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                                                                   EXHIBIT 10.31

                    SEPARATION AGREEMENT AND GENERAL RELEASE

I.       PARTIES

         This Separation Agreement and General Release (the "Separation
Agreement" or the "Agreement") is entered into between the following parties
(the "Parties"):

         A.       Terry Beard ("Beard") individually;

         B.       Digital Theater Systems, Inc. ("DTS" or the "Company"); and

         C.       Nuoptix, Inc. ("Nuoptix").

II.      RECITALS

         This Separation Agreement is made with reference to the following
facts:

         A.       As of the Effective Date, Beard and DTS mutually agree that
Beard shall resign as Chairman of the Board of Directors of DTS, but shall
continue as a Director of DTS.

         B.       Certain disputes have arisen between Beard, on the one hand,
and DTS, on the other hand, regarding, among other things, the circumstances
under which Beard was employed and the Employment Agreement between Beard and
DTS, dated October 24, 1997 ("Employment Agreement"). The Parties' opposing
views on these and related issues that are in dispute are referred to as the
"Dispute."

         C.       Beard and DTS each acknowledge that the Dispute consists of
disputed claims and that the Parties have disagreements as to both the facts and
the law relating to the Dispute. The Parties further acknowledge that this
Separation Agreement does not constitute an admission by the Parties as to the
merits of any claim that any Party may have, may have had or may come to have.
Each of the Parties has concluded, however, that litigation of this matter
through arbitration, trial or otherwise would be expensive and protracted and
that it would be much more desirable that the Dispute be settled fully and
finally in the manner and upon the terms and conditions set forth within this
Separation Agreement, solely to avoid the expense of litigation or other dispute
resolution.

         D.       This Separation Agreement is intended to settle fully and
finally the Dispute and any other matters that in any way are related to or
arise out of Beard's employment with DTS, the termination of that employment, or
any written, oral or implied contract of any kind whatsoever concerning that
employment in any way. The Parties acknowledge and agree that, after the Parties
have executed the Separation Agreement, neither party shall have any further
obligations or duties of any kind whatsoever to the other as a result of Beard's
previous employment with DTS, except as provided herein.

         E.       Nuoptix, Inc. is wholly owned by Beard. This Separation
Agreement is also intended to conclude the relationship between Nuoptix, and
DTS, and DTS agrees that as of the Effective Date Nuoptix shall have no
obligations to perform services or provide goods to DTS except as expressly
provided in Article VII, below.

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         F.       As a founder of DTS, Beard has certain rights exercisable with
his son Patrick under the Stockholders Agreement dated as of October 24, 1997,
exercisable solely by the two of them, including to (i) designate two (2)
members of the DTS Board of Directors (Beard is serving as one of the two
Directors so designated) and (ii) to veto any amendment to, or agreement to
terminate the Stockholders Agreement. These rights are confirmed by a Second
Amendment to Stockholders Agreement, the form of which is attached hereto and
incorporated herein by this reference.

III.     RELEASES

         A.       Beard's Release of DTS.

                  1.       In consideration of the terms and provisions of this
Separation Agreement and in consideration of DTS' payments to Beard and DTS'
agreements and acknowledgments as set forth in Article VII, below, Beard,
hereby, generally and unconditionally, relieves, releases, remises, acquits and
forever discharges DTS and its Related Entities(1), of and from any and all
claims, demands, rights, actions, causes of action, suits, contracts, debts,
controversies, expenses, liabilities, obligations, damages, losses, expenses
(including, without limitation, reasonable attorneys' fees, except as expressly
set forth within this Agreement), penalties, costs and allegations of any kind
and character whatsoever, whether legal, contractual, statutory administrative
or equitable in nature or otherwise, whether known or unknown, suspected or
unsuspected, direct or indirect, absolute, fixed or contingent, that Beard now
owns, holds, has or claims to have, or owned at any time, held, had or claimed
to have had or may come to own, hold, have or claim to have against DTS and its
Related Entities arising out of or in connection with the Dispute or Beard's
employment with DTS.

