdictions) in which the Lender is treated as resident for
tax purposes if that Tax is imposed on or calculated by reference to the net
income received or receivable (but not any sum deemed to be received or
receivable) by the Lender; or

 

(ii)                                   to the extent a loss, liability or cost is compensated for by an
increased payment under Clause 10.2 (Tax
gross-up).

 

(c)                            If the Lender makes, or intends to make, a claim under paragraph (a) above,
it shall promptly notify the Borrower of the event which will give, or has
given, rise to the claim.

 

10.4                     Stamp taxes

 

The
Borrower shall pay and, within three (3) Business Days of demand, indemnify
the Lender against any cost, loss or liability the Lender incurs in relation to
all stamp duty, registration and other similar Taxes payable in respect of any
Finance Document.

 

10.5                     Value added tax

 

(a)                            All consideration expressed to be payable under a Finance Document
by the Borrower to the Lender shall be deemed to be exclusive of any VAT. If
VAT is chargeable on any supply made by the Lender to any Party in connection
with a Finance Document, the Borrower shall pay to the Lender (in addition to
and at the same time as paying the consideration) an amount equal to the amount
of the VAT.

 

(b)                           Where a Finance Document requires the Borrower to reimburse the
Lender for any costs or expenses, the Borrower shall also at the same time pay
and indemnify the Lender against all VAT incurred by the Lender in respect of
the costs or expenses.

 

11.                           Other indemnities

 

11.1                     Currency indemnity

 

(a)                            If any sum due from the Borrower under the Finance Documents (a “Sum”), or any order, judgment or award given or made in relation
to a Sum, has to be converted from the currency (the “First
Currency”) in which that Sum is payable into another currency (the “Second Currency”) for the purpose of:

 

(i)                                      making or filing a claim or proof against the Borrower; or

 

(ii)                                   obtaining or enforcing an order, judgment or award in relation to
any litigation or arbitration proceedings,

 

the
Borrower shall as an independent obligation, within three (3) Business
Days of demand, indemnify the Lender against any cost, loss or liability
arising out of or as a result of the conversion including any discrepancy
between (A) the rate of exchange used to convert that Sum from the First
Currency into the Second Currency and (B) the rate or rates of exchange
available to that person at the time of its receipt of that Sum.

 

(b)                           The Borrower waives any right it may have in any jurisdiction to pay
any amount under the Finance Documents in a currency or currency unit other
than that in which it is expressed to be payable.

 

13

 

11.2                     Other indemnities

 

The
Borrower shall, within three (3) Business Days of demand, indemnify the
Lender against any cost, loss or liability incurred by the Lender as a result
of:

 

(i)                                      a failure by the Borrower to pay any amount due under a Finance
Document on its due date; or

 

(ii)                                   funding, or making arrangements to fund, a Loan requested by the
Borrower in a Utilisation Request but not made by reason of the operation of
any one or more of the provisions of this Agreement (other than by reason of
default or negligence by the Lender alone).

 

12.                           Enforcement costs

 

The
Borrower shall, within three (3) Business Days of demand, pay to the
Lender the amount of all costs and expenses (including legal fees) reasonably
incurred by the Lender in connection with the enforcement of, or the
preservation of any rights under, any Finance Document.

 

14

 

SECTION 7

REPRESENTATIONS
AND UNDERTAKINGS

 

13.                           Representations

 

The
Borrower makes the representations and warranties set out in this Clause 13 to
the Lender on the date of this Agreement.

 

13.1                     Status

 

(a)                            Each Obligor is a corporation, duly incorporated and validly
existing under the law of its jurisdiction of incorporation.

 

(b)                           It and each other VIA Group Company has the power to own its assets
and carry on its business as it is being conducted.

 

13.2                     Binding obligations

 

The
obligations expressed to be assumed by each Obligor in each Finance Document
are legal, valid, binding and enforceable obligations.

 

13.3                     Non-conflict with other obligations

 

The
entry into and performance by each Obligor of, and the transactions
contemplated by, the Finance Documents do not and will not conflict with:

 

(i)                                      any law or regulation applicable to it;

 

(ii)                                   its or any other VIA Group Company’s constitutional documents; or

 

(iii)                                any agreement or instrument binding upon it or any other VIA Group
Company or any of its or any other VIA Group Company’s assets;

 

nor
(except as provided in any Security Document) result in the existence of, or
oblige it to create, any Security over any of its assets

 

13.4                     Power and authority

 

Each
Obligor has the power to enter into, perform and deliver, and has taken all
necessary action to authorise its entry into, performance and delivery of, the
Finance Documents to which it is a party and the transactions contemplated by
those Finance Documents.

 

13.5                     Validity and admissibility in evidence

 

All
Authorisations required or desirable:

 

(i)                                      to enable each Obligor lawfully to enter into, exercise its rights
and comply with its obligations in the Finance Documents to which it is a
party; and

 

(ii)                                   to make the Finance Documents to which an Obligor is a party
admissible in evidence in its jurisdiction of incorporation,

 

have
been obtained or effected and are in full force and effect.

 

13.6                     Governing law and enforcement

 

(a)                            The choice of English law as the governing law of this Agreement
will be recognised and enforced in its jurisdiction of incorporation.

 

15

 

(b)                           Any judgment obtained in England in relation to a Finance Document
will be recognised and enforced in its jurisdiction of incorporation.

 

13.7                     Pari passu ranking

 

Each
Obligor’s payment obligations under the Finance Documents rank at least pari passu with the claims of all its other unsecured and
unsubordinated creditors, except for obligations mandatorily preferred by law
applying to companies generally.

 

13.8                     Pledged shares

 

(a)                            The shares which are expressed to be subject to any Security under
any Security Document are issued, fully paid, non-assessable, solely owned by
the Pledgor, free of all Encumbrances other than the Security created under the
Security Documents, and freely transferable and pledgeable, and there are no
moneys or liabilities outstanding or payable in respect of any such share.

 

(b)                           No person has or is entitled to any conditional or unconditional
option, warrant or other right to call for the issue or allotment of, subscribe
for, purchase or otherwise acquire any share capital of any Pledged Company
(including any right of pre-emption, conversion or exchange).

 

(c)                            There are no agreements in force or corporate resolutions passed
which require or might require the present or future issue or allotment of any
share capital of any Pledged Company (including any option or right of
pre-emption, conversion or exchange).

 

(d)                           The shares subject to the Security created by the Security Documents
constitute all of the issued share capital of the Pledged Companies and there are no depository receipts issued
with the cooperation of the Pledged Company.

 

(e)                            There are no silent partnership agreements, profit and loss pooling
agreements or equivalent arrangements by which a third party is entitled to a
participation in the profits or revenue of a Pledged Company.

 

13.9                     Margin regulation representations

 

(i)                                      No Obligor is engaged principally, or as one of its important
activities, in the business of owning or extending credit for the purpose of
purchasing or carrying any Margin Stock.

 

(ii)                                   The proceeds of the Loans will not be used, directly or indirectly,
in whole or in part, for “purchasing” or “carrying” Margin Stock or for any
purpose which might (whether immediately, incidentally or ultimately) cause all
or any part of the Loans to be a “purpose credit” within the meaning of
Regulation U or Regulation X.

 

(iii)                                Neither an Obligor nor any agent acting on its behalf has taken or
will take any action which might cause any Finance Document or any document
delivered under or in connection with any Finance Document to violate any
regulation of the Board (including Regulation T, U or X) or violate the United
States Securities Exchange Act of 1934 or any applicable US federal or state
securities law.

 

16

 

13.10               US regulation representations

 

No
Obligor is or (in the case of paragraph (v) below) has:

 

(i)                                      a “holding company”, an “affiliate” of a “holding company” or a “subsidiary
company” of a “holding company” within the meaning of, or subject to regulation
under, the United States Public Utility Holding Company Act of 1935;

 

(ii)                                   a “public utility” within the meaning of, or subject to regulation
under, the United States Federal Power Act of 1920;

 

(iii)                                an “investment company” or a company “controlled” by an “investment
company” within the meaning of the United States Investment Company Act of
1940;

 

(iv)                               subject to regulation under any United States federal or state law
or regulation that limits its ability to incur or guarantee indebtedness; or

 

(v)                                  used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds, or made any
bribe, rebate, payoff, influence payment, kickback or other unlawful payment to
any foreign or domestic government official or employee.

 

13.11               No breach

 

Each
Obligor has complied with all of the provisions of the Finance Documents that
are applicable to it.

 

13.12               Repetition

 

The Repeating Representations are
deemed to be made by the Borrower by reference to the facts and circumstances
then existing on the date of each Utilisation Request.

 

14.                           Operational Undertakings

 

The
Borrower gives the same undertakings to the Lender as given by the Sellers to
the Purchasers in clause 5.1 (Sellers’
Obligations in Relation to the Operation of the Group) and clause
5.2 (Sellers’ notification requirements)
of the Acquisition Agreement.

 

15.                           Margin regulation undertakings

 

(a)                            The Borrower shall use the proceeds of the Loans without violating
Regulation T, U or X or any other applicable US federal or state laws or
regulations.

 

(b)                           If requested by the Lender and necessary to permit the Lender to
comply with applicable law, the Borrower shall, upon written request, furnish
to the Lender a statement in conformity with the requirements of FR Form U-1
referred to in Regulation U.

 

17

 

SECTION 8

ACCELERATION

 

16.                           Acceleration

 

16.1                     Acceleration by notice

 

On and
at any time after the occurrence of a VIA Termination Event or Borrower
Termination, the Lender may immediately cancel the Commitment whereupon it
shall immediately be cancelled, and by twenty (20) (in the case of a VIA
Termination Event) or forty (40) (in the case of a Borrower Termination) days’
notice to the Borrower:

 

(i)                                      declare that all or part of the Loans, together with accrued
interest, and all other amounts accrued or outstanding under the Finance
Documents be immediately due and payable, whereupon they shall become due and
payable on the expiry of such twenty (20) or forty (40) day period (as the case
may be); or

 

(ii)                                   declare that all or part of the Loans be payable on demand,
whereupon they, together with accrued interest and all other amounts accrued or
outstanding under the Finance Documents, shall become payable on demand by the
Lender made after such twenty (20) or forty (40) day period (as the case may
be).

 

16.2                     Automatic acceleration

 

If any US Insolvency Event occurs in
relation to the Borrower:

 

(i)                                      the Commitment shall immediately be cancelled; and

 

(ii)                                   all of the Loans, together with accrued interest, and all other
amounts accrued under the Finance Documents shall become due and payable twenty
(20) days after the date such US Insolvency Event occurs,

 

in each
case automatically and without any direction, notice, declaration or other act.

 

18

 

SECTION 9

MISCELLANEOUS

 

17.                           Changes to the Parties

 

No Party
may assign any of its rights or transfer any of its rights or obligations under
the Finance Documents, save that the Lender may assign any or all of its rights
under this Agreement without the Borrower’s consent following the occurrence of
a VIA Termination Event.

 

18.                           No set-off by the Borrower

 

All
payments to be made by the Borrower under the Finance Documents shall be
calculated and be made without (and free and clear of any deduction for)
set-off or counterclaim.

 

19.                           Business Days

 

(a)                            Any payment which is due to be made on a day that is not a Business
Day shall be made on the next Business Day in the same calendar month (if there
is one) or the preceding Business Day (if there is not).

 

(b)                           During any extension of the due date for payment of any principal or
an Unpaid Sum under this Agreement interest is payable on the principal or
Unpaid Sum at the rate payable on the original due date.

 

20.                           Currency of account

 

(a)                            Subject to paragraphs (b) and (c) below, euro is the
currency of account and payment for any sum due from the Borrower under any
Finance Document.

 

(b)                           Each payment in respect of costs, expenses or Taxes shall be made in
the currency in which the costs, expenses or Taxes are incurred.

 

(c)                            A Loan made in an Alternative Currency, together with all interest
accrued thereon, may be repaid or prepaid in that Alternative Currency.

 

21.                           Set-off

 

(a)                            The Lender may set off any obligation due from the Borrower under
the Finance Documents against any obligation owed by the Lender to the Borrower,
regardless of the place of payment or currency of either obligation. If the
obligations are in different currencies, the Lender may convert either
obligation at a market rate of exchange determined by the Lender (acting
reasonably) for the purpose of the set-off.

 

(b)                           Without prejudice to the generality of paragraph (a) above, the
Lender, the Purchasers, the Borrower and the Sellers acknowledge that all
amounts (including the Purchase Price), if any, payable by the Purchasers to
the Sellers under the Acquisition Agreement shall be paid net of all amounts
owing by the Borrower to the Lender under the Finance Documents, the latter
amounts to be converted from euro into US dollars for the purpose of such
netting at a market rate of exchange to be determined by the Lender (acting
reasonably).

 

19

 

22.                           Notices

 

22.1                     Communications in writing

 

Any
communication to be made under or in connection with the Finance Documents
shall be made in writing and, unless otherwise stated, may be made by fax or
letter.

 

22.2                     Addresses

 

The
address and fax number (and the department or officer, if any, for whose
attention the communication is to be made) of each Party for any communication
or document to be made or delivered under or in connection with the Finance
Documents is that identified with its name below, or any substitute address or
fax number or department or officer as the Party may notify to the other
Parties by not less than five Business Days’ notice.

 

22.3                     Delivery

 

(a)                            Any communication or document made or delivered by the Lender to the
Borrower under or in connection with the Finance Documents will only be
effective:

 

(i)                                      if by way of fax, when received in legible form; or

 

(ii)                                   if by way of letter, when it has been left at the relevant address
or two (2) Business Days after being deposited in the post postage prepaid
in an envelope addressed to it at that address,

 

and, if
a particular officer is specified as part of its address details provided under
Clause 22.2 (Addresses), if addressed to that
officer.

 

(b)                           Any communication or document to be made or delivered to the Lender
will be effective only when actually received by the Lender and then only if it
is expressly marked for the attention of the officer identified with the Lender’s
signature below (or any substitute officer as the Lender shall specify for this
purpose).

 

23.                           Partial invalidity

 

If, at
any time, any provision of the Finance Documents is or becomes illegal, invalid
or unenforceable in any respect under any law of any jurisdiction, neither the
legality, validity or enforceability of the remaining provisions nor the
legality, validity or enforceability of such provision under the law of any
other jurisdiction will in any way be affected or impaired.

 

24.                           Remedies and waivers

 

No
failure to exercise, nor any delay in exercising, on the part of the Lender,
any right or remedy under the Finance Documents shall operate as a waiver, nor
shall any single or partial exercise of any right or remedy prevent any further
or other exercise or the exercise of any other right or remedy. The rights and
remedies provided in this Agreement are cumulative and not exclusive of any
rights or remedies provided by law.

 

25.                           Amendments and waivers

 

No term
of any of the Finance Documents may be amended or waived without the prior
written consent of the Lender and the Borrower.

 

20

 

26.                           Counterparts

 

Each
Finance Document may be executed in any number of counterparts, and this has the
same effect as if the signatures on the counterparts were on a single copy of
the Finance Document.

 

21

 

SECTION 10

GOVERNING LAW AND ENFORCEMENT

 

27.                           Governing law

 

This
Agreement is governed by English law.

 

28.                           Enforcement

 

28.1                     Jurisdiction

 

(a)                            The courts of England have exclusive jurisdiction to settle any
dispute arising out of or in connection with this Agreement (including a
dispute regarding the existence, validity or termination of this Agreement) (a “Dispute”).

 

(b)                           The Parties agree that the courts of England are the most
appropriate and convenient courts to settle Disputes and accordingly no Party
will argue to the contrary.

 

28.2                     Service of process

 

Without
prejudice to any other mode of service allowed under any relevant law,  the Borrower:

 

(a)                                   irrevocably appoints Hogan & Hartson Corporate Services
Company Limited, One Angel Court, London EC2R 7HJ as its agent for service of
process in relation to any proceedings before the English courts in connection
with any Finance Document; and

 

(b)                                  agrees that failure by a process agent to notify the Borrower of the
process will not invalidate the proceedings concerned.

 

This
Agreement has been entered into on the date stated at the beginning of this Agreement.

 

22

 

SCHEDULE 1

CONDITIONS PRECEDENT

 

1.                                 Obligors

 

(a)                            A copy of the constitutional documents of each Obligor.

 

(b)                           A copy of a resolution of the board of directors of each Obligor:

 

(i)                                      approving
the terms of, and the transactions contemplated by, the Finance Documents to
which it is a party and resolving that it execute the Finance Documents to
which it is a party;

 

(ii)                                   authorising
a specified person or persons to execute the Finance Documents to which it is a
party on its behalf; and

 

(iii)                                authorising
a specified person or persons, on its behalf, to sign and/or despatch all
documents and notices (including, if relevant, any Utilisation Request) to be
signed and/or despatched by it under or in connection with the Finance
Documents to which it is a party.

 

(c)                            A specimen of the signature of each person authorised by the
resolution referred to in paragraph (b) above.

 

(d)                           A copy of a resolution signed by all the holders of the issued
shares in the Pledgor, approving the terms of, and the transactions
contemplated by, the Finance Documents to which the Pledgor is a party.

 

(e)                            A certificate of the Borrower (signed by a director) confirming that
borrowing the Commitment would not cause any borrowing or similar limit binding
on the Borrower to be exceeded.

 

(f)                              A certificate of an authorised signatory of the relevant Obligor
certifying that each copy document relating to it specified in this Schedule 1
is correct, complete and in full force and effect as at a date no earlier than
the date of this Agreement.

 

2.                                 Documents

 

(a)                            A copy of the Acquisition Agreement and each Finance Document, in a
form agreed by the Lender and duly executed by all parties thereto (together
with any notarisations required in connection such execution).

 

(b)                           A copy of the Working Capital Projections.

 

(c)                            A copy of the share register of the PSINet
Belgium BVBA/SPRL evidencing the record of the pledge in accordance with the
Belgian Share Pledge.

 

(d)                           A certified copy of the articles of association
of PSINet Belgium BVBA/SPRL, amended to permit the transfer of its shares in
the context of the Belgian Share Pledge.

 

(e)                            In respect of the Dutch Share Pledge:

 

(i)                                      a notarial copy of the Right of Pledge; and

 

23

 

(ii)                                   a copy of the share register of the PSINet
Netherlands B.V. evidencing the record of the pledge in accordance with the
Dutch Share Pledge.

 

(f)                              In respect of the French Share Pledge:

 

(i)                                      the original statement of pledge;

 

(ii)                                   the original attestations
de gage; and

 

(iii)                                a certified copy of each of the registre
des mouvements de titres and the Pledgor’s account evidencing the
registration of the pledge.

 

(g)                           In respect of the German Share Pledge:

 

(i)                                      certified copy of the Share Pledge
Agreement;

 

(ii)                                   copies of the declarations of consent to be sent to the
Pledgee and the Pledgor and the public notary including the respective
evidences of receipt; and

 

(iii)                                copy of the notification letter to PSINET
Germany GmbH including acknowledgement or evidence of receipt.

 

3.                                 Legal Opinions

 

In
respect of each of the Security Documents, a legal opinion of the legal
advisers to the Obligors in the relevant jurisdiction.

 

24

 

SCHEDULE 2

UTILISATION REQUEST

 

From:                                              [Borrower]

 

To:                                                          [Lender]

 

Dated:

 

Dear
Sirs

 

VIA
NET.WORKS INC. - €5,370,157 Facility Agreement

dated
[                   ]
(the “Agreement”)

 

1.                                 We refer to the Agreement. This is a Utilisation Request. Terms
defined in the Agreement have the same meaning in this Utilisation Request
unless given a different meaning in this Utilisation Request.

 

2.                                 We wish to borrow a Loan on the following terms:

 

Proposed
Utilisation Date (which is a Permitted Utilisation Date):                                 [                   ]

 

Amount:                                                               [                   ]
or, if less, the Available Commitment

 

3.                                 We attach the relevant Cash Requests which are current as of [•] (being a date no more than five (5) Business Days earlier
than the date of this Utilisation Request).

 

4.                                 We confirm that each condition specified in Clause 4.2 (Further conditions precedent) is satisfied on the date of
this Utilisation Request.