                  2.       The release set forth above includes, without
limitation, all claims, demands, causes of action, facts, transactions,
occurrences, circumstances, acts or omissions, or allegations of any kind and
character whatsoever asserted by Beard or which could have been asserted by
Beard in connection with the Dispute or Beard's employment with DTS, including
any and all facts in any manner arising out of, related or pertaining to or
connected with those claims or with the terms of or value of any consideration
paid to Beard in connection with Beard's employment, or termination of
employment from, DTS, or any of its Related Entities,

---------------------------
(1)      For purposes of this Settlement Agreement, a Party's "Related
         Entities" shall be defined as his or its past, present and future
         partners and partners of those partners, successors,
         predecessors, assignees, beneficiaries, heirs, legatees,
         devisees, executors, administrators, legal representatives,
         children, joint venturers, principals, agents, trustees,
         attorneys, insurers, officers, directors, employees,
         shareholders, affiliates and associates; its parent and
         subsidiary corporations, divisions, affiliated companies and the
         officers, directors, partnerships, representatives, employees,
         shareholders and affiliates of each of them; and any other
         representative of the Party, including, without limitation, in
         the case of DTS, Troy & Gould Professional Corporation and its
         officers, directors, shareholders and employees, and in the case
         of Beard and Nuoptix, Isen and Grant Incorporated and its
         officers, directors, shareholders and employees.

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including, without limitation, any claims based on, related to or arising from
federal, state or local laws (including, but not limited to, the Age
Discrimination in Employment Act, the California Labor Code, Title VII of the
Civil Rights Act of 1964, as amended, and the Fair Labor Standards Act) that
prohibit employment discrimination on the basis of race, national origin,
religion, age, gender, marital status, pregnancy, handicap, perceived handicap,
ancestry, sexual orientation, family or personal leave or of any other form of
discrimination, or from laws such as workers' compensation laws, which provide
rights and remedies for injuries sustained in the workplace or from any common
law claims of any kind, including, without limitation, contract, tort or
property rights including, but not limited to, breach of express or implied
contract, breach of the implied covenant of good faith and fair dealing,
tortious interference with contract or current or prospective economic
advantage, fraud, deceit, breach of privacy, misrepresentation, defamation,
wrongful termination, tortious infliction of emotional distress, loss of
consortium, breach of fiduciary duty, violation of public policy and any other
common law claim of any kind whatsoever, any claims for severance pay, sick
leave, family leave, vacation, life insurance, bonuses, health insurance,
disability or medical insurance or any other fringe benefit or compensation, and
all rights or claims arising under the Employment Retirement Income Security Act
of 1974 ("ERISA") or pertaining to ERISA regulated benefits (all collectively
defined as "Beard's Released Claims").

         B.       DTS' Release of Beard.

                  1.       In consideration of the terms and provisions of this
Separation Agreement and in consideration of Beard's agreements and
acknowledgments as set forth in Article VII, below, DTS hereby, generally and
unconditionally, relieves, releases, remises, acquits and forever discharges
Beard and his Related Entities of and from any and all claims, demands, rights,
actions, causes of action, suits, contracts, debts, controversies, expenses,
liabilities, obligations, damages, losses, expenses (including, without
limitation, reasonable attorneys' fees except as expressly set forth within this
Agreement), penalties, costs and allegations of any kind and character
whatsoever, whether legal, contractual, statutory, administrative or equitable
in nature or otherwise, whether known or unknown, suspected or unsuspected,
direct or indirect absolute, fixed or contingent, that DTS now owns, holds, has
or claims to have, or owned at any time, held, had or claimed to have had or may
come to own, hold, have or claim to have against Beard or his Related Entities
arising out of or in connection with the Dispute or Beard's employment with DTS
and all claims, demands, causes of action, facts, transactions, occurrences,
circumstances, acts or omissions, or allegations of any kind and character
whatsoever asserted by the Parties or which could have been asserted by the
Parties in connection with the Dispute or Beard's employment with DTS.

                  2.       The release set forth above includes, without
limitation, all claims, demands, causes of action, facts, transactions,
occurrences, circumstances, acts or omissions, or allegations of any kind and
character whatsoever asserted by DTS or which could have been asserted by DTS in
connection with the Dispute or Beard's employment with DTS, including any and
all facts in any manner arising out of, related or pertaining to or connected
with those claims or with the terms of or value of any consideration paid to
Beard in connection with Beard's employment, or termination of employment from
DTS, or any of its Related Entities, including but not limited to, breach of the
implied covenant of good faith and fair dealing, tortious interference with
contract or current or prospective economic advantage, fraud, deceit, breach of

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privacy, misrepresentations, defamation, wrongful termination of public policy,
or any other common law claim of any kind whatsoever (all of these claims and
Beard's Released Claims defined collectively as the "Released Claims").

         C.       DTS' Release of Nuoptix. In consideration of the terms and
provisions of this Separation Agreement and in consideration of the agreements
of and acknowledgments of Nuoptix as set forth in Article VII, below, DTS
hereby, generally and unconditionally, relieves, releases, remises, acquits and
forever discharges Nuoptix and its Related Entities of and from any and all
claims, demands, rights, actions, causes of action, suits, contracts, debts,
controversies, expenses, liabilities, obligations, damages, losses, expenses
(including, without limitation, reasonable attorneys' fees except as expressly
set forth within this Agreement), penalties, costs and allegations of any kind
and character whatsoever, whether legal, contractual, statutory, administrative
or equitable in nature or otherwise, whether known or unknown, suspected or
unsuspected, direct or indirect, absolute, fixed or contingent, that DTS now
owns, holds, has or claims to have, or owned at any time, held, had or claimed
to have had or may come to own, hold, have or claim to have against Nuoptix or
its Related Entities arising out of or in connection with any written or oral
agreement of Nuoptix to provide any goods and/or services to DTS, and/or any
goods and/or services, provided by Nuoptix, to DTS to the Effective Date of this
Agreement, and all claims, demands, causes of action, facts, transactions,
occurrences, circumstances, acts or omissions, or allegations of any kind and
character whatsoever asserted by DTS or which could have been asserted by DTS in
connection therewith (all of these claims, Beard's Released Claims and DTS
Released Claims provided in Paragraph B above, defined collectively as the
"Released Claims").

         D.       Nuoptix's Release of DTS. In consideration of the terms and
provisions of this Separation Agreement and in consideration of the agreements
of and acknowledgments of DTS as set forth in Article VII, below, Nuoptix
hereby, generally and unconditionally, relieves, releases, remises, acquits and
forever discharges DTS and its Related Entities of and from any and all claims,
demands, rights, actions, causes of action, suits, contracts, debts,
controversies, expenses, liabilities, obligations, damages, losses, expenses
(including, without limitation, reasonable attorneys' fees except as expressly
set forth within this Agreement), penalties, costs and allegations of any kind
and character whatsoever, whether legal, contractual, statutory, administrative
or equitable in nature or otherwise, whether known or unknown, suspected or
unsuspected, direct or indirect, absolute, fixed or contingent, that Nuoptix now
owns, holds, has or claims to have, or owned at any time, held, had or claimed
to have had or may come to own, hold, have or claim to have against DTS or its
Related Entities arising out of or in connection with any written or oral
agreement by DTS to pay for any goods and/or services provided by Nuoptix to DTS
to the Effective Date of this Agreement, and all claims, demands, causes of
action, facts, transactions, occurrences, circumstances, acts or omissions, or
allegations of any kind and character whatsoever asserted by Nuoptix or which
could have been asserted by Nuoptix in connection therewith (all of these
claims, the DTS Released Claims provided in Paragraph B above, and the DTS
Released Claims provided in Paragraph C above, defined collectively as the
"Released Claims").

         E.       Unknown Claims and Risks Released by the Parties. The Parties,
and each of them, hereby knowingly, voluntarily and expressly waive and
relinquish any and all rights and benefits that they may have under Section 1542
of the California Civil Code, or under any

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similar provision of law of any state or territory of the United States or any
other jurisdiction and under any similar or analogous principle of common law.
The Parties, and each of them, expressly understand that Section 1542 of the
California Civil Code provides as follows:

                  "A general release does not extend to claims
                  which the creditor does not know or suspect
                  to exist in his favor at the time of executing
                  the release which, if known by him, must have
                  materially affected his settlement with the
                  debtor."