 

5.                                 The proceeds of this Loan should be credited to :

 

Bank:

Account Name:

Account Number:

Sort Code:

 

6.                                 This Utilisation Request is irrevocable.

 

 

Yours
faithfully

 

 

	
   

  
	
  authorised
  signatory for

  
	
  [name of the Borrower]

  

 

25

 

The
Borrower

 

	
  VIA
  NET.WORKS, INC.

  
	
  Address:

  	
  H.
  Walaardt Sacrestraat 401-403

  
	
   

  	
  1117
  BM Schipol

  
	
   

  	
  The
  Netherlands

  
	
   

  	
   

  
	
  Fax
  No:

  	
  +31
  205 020 0001

  
	
   

  	
   

  
	
  Attention:

  	
  Matt
  Nydell (Senior Vice President and General Counsel and Secretary)

  

 

	
  By:

  	
  /s/ 

  

 

The
Lender

 

CLARA.NET
HOLDINGS LIMITED

 

	
  Address:

  	
  PO
  Box 274

  
	
   

  	
  36
  Hilgrove Street

  
	
   

  	
  St.
  Helier

  
	
   

  	
  Jersey
  JE4 8TR

  
	
   

  	
  Channel
  Islands

  
	
   

  	
   

  
	
  Fax
  No:

  	
  +44 1534 768 612

  
	
   

  	
   

  
	
  Attention:

  	
  Denis
  Therezien

  

 

With a
copy to:

 

CLARANET
GROUP LIMITED

 

	
  Address:

  	
  21
  Southampton Row

  
	
   

  	
  London
  WC1B 5HA

  
	
   

  	
   

  
	
  Fax
  No:

  	
  +44
  20 7681 2564

  
	
   

  	
   

  
	
  Attention:

  	
  Charles
  Nasser

  

 

	
  By:

  	
  /s/ 

  

 

 

26Exhibit 10.1

 

SRS LABS, INC.

 

2005
CHANGE IN CONTROL PROTECTION PLAN

(also functioning as a Summary Plan Description)

 

 

Effective: April 27, 2005

 

 

 

SRS LABS, INC.

 

2005
CHANGE IN CONTROL PROTECTION PLAN

 

(also functioning as a Summary Plan Description)

 

 

Table of Contents

 

 

 

	
   

  	
   

  	
   

  	
   

  
	
  1.

  	
  BENEFITS PAYABLE UNDER
  THE PLAN

  	
   

  
	
   

  	
  (a)

  	
  Change in
  Control Severance Benefit

  	
   

  
	
   

  	
  (b)

  	
  Paid Leave in Lieu of
  Notice

  	
   

  
	
   

  	
  (c)

  	
  Definition of
  Change in Control

  	
   

  
	
  2.

  	
  PLAN
  ELIGIBILITY

  	
   

  
	
  3.

  	
  VESTING
  AND ELIGIBILITY RULES FOR BENEFITS

  	
   

  
	
   

  	
  (a)

  	
  Covered Terminations

  	
   

  
	
   

  	
  (b)

  	
  Definitions

  	
   

  
	
   

  	
  (c)

  	
  Agreements
  Precedent to Collecting Benefits; Recapture of Benefits

  	
   

  
	
  4.

  	
  ADDITIONAL BENEFITS

  	
   

  
	
  5.

  	
  TAXES,
  AND AUTHORIZATIONS FOR TAX LAW COMPLIANCE

  	
   

  
	
  6.

  	
  RELATION TO
  OTHER PLANS AND AGREEMENTS

  	
   

  
	
  7.

  	
  CLAIMS
  PROCEDURES

  	
   

  
	
   

  	
  (a)

  	
  Claims Normally Not
  Required

  	
   

  
	
   

  	
  (b)

  	
  Disputes

  	
   

  
	
   

  	
  (c)

  	
  Time for Filing Claims

  	
   

  
	
   

  	
  (d)

  	
  Procedures

  	
   

  
	
  8.

  	
  PLAN ADMINISTRATION

  	
   

  
	
   

  	
  (a)

  	
  Discretion

  	
   

  
	
   

  	
  (b)

  	
  Finality of
  Determinations

  	
   

  
	
   

  	
  (c)

  	
  Drafting
  Errors

  	
   

  
	
   

  	
  (d)

  	
  Scope

  	
   

  
	
  9.

  	
  COSTS,
  INDEMNIFICATION, AND REIMBURSEMENT FOR LITIGATION EXPENSES

  	
   

  
	
  10.

  	
  PLAN
  AMENDMENT AND TERMINATION; LIMITATION ON EMPLOYEE RIGHTS; CONDITIONS OF
  RECEIPT OF BENEFITS

  	
   

  
	
   

  	
  (a)

  	
  Sponsor
  May Amend or Terminate the Plan

  	
   

  

 

 

 

i

 

	
   

  	
  (b)

  	
  Application
  of Amendment or Termination of the Plan

  	
   

  
	
   

  	
  (c)

  	
  No Right to
  Continued Employment

  	
   

  
	
  11.

  	
  PLAN
  FUNDING

  	
   

  
	
  12.

  	
  GOVERNING
  LAW

  	
   

  
	
  13.

  	
  MISCELLANEOUS

  	
   

  
	
  14.

  	
  OTHER INFORMATION

  	
   

  
	
   

  	
  (a)

  	
  Type of
  Plan

  	
   

  
	
   

  	
  (b)

  	
  Addresses,
  etc.

  	
   

  
	
   

  	
  (c)

  	
  Agent for
  Service of Legal Process

  	
   

  
	
   

  	
  (d)

  	
  Funding

  	
   

  
	
   

  	
  (e)

  	
  Plan Amendment or
  Termination

  	
   

  
	
   

  	
  (f)

  	
  Statement of ERISA
  Rights

  	
   

  
	
   

  	
  (g)

  	
  Whom to
  Call for Additional Information

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Exhibit A

  	
   

  
	
  Exhibit B

  	
   

  

 

 

ii

 

SRS LABS, INC.

 

2005 CHANGE IN CONTROL PROTECTION PLAN

 

Plan Document and Summary Plan Description

 

SRS Labs, Inc.
(the “Company”) recognizes
that a corporate change in control may adversely affect certain employees.  To treat these employees in a fair and
compassionate manner, the Company has adopted this 2005 Change in Control
Protection Plan (the “Plan”).

 

This document is
the Plan’s plan document, and also functions as its summary plan
description.  This Plan will control in
case of conflict with any other document. 
Throughout this Plan, the term “Sponsor” is
used when the Company is acting in its non-fiduciary capacity as Plan sponsor
and settlor.  The term “Plan Administrator” is used when
the Company is acting in the limited capacity of interpreting the Plan and
determining eligibility for benefits (see Section 8 below for detailed
information).

 

The Plan became
effective on April 27, 2005 when the Company’s Board of Directors approved
it.   Even if the Plan expires or is
terminated, the Sponsor will thereafter honor any vested but unpaid benefits
under the Plan (subject to Section 10 below). 
References to Sponsor, the Company, and their affiliates also refer to
any successor to their interests.

 

1.             Benefits Payable Under the Plan

 

(a)           Change in Control Severance
Benefit

 

You
will become entitled to severance benefits pursuant to this Plan if, while this
Plan is in effect and while you are eligible under Section 2 for Plan
participation, your employment terminates under the circumstances described in
Section 3(a).  The severance benefits (“Change in Control Benefits”) to be paid
to you after your termination date shall be determined pursuant to an
agreement, substantially in the form attached as Exhibit A (the “Participation Agreement”), that you
sign pursuant to Section 2 as a condition for becoming a Plan participant. The
Sponsor will make all decisions relating to who is offered a Participation
Agreement and the terms, conditions, and benefits promised under the Participation
Agreement.

 

(b)           Paid Leave in Lieu of Notice

 

To
the extent that the Federal Worker Adjustment and Retraining Notification Act
applies to you, if you become entitled to Change in Control Benefits under the
Plan, to the extent you have been given less than sixty (60) days’ advance
written notice 

 

 

 

of
the date your active services actually terminate, you will be given a Paid
Leave in Lieu of Notice for the balance of that 60-day period, as follows:

 

(i)            During your Paid Leave in Lieu of
Notice, you will be an inactive employee but you will be entitled to the same
employee benefits and participation rights to which you would have been
entitled under our company-wide employee benefit plans had your active
employment continued, except long-term disability benefits and except that you
will not accrue any paid leave, vacation days, or additional benefits
under this Plan.

 

(ii)           If you resign or die during a paid
leave, your paid leave will end and the Change in Control Benefits that you
would have received during the balance of the paid leave will be paid to you
(or, if you have died, to your estate) in a lump sum.  All other paid leave benefits will stop on
the day you resigned or died, except for any group insurance coverage that
by its terms continues until the end of the calendar month in which you
terminate.

 

(iii)          This Paid Leave in Lieu of Notice runs
concurrently with the Change in Control Benefits provided for in Section 1(a) hereof
and is not in addition to Change in Control Benefits provided for in this Plan.

 

(c)           Definition of Change in
Control

 

The
term “Change in Control”
shall mean the occurrence of any of the following events, subject to the Plan
Administrator’s absolute discretion to interpret this definition in a manner
that conforms with the requirements of Section 409A of
the Internal Revenue Code of 1986, as amended (the “Code”)
and associated regulations:

 

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

 

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

 

(iii)          Any person (as the term “person” is
used in Section 13(d)(3) or Section 14(d)(2) of
the Securities Exchange Act of 1934, as amended (the “Exchange Act”), has
become the beneficial owner (as the term “beneficial owner” is defined under
Rule 13d-3 or any successor rule or regulation promulgated under the
Exchange Act) of securities representing more than 50%  of the combined voting 

 

 

 

2

 

power of the then-outstanding securities
of the Company entitled to vote generally in the election of directors of the
Company (“Voting Stock”); or

 

(iv)          The Company files a report or proxy
statement with the Securities and Exchange Commission pursuant to the Exchange
Act disclosing in, or in response to, Form 8 K or Schedule 14A (or any
successor schedule, form or report or item therein) that a  Change in Control of the Company has
occurred.