         The Parties, and each of them, agree and acknowledge that they are
familiar with Section 1542 of the California Civil Code. The Parties, and each
of them, further agree and acknowledge that their respective waivers of all
rights or any similar benefits under that Section and under any similar statutes
of any other jurisdiction (to the full extent that the Parties lawfully may
waive all such rights and benefits with respect to the subject matter of this
Separation Agreement) are essential terms of this Separation Agreement, without
which the consideration given pursuant to this Separation Agreement would not
have been given by the Parties, and each of them.

         F.       MATTERS NOT INCLUDED AS A RELEASED CLAIM

         The parties agree that the agreements and acknowledgments set forth in
Article VII below are not subject to any of the foregoing releases.

IV.      ASSUMPTION OF RISK REGARDING RELEASED CLAIMS

         A.       The Parties acknowledge that there is a risk that, after
execution of this Separation Agreement, they may discover, incur or suffer
claims that were unknown or unanticipated at the time of this Separation
Agreement, including, but not limited to, unknown or unanticipated claims that
arise from, are based upon or are related to any facts underlying the Released
Claims, which had they been known or more fully understood, may have affected
the Parties' decisions to execute the Separation Agreement as it currently is
written. Each Party knowingly and expressly assumes the risk of these unknown
and unanticipated claims and agrees that this Separation Agreement and the
general releases set forth within it apply to all such unknown, unanticipated or
potential claims.

         B.       Furthermore, it is the intention of the Parties, by entering
into this Separation Agreement, to settle and release fully, finally and forever
all Released Claims and any and all claims that now exist, or may have at any
time existed or shall come to exist in connection with the Dispute or Beard's
employment and relationship with DTS. In furtherance of the Parties' intention,
the releases given within this Separation Agreement (including, without
limitation, the waivers set forth in Article III, paragraph C, above) shall be
and remain in effect as full and complete releases and discharges of the
Released Claims and of any related matters notwithstanding the discovery by any
Party of the existence of any additional or different claims or the facts
relative to any such claims.

V.       COVENANT NOT TO SUE

         A.       Subject to the excepted matters set forth in Article VI., each
Party to this Separation Agreement agrees that he or it will forever refrain and
forbear from commencing,

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instituting or prosecuting any lawsuit, action or other proceeding, in law,
equity or otherwise, against any other Party or against any Party's Related
Entities, in any way arising out of or relating to the Employment Agreement,
Dispute and/or the Released Claims.

         B.       The Parties acknowledge and agree that monetary damages alone
are inadequate to compensate any Party or any Party's Related Entities for
injury caused or threatened by a breach of this Covenant Not to Sue and that
preliminary and permanent injunctive relief restraining and prohibiting the
prosecution of any action or proceeding brought or instituted in violation of
this Covenant Not to Sue is a necessary and appropriate remedy in the event of
such a breach. Nothing contained in this Article, however, shall be interpreted
or construed to prohibit or in any way to limit the right of a non-breaching
Party or of any of its Related Entities to obtain, in addition to injunctive
relief, an award of monetary damages against any person or entity breaching this
Covenant Not to Sue and Separation Agreement.

VI.      EXCEPTED MATTERS

         Notwithstanding the foregoing, any action or proceeding brought for
breach of or to interpret or enforce the terms of this Separation Agreement is
excepted from the Covenant Not to Sue set forth in Article V.

VII.     ADDITIONAL AGREEMENTS BY THE PARTIES AND ACTS TO BE TAKEN BY THE
         PARTIES

         As additional consideration the Parties agree as follows:

         A.       Compensation. DTS will pay Beard all deferred and past due
compensation owed ($314,986.26), plus interest of $18,472.45 to February 29,
2000 (total $333,458.71), less usual withholding, concurrently with the
execution of this Agreement by Beard and Nuoptix.

         B.       Payment to Nuoptix. DTS has paid to Nuoptix all amounts due to
Nuoptix for all goods and/or services supplied by Nuoptix to DTS to the
Effective Date.