 

Notwithstanding
the foregoing provisions of (a) subsections (iii) or (iv) hereof,
a “Change in Control” shall not be deemed to have occurred for purposes of this
Agreement solely because the Company, an entity in which the Company directly
or indirectly beneficially owns 50% or more of the voting securities of such
entity (an “Affiliate”), any Company-sponsored employee stock ownership
plan or any other employee benefit plan of the Company either files or becomes
obligated to file a report or a proxy statement under or in response to
Schedule 13D, Schedule 14D-1, Form 8-K or Schedule 14A (or any
successor schedule, form or report or item therein) under the Exchange Act,
disclosing beneficial ownership by it of shares of voting securities of the
Corporation, whether in excess of 50% or otherwise, or because the Company
reports that a Change in Control of the Company has or may have occurred or
will or may occur in the future by reason of such beneficial ownership or (b) Subsection
(iii) hereof, a “Change in Control” shall not be deemed to have occurred
for purposes of this Agreement solely because a person who is a holder of five
percent (5%) or more of the Voting Stock and who also is an officer and director
of the Company on the date of this Agreement acquires more than 50% of the
Voting Stock.

 

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

 

2.             Plan
Eligibility

 

You are eligible
for this Plan only if the Sponsor has provided you with a Participation
Agreement signed by a duly authorized officer of the Company confirming your
eligibility for the Plan.  If you execute
the Participation Agreement and return it to the Company within thirty (30)
days after receiving it, you will be a “Participant”.  If your Participation Agreement expires for
any reason before you become vested in the right to collect Change in Control
Benefits, you will immediately cease to be a Participant.

 

3.             Vesting
and Eligibility Rules for Benefits

 

(a)           Covered Terminations 

 

If
you are a Participant, incur a Covered Termination (as defined below), and
execute any agreement that the Sponsor may in its discretion require pursuant
to subsection 

 

 

3

 

3(c) below, you will become vested
in your right to receive the Change in Control Benefits set forth in your
Participation Agreement.  If you
terminate employment for any other reason, you will not be eligible for any
benefits under this Plan.  For example,
you will not be eligible for Change in Control Benefits under the Plan if the
Plan Administrator determines, in its sole discretion, that your Employment (as
defined below) has either (i) terminated before a Change in Control
occurs, or (ii) terminated on or after a Change in Control by reason of —

 

(i)                                     your resignation without Good Reason (as
defined below);

 

(ii)                                  your death; or

 

(iii)                               your discharge for Cause (as defined below),
as determined by the Sponsor in its sole discretion.

 

(b)           Definitions

 

(i)            For purposes of this Plan, a “Covered Termination” shall mean that,
at a time on or two (2) years after a Change in Control either
(I) you have resigned from Employment for Good Reason (as defined below), or
(II) your Employment is involuntarily terminated by the Company without Cause
(as defined below).  A Covered
Termination shall not include a transfer of your Employment to the parent of
the Company, if any, or an affiliate of the parent, or an affiliate of the
Company, or any successor to the Company’s obligations under this Plan, whether
through a merger, acquisition of the Company or any related entity or their
assets, or a contractual assumption of the Plan or its liabilities in anticipation
of or after a Change in Control, in which case you shall continue to be a
Participant under the Plan and any reference herein to “Company” shall refer to
the entity that is your employer.

 

(ii)           For  purposes of this Plan, “Employment” shall mean your employment
(I) with the Company, (II) the parent of the Company, if any, or an affiliate
of the parent, or an affiliate of the Company, or (III) any successor to the
Company’s obligations under this Plan, whether through a merger, an acquisition
of the Company or any related entity, or a contractual assumption of the Plan
or its liabilities.

 

(iii)          For purposes of this Plan, “Cause” shall mean (I) the continued
failure by you to satisfactorily perform your duties with the Company or to
comply with the policies of the Company or any affiliate (other than any such
failure resulting from a condition or conditions establishing your Permanent
Disability (as defined below)) after receiving written notice by the Board of
Directors specifying such failure and provided that such “cause” shall have
been found by a majority vote of the Board of Directors following notice to you
specifying the “cause” and giving you an opportunity to be heard by the Board;
(II) your engagement in fraud, misappropriation, or intentional conduct which
is materially injurious, monetarily or otherwise, to the Company or its
affiliates, or is a material breach of the Company’s

 

 

4

 

code of ethics (III) your commission of an act of deliberate and material
dishonesty; (IV) your failure to follow a lawful and material directive from
your direct or indirect supervisor; (V) your commission of a crime or causing
the Company to commit a crime; or (VI) your conviction, guilty plea or
plea of nolo contendere either to any felony, or to any misdemeanor involving
dishonesty or moral turpitude, in each case, after you have been given written
notice of such and have failed to cure such within thirty (30) days
following such notice.

 

(iv)          For purposes of this Plan, and unless
otherwise stated in a Participant’s Participation Agreement, “Good Reason” shall mean (I) the
demotion or any material reduction by the Company in your base salary below the
amount in effect immediately prior to the change in control; (II) the requirement that you change
your principal location of work to any location that is in excess of forty (40)
miles from your location of work as of the effective time of the Change in
Control; (III) the substantial curtailment of your rights, duties and responsibilities
as an Employee as compared to those you were performing before the Change in
Control, in each case under clauses (I), (II), or (III), after the Company has
been given written notice of such and failed to cure such within thirty (30)
days following such notice.  In addition,
Good Reason shall mean the liquidation, dissolution, merger, consolidation or
reorganization of the Company, or the transfer of all or substantially all of
the Company’s assets, unless the successor (by liquidation, dissolution,
merger, consolidation, reorganization, transfer or otherwise) to which all or
substantially all of its assets have been transferred (directly or by operation
of law) assumes the duties and obligations of the Company under this Plan.

 

(c)           Agreements Precedent to
Collecting Benefits; Recapture of Benefits

 

As
a condition precedent to your vesting in the right to collect any benefits
pursuant to this Plan, the Sponsor may in its discretion require that you
execute any one or more of the following agreements (in a form satisfactory to
the Sponsor):

 

(i)            A general release of any and all
past, present, or future claims (whether or not such claims relate to the Plan)
that you may have against the Company, its subsidiaries and affiliates, and
their officers, directors, employees and agents, and a covenant not to bring
any action in respect of any claim so released.

 

(ii)           An agreement not to make disparaging
comments (whether orally or in writing) regarding the Company or its
subsidiaries and affiliates, its officers and employees, its products and
services, or any other aspect of the Company’s business either during or
following termination of your employment with the Company.

 

(iii)          An agreement that you will not,
without the prior written consent of the Company, disclose to any entity or
person any information which is treated as confidential by the Company (“Confidential Information”), and is
not generally known or available to the public, provided, that you may make
disclosures of such Confidential Information to the extent required by law or
legal process.  The term “Confidential
Information” shall include:

 

 

5

 

(A)          information regarding the business
methods, business policies, procedures, techniques, business or strategic
plans, trade secrets, pricing policies, or other processes of or developed by
the Company;

 

(B)           any names
and addresses of customers or clients, and any data on or relating to past,
present or prospective customers or clients;

 

(C)           formulae,
inventions, research or development projects or results, or other knowledge
developed by the Company; and

 

(D)          any other confidential information
relating to or dealing with the business operations or activities of the
Company; made known to you or learned or acquired by you while in the employ of
the Company, which is not generally known to others outside the Company,
whether written or otherwise, regarding earnings, plans, strategies,
prospective and executed contracts and other business arrangements.

 

(iv)          Your agreement, upon termination of
your employment, to promptly return all property of the Company, to reimburse
the Company for any personal telephone calls, credit card charges and other
expenses, and your payment of all amounts due to the Company.

 

Notwithstanding
any other provision of the Plan, you will not be treated as having satisfied
the requirements of this Section 3(c) unless (I) you execute any one or
more of the above agreements that the Sponsor may for any reason require, (II)
you deliver such agreements to the person, and within the time period,
prescribed in such agreement, and (III) you do not make a legally valid
revocation of such agreement.  In the
event the Sponsor determines that you have breached any of the conditions set
forth in this Subsection 3(c) or any agreement referenced hereunder, the
Company shall (in addition to any other remedies it may have) not be required
to provide any of Change in Control Benefits pursuant to the Plan, and you
shall be obligated to return to the Company, upon demand, an amount (plus
simple interest) equal to all of the Change in Control Benefits that you have
received under this Plan.

 

4.             Additional Benefits

 

(a)           If you become entitled to Change in Control Benefits
under this Plan, you will also be eligible to receive Company-paid COBRA
continuation coverage for yourself, your spouse, and your dependents for the
period, if any, set forth in your Participation Agreement.  For COBRA purposes, however, the date on
which you terminate employment will commence the period for which you are
entitled to continuation coverage under COBRA (meaning that the Company’s
payment of COBRA premiums may not extend the duration of your COBRA
eligibility).  The regular COBRA
procedures and rules will apply.

 

(b)           Upon the death of a Participant receiving Change in
Control Benefits, the beneficiary(ies) of the
Participant (whom he or she designated for purposes of group life insurance
benefits) shall be entitled to receive such Change in Control Benefits on
the same terms that would have applied if the Participant had survived to
collect all benefits.

 

 

6

 

5.             Taxes,
and Authorizations for Tax Law Compliance

 

Taxes will be
withheld from your Change in Control Benefits to the extent the Plan
Administrator determines that this is required by law.  You are solely responsible and liable for the
satisfaction of all taxes and penalties, including any taxes arising under
Section 409A of the Code  that may arise in connection with your
Plan participation or your receipt of Change in Control Benefits.  Accordingly, neither the
Sponsor, the Plan Administrator, nor any person associated with them has
any obligation or authority to provide you with tax planning advice, or to take
actions that minimize or eliminate any or all of the taxes or penalties which
you incur or may incur pursuant to the Plan. 
The Plan Administrator shall nevertheless have the discretion to
unilaterally modify your rights under this Plan (including your rights under any
Participation Agreement) in a manner that —

 

(a) voids or modifies any terms of the Plan or your
Participation Agreement to the extent it would violate Section 409A of the
Code, and

 

(c) for any payment that would otherwise violate Section 409A of
the Code, to provide Change in Control Benefits only in connection with a
distribution event that is allowable under Section 409A of the Code.  For example, the Plan Administrator may delay
paying your Change in Control Benefits for up to six months and one day if the
Plan Administrator reasonably determines that an earlier payment will violate
Section 409A(a)(2)(B)(i) of the Code.

 

The Plan
Administrator has the sole discretion to interpret the requirements of the
Code, including Section 409A, for purposes of determining your rights under the
Plan and your Participation Agreement.

 

6.             Relation to Other Plans and
Agreements

 

By signing your
Participation Agreement, you recognize and agree that any prior severance or
similar plan of the Company that might apply to you is hereby revoked and
ineffective as to you; provided that, unless specifically
provided in your Participation Agreement, neither this Plan nor your
Participation Agreement will affect any outstanding employment, stock award, or
other written agreement between you and the Company.  No Change in
Control Benefits that you receive will be taken into account for purposes of
determining benefits under other benefit plans, retirement or pension plans,
401(k) plans, or similar retirement arrangements.  All such retirement-related plans or similar
arrangements, to the extent inconsistent with this Plan, are hereby so
amended.  No benefits that would
constitute “excess parachute payments” within the meaning of Section 280G of
the Code, or cause any other amounts (whether or not payable pursuant to the
Plan) to be excess parachute payments, will be payable under this Plan.

 

7.             Claims Procedures

 

(a)           Claims Normally Not Required

 

Normally,
you do not need to present a formal claim to receive the Change in Control Benefits
payable under this Plan.

 

 

7

 

(b)           Disputes

 

If
any person (claimant) believes that benefits are being denied improperly, that
the Plan is not being operated properly, that fiduciaries of the Plan have breached
their duties, or that the claimant’s legal rights are being violated with
respect to the Plan, the claimant must file a formal claim with the Plan
Administrator within the time period set forth in Section 7(c).  The Plan Administrator will handle all such
claims in accordance with the procedures set forth in Section 7(d).  This requirement applies to all claims that
any claimant has with respect to the Plan, including claims against fiduciaries
and former fiduciaries, except to the extent the Plan Administrator determines,
in its sole discretion, that it does not have the
power to grant all relief reasonably being sought by the claimant.  See Section 14(f) for
information about your rights in the event the Administrator denies your claim.

 

(c)           Time for Filing Claims

 

A
formal claim must be filed within ninety (90) days after the date the
claimant first knew or should have known of the facts on which the claim is
based (or,
if earlier, the date that is 120 days after your employment terminates for any
reason), unless the Sponsor in
writing consents otherwise.  The Plan
Administrator will provide a claimant, on request, with a copy of the claims
procedures established under subsection 7(d). If a
claimant files an untimely claim, no benefits of any kind shall be payable
under the Plan.

 

(d)           Procedures

 

The
Plan Administrator will adopt procedures for considering claims, which it may
amend from time to time, as it sees fit. 
If the Plan Administrator does not offer a Participant the payment
of Plan benefits within 10 days after the Participant terminates employment,
the Participant must file a claim for
benefits on a form prescribed by the Plan Administrator and within the time
frame set forth in subsection (c) above. 
If the claimant’s claim for a benefit is wholly or partially denied, the
Plan Administrator will furnish the claimant with a written notice of the
denial.  This written notice must be
provided to the claimant within a reasonable period of time (generally within ninety (90)
days, unless special circumstances require an extension of time for processing
the claim, in which case a period not to exceed one hundred and eighty (180)
days) after the receipt of the claimant’s claim by the Plan Administrator.  (If such an extension of time is required, written
notice of the extension will be furnished to the claimant prior to the
termination of the initial 90-day period, and will indicate the special
circumstances requiring the extension.) 
Written notice of denial of the claimant’s claim must contain the
following information:

 

(i)            the
specific reason or reasons for the denial;

 

(ii)           a specific
reference to those provisions of the Plan on which such denial is based;

 

 

8

 

(iii)          a description
of any additional information or material necessary to perfect the claimant’s
claim, and an explanation of why such material or information is necessary; and

 

(iv)          a copy of the
appeals procedures under the Plan and the time limits applicable to such
procedures, including a statement of the claimant’s right to bring a civil
action under Section 502(a) of the Employee Retirement Income Security Act
of 1974, as amended (“ERISA”)
following an adverse determination of the claimant’s claim.

 

If the claimant’s
claim has been denied, and the claimant wishes to submit his or her request for
a review of his or her claim, the claimant must follow the following Claims
Review Procedure:

 

1.                                       Upon the denial of his or her claim for
benefits, the claimant may file his or her request for review of his or her
claim, in writing, with the Plan Administrator or claims processor;

 

2.                                       The claimant must file the claim for
review not later than sixty (60) days after he or she has received written
notification of the denial of his or her claim for benefits.

 

3.                                       The claimant has the right to review and
obtain copies of all relevant documents relating to the denial of his or her
claim and to submit any issues and comments, in writing, to the Plan
Administrator;

 

4.                                       If the claimant’s claim is denied, the
Plan Administrator must provide the claimant with written notice of this denial
within sixty (60) days after the Plan Administrator’s receipt of the
claimant’s written claim for review. 
There may be times when this 60-day period may be extended.  This extension may only be made, however,
where there are special circumstances which are communicated to the claimant in
writing within the 60-day period.  If
there is an extension, a decision will be made as soon as possible, but not
later than one hundred and twenty (120) days after receipt by the Plan
Administrator of the claimant’s claim for review; and

 

5.                                       The Plan Administrator’s decision
regarding the claimant’s claim for review will be communicated to the claimant
in writing, and if the claimant’s claim for review is denied in whole or part,
the decision will include:

 

(A)                              the specific reason or reasons for the
denial;

 

(B)                                specific references to the pertinent provisions
of the Plan on which the decision was based;

 

(C)                                a statement that the claimant may receive,
upon request and free of charge, reasonable access to and copies of, all
documents, records 

 

 

9

 

and other information relevant to the
claimant’s claim for benefits; and

 

(D)                               a statement of the claimant’s right to
bring a civil action under Section 502(a) of ERISA.

 

8.             Plan Administration

 

(a)           Discretion

 

The
Plan Administrator is responsible for the general administration and management
of the Plan and shall have all powers and duties necessary to fulfill its
responsibilities, including, but not limited to, the discretion to interpret
and apply the Plan and to determine all questions relating to eligibility for
benefits.  The Plan Administrator and all
Plan fiduciaries shall have the discretion to interpret or construe ambiguous,
unclear, or implied (but omitted) terms in any fashion they deem to be
appropriate in their sole and absolute discretion, and to make any findings of
fact needed in the administration of the Plan. 
The validity of any such interpretation, construction, decision, or
finding of fact shall not be given de novo review if challenged in court, by
arbitration, or in any other forum, and shall be upheld unless clearly
arbitrary or capricious.

 

(b)           Finality of Determinations

 

Unless arbitrary and
capricious, all actions taken and all determinations by the Plan Administrator
or by Plan fiduciaries will be final and binding on all persons claiming any
interest in or under the Plan.  To the
extent the Plan Administrator or any Plan fiduciary has been granted
discretionary authority under the Plan, the Plan Administrator’s or Plan
fiduciary’s prior exercise of such authority shall not obligate it to exercise
its authority in a like fashion thereafter.

 

(c)           Drafting Errors

 

If, due to errors in
drafting, any provision of the Plan or any Participation Agreement does not
accurately reflect its intended meaning, as demonstrated by consistent
interpretations or other evidence of intent (by the Sponsor or the Plan
Administrator, as the case may be), or as determined by the Plan Administrator
in its sole and absolute discretion, the provision shall be considered
ambiguous and shall be interpreted by the Plan Administrator and all Plan
fiduciaries in a fashion consistent with its intent, as determined in the sole
and absolute discretion of the Plan Administrator (but with regard to the
intent of the Sponsor as settlor).

 

(d)           Scope

 

This Section may not be
invoked by any person to require the Plan to be interpreted in a manner
inconsistent with its interpretation by the Plan Administrator or other Plan
fiduciaries.

 

 

10

 

9.             Costs,
Indemnification, and Reimbursement for Litigation Expenses

 

(a)           All costs of administering the Plan and providing Plan
benefits will be paid by the Company.

 

(b)           To the extent permitted by applicable law and in
addition to any other indemnities or insurance provided by the Company, the
Company shall indemnify and hold harmless its (and its affiliates’) current and
former officers, directors, employees, and agents against all expenses,
liabilities, and claims (including legal fees incurred to defend against such
liabilities and claims) arising out of their discharge in good faith of their
administrative and fiduciary responsibilities with respect to the Plan.  Expenses and liabilities arising out of
willful misconduct will not be covered under this indemnity.

 

(c)           In the event that, at any time on or after the date three (3) months
before a Change in Control, a Participant substantially prevails over the
Company or any successor to its interests in any dispute that arises between
the Participant and the Company with respect to the terms or interpretation of
the Plan, whether instituted by formal legal proceeding or otherwise (including
any action that the Participant takes to enforce the terms of his or her
Participation Agreement or to defend against any action taken by the Company),
the Company shall reimburse the Participant for all costs and expenses, include
reasonable attorney’s fees, arising from such dispute, proceedings, or
actions.  Such reimbursement will however
be subject to proof of such costs.

 

10.          Plan
Amendment and Termination; Limitation on Employee Rights; Conditions of Receipt
of Benefits 

 

(a)           Sponsor May Amend or Terminate
the Plan

 

The
Sponsor, acting through its Board of Directors or its delegate, has the right
in its sole and absolute discretion to amend the Plan, to extend its term, or
to terminate the Plan, prospectively.

 

(b)           Application of Amendment or
Termination of the Plan

 

Notwithstanding
the foregoing, any amendment or termination of the Plan that occurs within the
three-month period before a Change in Control, in connection with a Change in
Control, or within two years after a Change in Control shall only apply to
those Participants:

 

(i)            who
consent individually and in writing to the amendment or termination; or

 

(ii)           whose vested Change
in Control Benefit, or rights under the Plan to become entitled to the Change
in Control Benefit set forth in his or her Participation Agreement are not
adversely affected by such amendment or termination.

 

Any
decision or interpretation that is made either after a Change in Control or
pursuant to this subparagraph (b) shall be subject to judicial review
under a de novo 

 

 

11

 

standard, and not under the arbitrary and capricious standard
that is generally intended to apply (and shall apply) to all other Plan
determinations and interpretations.

 

(c)           No Right to Continued Employment

 

This
Plan shall not give any employee the right to be retained in the service of the
Company, and shall not interfere with or restrict the right of the Company to
discharge or retire the employee for any lawful reason.