         C.       DTS and Nuoptix maintain a theater at the Premises, located at
31336 via Colinas, Suite 103, Westlake Village, California ("Leased Premises")
that are accessed through the offices of Nuoptix. Title to all the equipment at
the Leased Premises that is not now owned by Nuoptix shall be deemed transferred
by DTS to Nuoptix on the Effective Date by this Agreement, except for two film
projectors and a DTS 6AD Audio Processor. Nuoptix agrees to cooperate with DTS
to enable DTS to use the theater in accordance with past practices until
September 30, 2000 (so long as Nuoptix is able to obtain possession through that
date of the Leased Premises under a direct lease on terms acceptable to
Nuoptix). DTS may remove either or both projectors and the DTS 6AD Audio Process
from the theater at any time until September 30, 2000. Thereafter any DTS
property remaining at the Leased Premises shall be deemed to have been sold by
DTS to Nuoptix, and shall thereafter be the sole property of Nuoptix, in
consideration for its execution of this Separation Agreement. Nuoptix shall have
no responsibility for loss or damage to the projectors or the 6AD Audio
Processor, unless caused by its negligent or intentional act. DTS agrees to
cooperate with Nuoptix to enable Nuoptix to enter into a direct lease, as
lessee, of the Leased Premises beginning July 1, 2000.

                                       6.

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         D.       DTS acknowledges that Beard has no "Confidential Information"
within the meaning of Paragraph 8 of the Employment Agreement.

         E.       DTS acknowledges that Beard has no "invention or other
property" as described in Paragraph 11 of the Employment Agreement, that is the
property of DTS. The preceding sentence is not applicable to any patented
inventions of Beard previously assigned to DTS by an instrument in writing.

         F.       DTS and Beard agree that the Indemnification Agreement between
them dated as of December 18, 1998, will be effective as if executed on that
date, regardless of the actual date of execution, and that both the
Indemnification Agreement and the Stockholders Agreement dated as of October 24,
1997, as amended by a First Amendment thereto dated as of October 13, 1999, will
continue in fall force and effect.

         G.       Issuance of Press Release. DTS and Beard agree to issue the
following press release regarding Beard's separation and consultancy with DTS:

         Terry Beard, founder and chairman of DTS, has resigned
         as Chairman in order to pursue new entrepreneurial
         opportunities. Mr. Beard remains a major shareholder
         and Director in the company.

VIII.    REPRESENTATIONS AND WARRANTIES

         A.       Independent Legal Advice. Each of the Parties represents,
warrants and agrees that he or it has received independent legal advice from his
or its attorneys with respect to the advisability of executing this Separation
Agreement.

         B.       No Other Representation. Each of the Parties represents,
warrants and agrees that, in executing this Separation Agreement, he or it has
relied solely on the statements expressly set forth within this Agreement. Each
of the Parties further represents, warrants and agrees that, in executing this
Separation Agreement, he or it has placed no reliance whatsoever on any
statement, representation or promise of any other Party, or any other person or
entity, that is not expressly set forth within this Agreement, or upon the
failure of any other Party, or any other person or entity, to make any
statement, representation or disclosure of anything whatsoever. The Parties have
included this clause: (1) to preclude any claim that any Party was without the
advice of counsel; and (2) to preclude the introduction of parol evidence to
vary, interpret, supplement or contradict the terms of this Agreement.

         C.       Factual Investigation. Each of the Parties represents,
warrants and agrees that he or it has made a sufficient investigation of the
facts pertaining to the Dispute and of all matters pertaining to the Dispute or
contained in or related to this Agreement as he or it deems necessary or
desirable.

         D.       Authority. Each of the Parties represents, warrants and agrees
that he or it has the full right, power and authority to execute this Separation
Agreement and that the person executing this Agreement on his or its behalf has
the full right, power and authority to commit and to bind that Party fully to
the terms of this Agreement. The Parties expressly covenant and

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warrant to each other and their Related Entities that they have the right,
power, and authority to bind each and all of their Related Entities with respect
to each and every provision of this Agreement which affects, or purports to
affect, any or all of said Related Entities. In the event that any Related
Entity makes any assertion that conflicts with the intent of the prior sentence,
the Party making the representation shall fully indemnify, hold harmless and
defend the affected Party and his or its Related Entities for the consequences
of such assertion.