 

11.          Plan Funding

 

The Company shall
pay any Change in Control Benefits from its general assets.  Notwithstanding the foregoing, in the event
of a Change in Control, the Company shall establish and fund an irrevocable
grantor (a/k/a rabbi) trust from which all Change in Control Benefits shall be
paid.  The agreement which shall be used
to establish such trust is attached hereto as Exhibit B.

 

12.          Governing Law

 

This Plan is a
welfare plan subject to ERISA, and it shall be interpreted, administered, and
enforced in accordance with that law.  To
the extent that state law is applicable, the statutes and common law of the
State of Delaware (excluding its choice of laws principles) shall apply.

 

13.          Miscellaneous

 

Where the context
so indicates, the singular will include the plural and vice versa.  Titles are provided herein for convenience
only and are not to serve as a basis for interpretation or construction of the
Plan.  Unless the context clearly
indicates to the contrary, a reference to a statute or document shall be
construed as referring to any subsequently enacted, adopted, or executed
counterpart.

 

14.          Other Information

 

(a)           Type of Plan

 

This
is a welfare plan.

 

(b)           Addresses, etc.

 

The
Company’s address, telephone number, and employer identification number are as
follows:

 

SRS Labs, Inc.

2909 Daimler Street

Santa Ana,
California  92705

Attention: Chair,
Compensation Committee of the Board of Directors

Telephone: 949.442.1070

EIN: 33-0714264

 

The
Plan’s Plan Year is as follows:

 

Plan
Year:              Calendar

 

 

12

 

(c)           Agent for Service of Legal Process

 

The
Plan Administrator is the Plan’s agent for service of legal process.

 

(d)           Funding

 

The
Plan is funded out of the Company’s general assets.

 

(e)           Plan Amendment or Termination

 

The
Sponsor has reserved the right to amend and terminate the Plan as set forth in
Section 10 herein.

 

(f)            Statement of ERISA Rights

 

As
a participant in this Plan, you are entitled to certain rights and protections
under a federal law called the Employee Retirement Income Security Act of 1974,
as amended (as noted above, “ERISA”).  ERISA
provides that you are entitled to examine all Plan documents, including the
official Plan document and the Plan’s annual report, at the Plan Administrator’s
office and other specified locations without charge.  Copies of these documents and other Plan
information also may be obtained on written request to the Plan
Administrator.  A reasonable charge may
be requested for copies.

 

In
addition to creating rights for Plan participants, ERISA imposes duties on the
people who are responsible for the operation of this Plan.  The people who operate this Plan are called “fiduciaries.”  Plan fiduciaries have a duty to operate this
Plan prudently and in the interest of you and other Plan participants.  No one, including your employer or any other
person, may fire you or otherwise discriminate against you in any way to
prevent you from obtaining benefits or exercising your rights under ERISA.  If your claim for benefits is denied in whole
or in part, you must receive a written explanation of the reason for this
denial.  You have the right to have the
Plan Administrator review and reconsider your claim, as described elsewhere in
this Summary Plan Description.

 

Under
ERISA, there are steps you may be able to take to enforce your rights.  For instance, if you request certain
materials required to be furnished by the Plan and do not receive them within
30 days, or if you have any other claim with respect to the Plan, you must
utilize the Plan’s claims procedure, including its arbitration procedures.  You also may file suit in federal court.  In such a case, the court may require you to
pursue your claim through the Plan’s claims procedure or it may grant you the
relief you are seeking, for example, by ordering that you be provided with
materials you have requested and that you

 

 

13

 

be
paid up to $110 a day until you receive them, unless the materials were not
sent because of reasons beyond the Plan Administrator’s control.

 

If
you are discriminated against for asserting your rights, you should file a
claim under the Plan’s claims procedure, or you may seek assistance from the
U.S. Department of Labor or file suit in a federal court.  The court will decide whether you should have
pursued your claim through the Plan’s claims procedure and who should pay the
court costs and legal fees.  If you are
successful, the court may order the person you have sued to pay these costs and
fees.  If you lose any court case
involving the Plan, the court may order you to pay these costs and fees.  It may do so, for example, if it finds that
you should have used the Plan’s claims procedure or that your claim is
frivolous.  If you have any questions
about this statement or about your rights under ERISA, you should contact the
nearest area office of the Employee Benefits Security Administration, U.S.
Department of Labor, listed in your telephone directory or the Division of
Technical Assistance and Inquires, Employee Benefits Security Administration,
U.S. Department of Labor, 200 Constitution Avenue N.W., Washington, D.C.
20210.  You may also obtain certain
publications about your rights and responsibilities under ERISA by calling the
publications hotline of the Employee Benefits Security Administration or by
visiting its website (http://www.dol.gov/ebsa/).

 

(g)           Whom to Call for Additional
Information

 

If
you have any questions, please contact the Plan Administrator.

 

 

14

 

Exhibit A/Version 1

(Persons with Employment/

Severance Agreements)

 

SRS LABS, INC.

 

2005 CHANGE IN CONTROL PROTECTION PLAN

 

Participation
Agreement for Select Executive Officers

 

WHEREAS, SRS Labs,
Inc. (the “Company”)
sponsors and maintains the SRS Labs, Inc. 2005 Change in Control Protection
Plan (the “Plan”), and has
executed this agreement (the “Participation Agreement”)
in order to offer                           
(the “Officer”) the
opportunity to participate in the Plan;

 

WHEREAS, the
Officer has received a copy of the Plan (which also serves as its summary plan
description); and

 

WHEREAS, the
parties acknowledge that capitalized terms not defined in this Participation
Agreement shall have the meaning assigned to them in the Plan; and

 

WHEREAS, the
Officer understands that participation in the Plan requires that the
Participant to agree irrevocably to the terms of the Plan and the terms set
forth below; and

 

WHEREAS, the
Employee has had the opportunity to carefully evaluate this opportunity, and
desires to become a “Participant” in the Plan under the conditions set forth
herein.

 

NOW, THEREFORE,
the parties hereby AGREE as follows:

 

1.             If
the Officer incurs a Covered Termination while the Plan is in effect, the
Officer shall as soon as administratively practicable
thereafter (subject to Section 5 of the Plan and to Section 2 of this
Participation Agreement) receive the following benefits (the “Change in Control Benefits”):

 

(i)                                     A lump sum payment in cash equal to           
times the Officer’s “base amount” as determined by the Administrator in
accordance with Section 280G of the Internal Revenue Code of 1986, as
amended.  The term “base amount” refers
generally to an Officer’s average W-2 taxable income during the five years
preceding the year in which a Change in Control occurs.

 

(ii)                                  The Company’s payment of all premiums
payable for the Officer’s COBRA coverage for a period of eighteen (18) months
following the Officer’s Covered Termination.

 

Each of the
Participant’s benefits provided under this Section shall be subject to any
reduction required in accordance with Section 6 of the Plan.

 

 

 

2.             Notwithstanding
Section 1 of this Participation Agreement, the Officer shall not receive the
Change in Control Benefit set forth in Section 1 above if the Officer is
entitled to collect severance-related benefits (the “Contract
Benefits”) pursuant to a separate employment agreement or
severance agreement that the Officer has entered into with the Company or any
of its affiliates, unless the Officer waives any and all Contract Benefits in
writing within five business days after the Covered Termination.  If the Officer waives the Contract Benefits, the
Officer shall become entitled to receive the Change in Control Benefits in
accordance with the terms and conditions of the Plan and this Participation
Agreement.

 

3.             In
consideration of becoming eligible to receive the benefits provided under the
terms and conditions of the Plan, the Officer hereby waives any and all rights,
benefits, and privileges to which the Officer is or would otherwise be entitled
to receive under any plan, program, or arrangement under which the Company or
any of its affiliates provides severance benefits (excluding any retirement
plan, stock option or other stock-based plan or agreement, or other plan that
is not a “welfare plan” within the meaning of ERISA).  Subject to Section 2 of this Participation
Agreement, the Officer’s collection of the Change in Control Benefit pursuant
to this Participation Agreement shall be absolutely contingent on the Officer’s
agreement in the Release (i) to waive any and all rights under any
employment agreement or severance agreement that the Officer has entered into
with the Company or any of its affiliates, and (ii) that all such
agreements shall be terminated and become null and void upon the Officer’s
collection of the Change in Control Benefit.

 

4.             The
Officer understands that the waiver set forth in Section 3 above is irrevocable
for so long as this Participation Agreement is in effect, and that this
Participation Agreement and the Plan set forth the entire agreement between the
parties with respect to any subject matter covered herein.

 

5.             This
Participation Agreement shall terminate, and the Officer’s status as a “Participant”
in the Plan shall end, on the first to occur of (i) if before a Change in
Control occurs, the Officer’s termination of employment with the Company and
its affiliates, (ii) if after a Change in Control occurs, the Officer’s
termination of employment for a reason other than a “Covered Termination” as
defined in Section 3(b)(i) of the Plan, (iii) the date two years
after a Change in Control, and (iv) if before a Change in Control occurs,
the date twelve (12) months after the Company provides the Officer with written
notice that this Participation Agreement is being terminated by the Company in
its discretion as employer and Sponsor.

 

2

 

6.             The
Officer recognizes and agrees that execution of this Participation Agreement
results in enrollment and participation in the Plan, agrees to be bound by the
terms and conditions of the Plan and this Participation Agreement, and
understands that this Participation Agreement may not be amended or modified
except pursuant to Section 10 of the Plan. 
The Officer further agrees that to the extent there is any conflict or
ambiguity between the Plan and the Participation Agreement, the Plan prevails.

 

ACCEPTED AND
AGREED TO this                 
day of                                ,
20     .

 

	
  The “Officer”:

  	
   

  	
  The “Company”:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By

  
	
   

  	
   

  	
  A Duly Authorized Officer

  

 

3

 

Exhibit A/Version 2

(Persons without
severance 

agreements)

 

SRS LABS, INC.

 

2005 CHANGE IN CONTROL PROTECTION PLAN

 

Participation
Agreement for Select Employees

 

                WHEREAS, SRS Labs, Inc. (the “Company”) sponsors and maintains the
SRS Labs, Inc. 2005 Change in Control Protection Plan (the “Plan”), and has executed this agreement
(the “Participation Agreement”) in order
to offer                             
(the “Employee”) the
opportunity to participate in the Plan;

 

                WHEREAS, the Employee has
received a copy of the Plan (which also serves as its summary plan
description); and

 

                WHEREAS, the parties acknowledge
that capitalized terms not defined in this Participation Agreement shall have
the meaning assigned to them in the Plan; and

 

                WHEREAS, the Employee
understands that participation in the Plan requires that the Employee agree
irrevocably to the terms of the Plan and the terms set forth below; and

 

                WHEREAS, the Employee has had
the opportunity to carefully evaluate this opportunity, and desires to become a
“Participant” in the Plan under the conditions set forth herein.

 

                NOW, THEREFORE, the parties
hereby AGREE as follows:

 

                1.             If the Employee incurs a Covered Termination while the
Plan is in effect, the Employee shall as soon as
administratively practicable thereafter (but subject to Section 5 of the Plan)
receive a lump sum payment in cash (the “Change in Control Benefit”) equal to          
times the Employee’s “base amount” as determined by the Administrator in
accordance with Section 280G of the Internal Revenue Code of 1986, as amended,
subject to any reduction required in accordance with Section 6 of the
Plan.  The term “base amount” refers
generally to an Employee’s average W-2 taxable income during the five years
preceding the year in which a Change in Control occurs.  In addition, the Company shall pay all
premiums payable for the Employee’s COBRA coverage for a period of eighteen
(18) months following the Employee’s Covered Termination.  All of the Employee’s benefits provided under
this Section shall be subject to any reduction required in accordance with
Section 6 of the Plan

 

                2.             In consideration of becoming eligible to receive the
benefits provided under the terms and conditions of the Plan, the Employee
hereby waives any and all rights, 

 

 

 

benefits, and privileges to which the Employee is
or would otherwise be entitled to receive under —

 

(a)                                  any employment agreement or severance
agreement that the Employee has entered into with the Company or any of its
affiliates; and

 

(b)                                 any plan, program, or arrangement under
which the Company or any of its affiliates provides severance benefits
(excluding any retirement plan, stock option or other stock-based plan or
agreement, or other plan that is not a “welfare plan” within the meaning of
ERISA).

 

                3.             The Employee understands that the waiver set forth in
Section 2 above is irrevocable for so long as this Participation Agreement is
in effect, and that this Participation Agreement and the Plan set forth the
entire agreement between the parties with respect to any subject matter covered
herein.

 

                4.             This Participation Agreement shall terminate, and the
Employee’s status as a “Participant” in the Plan shall end, on the first to
occur of (i) if before a Change in Control occurs, the Employee’s
termination of employment with the Company and its affiliates, (ii) if
after a Change in Control occurs, the Employee’s termination of employment for
a reason other than a “Covered Termination” as defined in Section 3(b)(i) of
the Plan, (iii) the date two years after a Change in Control, and (iv) if
before a Change in Control occurs, the date twelve (12) months after the
Company provides the Employee with written notice that this Participation
Agreement is being terminated by the Company in its discretion as employer and
Sponsor.

 

                5.             The Employee recognizes and agrees that execution of
this Participation Agreement results in enrollment and participation in the
Plan, agrees to be bound by the terms and conditions of the Plan and this
Participation Agreement, and understands that this Participation Agreement may
not be amended or modified except pursuant to Section 10 of the Plan.  The Employee further agrees that to the
extent there is any conflict or ambiguity between the Plan and the Participation
Agreement, the Plan prevails.

 

                ACCEPTED AND AGREED TO this                 
day of                             ,
20      .

 

	
  The “Employee”:

  	
   

  	
  The “Company”:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By 

  
	
   

  	
   

  	
  A Duly Authorized Officer

  

 

2

 

Exhibit
B

 

SRS LABS, INC.

 

GRANTOR TRUST AGREEMENT

 

PREAMBLE.  This Grantor
Trust Agreement (the “Trust Agreement”) made this             day
of                      ,
20        
(the “Effective Date”), by and
between SRS Labs, Inc. and any successor to its interest (the “Company”) as
creator and grantor, and                                   
as trustee (the “Trustee”).

 

WHEREAS, the
Company has adopted the SRS Labs, Inc. 2005 Change in Control Protection Plan
attached as Exhibit
A (the
“Plan”)
under which the Company has current or potential liability to individuals (the “Beneficiaries”)
who are either participants in the Plan or are the designated beneficiary for
any benefits payable under the Plan in the event of the death of an individual
who is a participant in the Plan;

 

WHEREAS, it is the
intention of the Company to establish, upon a Change in Control as defined in
Section 1(c) of the Plan (a “Change in Control”),
this trust (the “Trust”)
and to contribute assets to the Trust that shall be held therein, subject to
the claims of the Company’s general creditors in the event of the Company’s
Insolvency, as defined in Section 3(a) hereof, until paid to Beneficiaries
of this Trust in such manner and at such times as specified in the Plan;

 

WHEREAS, it is the
intention of the parties hereto that this Trust shall constitute an unfunded
arrangement and shall not affect the status of the Plan as being unfunded for
purposes of Title I of the Employee Retirement Income Security Act of 1974; and

 

WHEREAS, it is the
intention of the Company to make contributions to the Trust following a Change
in Control to enable the Trust to fully fund its liabilities under the Plan.

 

NOW, THEREFORE,
the parties do hereby establish this Trust and agree that the Trust shall be
established and administered as set forth herein:

 

1.             Establishment
of Trust

 

(a)           Upon a Change in Control, the Company shall, as soon
as possible but in no event later than ten business days after the Change in
Control, make an irrevocable contribution to this Trust in an amount that is
projected to provide the Trust with sufficient liquid assets
(meaning assets readily convertible into cash) to pay (i) each Beneficiary the benefits to which
he or she is entitled pursuant to the Plan as in effect on the date of the
Change in Control, and (ii) all fees associated with maintaining the Trust
for the maximum period over which Beneficiaries are reasonably expected to be
receiving payments from the Trust.  Any
amendment to the Plan’s definition of Change in Control shall be deemed to
apply with equal force, effect, and timing to the definition of Change in
Control for purposes of this Trust, except that a modification that does or may
adversely affect a Beneficiary shall be ineffectual as to the Beneficiary
unless he or she consents in writing to be bound by the modification.

 

 

 

(b)           Within 75 days following each December 31st after
a Change in Control occurs, the Company shall, if the
Trustee deems necessary, be required to irrevocably deposit additional cash or
other liquid assets to the Trust in an amount sufficient to pay each
Beneficiary the benefits to which he or she is entitled pursuant to the
Plan.  The Trustee shall have the right
to monitor, enforce and/or collect any amounts due and owing from the Company
or to give notice of any default in the payment of benefits to Participants.

 

(c)           The Trust hereby established shall be irrevocable.

 

(d)           The Trust is intended to be a grantor trust, of which
the Company is the grantor, within the meaning of subpart E, part I, subchapter
J, chapter 1, subtitle A of the Internal Revenue Code of 1986, as amended (the “Code”), and
shall be construed accordingly.

 

(e)           The principal of the Trust,
and any earnings thereon, shall be held separate and apart from other funds of
the Company, and shall be used exclusively for the uses and purposes of
Beneficiaries and general creditors as herein set forth.  Beneficiaries shall have no preferred claim
on, or any beneficial ownership interest in, any Trust assets.  Any rights created under the Plan and this
Trust Agreement shall be unsecured contractual rights of the Beneficiaries, as
provided for in this Trust Agreement. 
Any assets held by the Trust will be subject to the claims of the
Company’s general creditors under federal and state law in the event of
Insolvency, as defined in Section 3(a) herein.

 

2.             Payments
to Beneficiaries

 

(a)           Upon a Change in Control, the Company shall, as soon
as possible but in no event later than ten business days after the Change in
Control, deliver to the Trustee a schedule (the “Payment
Schedule”) which reflects the benefits payable with respect to
each Beneficiary on account of the Change in Control.  Except as otherwise
provided herein, the Trustee shall make payments to Beneficiaries in accordance
with such Payment Schedule.  The
Trustee shall make provisions for the reporting and withholding of any federal,
state or local taxes that may be required to be withheld with respect to the
payment of benefits pursuant to the terms of the Plan and shall pay amounts
withheld to the appropriate taxing authorities or determine that such amounts
have been reported, withheld, and paid by the Company.

 

(b)           The entitlement of a Beneficiary to benefits under the
Plan shall be determined by the Company or such party as may be designated
under the Plan, and any claim for such benefits shall be considered and
reviewed under the procedures set forth in the Plan.

 

(c)           The Company may make payment of benefits directly to
Beneficiaries as such benefits become due under the terms of the Plan.  The Company shall notify the Trustee of its
decision to make such payment of benefits prior to the time benefits are
payable to Beneficiaries.  In addition,
if the principal of the Trust, and any earnings
thereon, are not sufficient to make payments of benefits in accordance with the
terms of the Plan, the Company shall make the balance of each such payment as
due.  The Trustee shall notify the
Company when existing principal and earnings are insufficient under the Payment
Schedule.

 

 

 

(d)           The Trustee shall make distributions from the Trust in
a manner reasonably intended to provide each Beneficiary with all of his or her
benefits payable under the Plan.

 

3.                                      Trustee Responsibility Regarding Payments to Trust
Beneficiary When the Company Is Insolvent

 

(a)           The Trustee shall cease payment of benefits to
Beneficiaries if the Company is Insolvent. 
The Company shall be considered “Insolvent”
for purposes of this Trust Agreement if (i) the Company is unable to pay
its debts when the same become due, or (ii) the Company files a voluntary
petition under Chapter 11 of the Federal Bankruptcy Code, or (iii) an
involuntary petition under Chapter 11 of the Federal Bankruptcy Code is filed
with respect to the Company.

 

(b)           At all times during the existence of this Trust, as
provided in Section 1(d) hereof, the principal and income of the Trust
shall be subject to claims of general creditors of the Company under federal
and state law as set forth below.

 

(c)           The Board of Directors and the Chief Executive Officer
of the Company shall have the duty to inform the Trustee in writing of the
Company’s Insolvency.  If a person
claiming to be a creditor of the Company alleges in writing to the Trustee that
the Company has become Insolvent, the Trustee shall determine whether the
Company is Insolvent and, pending such determination, the Trustee shall discontinue
payment of benefits to Beneficiaries.

 

(i)         Unless the Trustee has actual knowledge
of the Company’s Insolvency, or has received notice from the Company or a
person claiming to be a creditor alleging that the Company is Insolvent, the
Trustee shall have no duty to inquire whether the Company is Insolvent.  The Trustee may in all events rely on such
evidence concerning the Company’s solvency as may be furnished to the Trustee
and that provides the Trustee with a reasonable basis for making a determination
concerning the Company’s solvency.

 

(ii)        If at any time the Trustee has
determined that the Company is Insolvent, the Trustee shall discontinue
payments to Beneficiaries, shall liquidate the Trust’s investment, if any, in
common stock (“Common Stock”) of the Company, and shall hold the assets of the
Trust for the benefit of the Company’s general creditors.  Nothing in this Trust Agreement shall in any
way diminish any rights of Beneficiaries as general creditors of the Company
with respect to benefits due under the Plan or otherwise.

 

(iii)       The Trustee shall resume the payment of
benefits to Beneficiaries in accordance with Section 2 of this Trust Agreement
only after the Trustee has determined that the Company is not Insolvent or is no longer Insolvent.

 

(d)           If the Trustee discontinues the payment of benefits
from the Trust pursuant to Section 3(a) hereof and subsequently resumes
such payments, the first payment following such discontinuance shall include
the aggregate amount of all payments due to Beneficiaries under the terms of
the Plan for the period of such discontinuance, provided that there are
sufficient assets to make such payments. 
The aggregate amount of any payments to Beneficiaries by the Company, in

 

 

 

lieu of the payments provided for hereunder
during any such period of discontinuance, shall be deducted from any payments
made by the Trustee hereunder.

 

4.             Payments
to the Company

 

After the Trust
has become irrevocable, the Company shall have no right or power to direct the
Trustee to return to the Company or to divert to others any of the Trust assets
before all payment of benefits have been made to Beneficiaries pursuant to the
terms of the Plan, except as provided for in Section 3 hereof.

 

5.             Investment
Authority

 

(a)           The Trustee shall have the sole discretion as to the
investment of Trust assets, provided that the Trustee shall invest Trust assets
in a manner reasonably anticipated to provide the Trust with assets sufficient
to fund the Company’s obligations under the Plan.

 

(b)           All rights associated with assets of the Trust shall
be exercised by the Trustee or the person designated by the Trustee, and shall
in no event be exercisable by or through Beneficiaries.  The Company shall have the continuing
obligation to substitute liquid assets of equal fair market value for any
illiquid assets held by the Trust, and the Trustee
shall have full authority to convert any illiquid assets into liquid assets.

 

6.             Disposition
of Income

 

During the term of
this Trust, all income received by the Trust, net of expenses and taxes, shall
be reinvested.

 

7.             Accounting
by Trustee

 

The Trustee shall
keep accurate and detailed records of all investments, receipts, disbursements
of all transactions, including such specific records as shall be agreed upon in
writing between the Company and the Trustee. 
Within 75 days following each December 31 after the execution of
this Agreement, and within 20 days after the removal or resignation of the
Trustee, the Trustee shall deliver to the Company a written account of its
administration of the Trust during such year or during the period from the
close of the last preceding year to the date of such removal or resignation,
reflecting all investments, receipts, disbursements and other transactions
effected by it, including a description of all securities and investments
purchased and sold with the cost or net proceeds of such purchases or sales
(accrued interest paid or receivable recorded separately), and reflecting all
cash, securities and other property held in the Trust at the end of such year
or as of the date of such removal or resignation, as applicable.

 

8.             Responsibility
of Trustee

 

(a)           The Trustee shall act with the care, skill, prudence
and diligence under the circumstances then prevailing that a prudent person acting
in like capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like objectives, 

 

 

 

provided, however, that
the Trustee shall incur no liability to any person for any action taken
pursuant to a direction, request or approval given by the Company which is
contemplated by, and in conformity with, the terms of the Plan or this Trust
Agreement and is given in writing by the Company.  In the event of a dispute between the Company
and a party, the Trustee may apply to a court of competent jurisdiction to
resolve the dispute.

 

(b)           If the Trustee undertakes or defends any litigation
arising in connection with this Trust, the Company agrees to indemnify the
Trustee against Trustee’s costs, expense and liabilities (including, without
limitation, attorneys’ fees and expenses) relating thereto and to be primarily
liable for such payments, except in those cases where the Trustee shall have
been found by a court of competent jurisdiction to have acted with negligence
or willful misconduct.  If the Company
does not pay such costs, expenses and liabilities in a reasonably timely
manner, the Trustee may obtain payment from the Trust.

 

(c)           The Trustee may consult with legal counsel with
respect to any of its duties or obligations hereunder.

 

(d)           The Trustee may hire agents, accountants, actuaries,
investment advisors, financial consultants or other professionals to assist it
in performing any of its duties or obligations hereunder.

 

(e)           The Trustee shall have, without exclusion, all powers
conferred on trustees by applicable law, unless expressly provided otherwise
herein, provided, however, that if an insurance policy is held as an asset of
the Trust, the Trustee shall have no power to name a beneficiary of the policy
other than the Trust, to assign the policy (as distinct from conversion of the
policy to a different form) other than to a successor Trustee, or to loan to
any person the proceeds of any borrowing against such policy.

 

(f)            Notwithstanding any powers granted to the Trustee
pursuant to this Trust Agreement or to applicable law, the Trustee shall not
have any power that may accord the Trust the authority to engage in a business
and to receive the gains therefrom, within the meaning of section 301.7701-2 of
the Procedure and Administrative Regulations promulgated pursuant to the Code.

 

9.             Compensation
and Expenses of Trustee

 

The Company shall
pay all administrative expenses and the Trustee’s fees and expenses relating to
the Plan and this Trust.  If not so paid,
the fees and expenses shall be paid from the Trust.

 

10.          Resignation
and Removal of Trustee

 

The Trustee may
resign at any time by written notice to the Company, which resignation shall be
effective 30 days after the Company receives such notice (unless the Company
and the Trustee agree otherwise).  The
Trustee may be removed by the Company on 30 days notice, or upon shorter notice
accepted by the Trustee; provided that if such removal occurs on or after a
Change in 

 

 

 

Control,
or within 90 days beforehand, the removal will be ineffective unless it is done
with the written consent of Beneficiaries who are entitled to at least 75% of
the Trust’s assets.

 

If the Trustee
resigns or is removed, a successor shall be appointed, in accordance with
Section 11 hereof, by the effective date or resignation or removal under this
section.  If no such appointment has been
made, the Trustee may apply to a court of competent jurisdiction for
appointment of a successor or for instructions. 
All expenses of the Trustee in connection with the proceeding shall be
allowed as administrative expenses of the Trust.  Upon resignation or removal of the Trustee
and appointment of a Successor Trustee, all assets shall subsequently be transferred
to the Successor Trustee.  The transfer
shall be completed within 60 days after receipt of a notice of resignation,
removal or transfer, unless the Company extends the time for such transfer.

 

11.          Appointment
of Successor

 

If the Trustee
resigns or is removed in accordance with Section 10 hereof, the Company may
appoint any other party as a successor to replace the Trustee upon such
resignation or removal.  The appointment
shall be effective when accepted in writing by the new trustee, who shall have all
of the rights and powers of the former trustee, including ownership rights in
the Trust assets.  The former trustee
shall execute any instrument necessary or reasonably requested by the Company
or the Successor Trustee to evidence the transfer.  Notwithstanding the foregoing, if the Trustee
resigns or is removed in connection with or following a Change in Control, the
Trustee that has resigned or is being removed shall appoint as its successor a
third party financial institution that has trust powers, is independent of and
unrelated to the Company, its affiliates, or their successors, and is agreed to
in writing by Beneficiaries who are entitled to at least 75% of the Trust’s
assets.

 

A Successor
Trustee need not examine the records and acts of any prior trustee and may
retain or dispose of existing Trust assets, subject to Sections 7 and 8
hereof.  The Successor Trustee shall not
be responsible for, and the Company shall indemnify and defend the Successor
Trustee from, any claim or liability resulting from any action or inaction of
any prior trustee or from any other past event, or any condition existing at
the time it becomes Successor Trustee.

 

12.          Amendment
or Termination

 

(a)           This Trust Agreement may be amended by a written
instrument executed by the Trustee and the Company, provided that no such
amendment shall either conflict with the terms of the Plan.

 

(b)           Notwithstanding subsection (a) hereof, the
provisions of this Trust Agreement and the Trust created thereby may not be
amended, within six months before or at any time on or after a Change in
Control occurs, without the written consent of Beneficiaries who are entitled
to at least 75% of the Trust’s assets.

 

(c)           The Trust shall not terminate until the date on which
no Beneficiary is entitled to benefits pursuant to the terms hereof or of the
Plan.  Upon termination of the Trust, the
Trustee shall return any assets remaining in the Trust to the Company.

 

 

 

(d)           The Company may terminate this Trust prior to the
payment of all benefits under the Plan only upon written approval of all Beneficiaries
entitled to payment of such benefits.

 

13.          Miscellaneous

 

(a)           Any provision of this Trust Agreement prohibited by
law shall be ineffective to the extent of any such prohibition, without
invalidating the remaining provisions hereof.

 

(b)           Benefits payable to Beneficiaries under this Trust
Agreement may not be anticipated, assigned (either at law or in equity),
alienated, pledged, encumbered or subjected to attachment, garnishment, levy,
execution or other legal or equitable process, except pursuant to the terms of
the Plan and this Trust Agreement.

 

(c)           This Trust Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware without
reference to the principles of conflicts of laws.

 

(d)           The Trustee agrees to be bound by the terms of the
Plan, as in effect from time to time.

 

14.          Effective
Date

 

The Effective Date
of this Trust Agreement shall be the date referenced in the Preamble.

 

 

IN
WITNESS WHEREOF, the Company, by its duly authorized officer, has caused this
Trust Agreement to be executed, and its corporate seal affixed, and the Trustee
has executed this Trust Agreement, on the date referenced in the Preamble.

 

 

	
  Witnessed by:

  	
  SRS LABS, INC.

  
	
   

  	
  By

  
	
   

  	
  Its

  
	
  Witnessed by:

  	
  TRUSTEE

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