         E.       No Assignment. Each of the Parties represents, warrants and
agrees that there has been no assignment or transfer, including, without
limitation, by way of subrogation or operation of law or otherwise, to any
person or entity whatsoever of claims released by that Party or of any other
claim, right, demand, action or cause of action that the Parties may have had,
have or might have arising out of the Dispute. Each Party, to the extent that
Party breaches this representation or warranty, agrees to defend, to indemnify
and to hold harmless any non-breaching Party to this Agreement from and against
any and all claims, allegations, demands, liabilities, losses, obligations,
promises, damages, costs, expenses (including, without limitation, attorneys'
fees and costs of investigation), lawsuits, actions (in law, equity or
otherwise), causes of action, rights and privileges actually incurred as a
result of that breach.

IX.      GENERAL

         A.       Full Integration. Except for the Indemnification Agreement and
the Stockholders Agreement referred to above, and the Incentive and Nonqualified
Stock Option Agreements to which DTS and Beard are parties, all of which shall
remain in effect, this Separation Agreement is the final written expression and
the complete and exclusive statement of all of the agreements, conditions,
promises, representations and covenants between the Parties with respect to the
subject matter of this Agreement, and replaces and supersedes all prior, former
or contemporaneous agreements (including, but not limited to, the Employment
Agreement, negotiations, understandings, representations, discussions or
warranties between the Parties, their respective representatives, and any other
person or entity, with respect to the subject matter of this Agreement. Any
modification, alteration or amendment of this Agreement shall be non-binding,
ineffective or invalid unless it is in writing, specifically refers to this
Agreement and is signed by the Party to be charged with the modification,
alteration or amendment or by a duly authorized representative of that Party.

         B.       No Admissions. Each of the Parties expressly acknowledges and
agrees that this Agreement represents a settlement of disputed claims and is
not, in any respect, nor for any purpose, to be deemed or construed to be an
admission or concession of any liability or wrongdoing by any Party whatsoever
or of the existence of any claim. Furthermore, this Separation Agreement shall
not be deemed to be for the benefit of, or to confer any rights of any kind or
nature whatsoever upon, any third party (whether a person or entity) other than
the Related Entities.

         C.       Waiver And Severability. No waiver of any term, covenant or
condition of this Separation Agreement shall be construed as a waiver of any
other term, covenant or condition, nor shall any waiver of any default under
this Separation Agreement be construed as a continuing waiver of any, term,
condition or covenant or as a waiver of any other default. Furthermore, in the
event any portion of this Agreement is found, judicially or otherwise, to be

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unlawful, void or, for any other reason, unenforceable, that provision shall be
deemed severable from this Agreement and the invalidity or lack of
enforceability shall not affect the validity and enforceability of the remaining
portions of this Agreement.

         D.       California Law Governs. This Separation Agreement shall be
construed and enforced in accordance with, and governed by, the internal,
substantive laws of the State of California. Any lawsuits filed to enforce any
provision of this Agreement by any party hereto shall be filed in the Superior
Court for the State of California, County of Los Angeles.

         E.       Attorneys' Fees. Each of the Parties shall bear its own legal
expenses and attorneys' fees. In the event any legal or governmental action or
proceeding is commenced under or pursuant to any other terms and conditions of
this Agreement, or to interpret or enforce the terms of or obligations arising
out of this Agreement, or to recover damages for the breach of this Agreement,
the Party prevailing in any such action or proceeding shall be entitled, in
addition to any other relief awarded by the Court or other tribunal to recover
from the other Party all reasonable attorneys' fees, costs and expenses incurred
by the prevailing Party. In addition, the prevailing Party shall be entitled to
recover from the non-prevailing Party post-judgment/award/order attorneys, fees
incurred by the prevailing Party in enforcing a judgment, order or award against
the non-prevailing Party. Notwithstanding anything in this Agreement to the
contrary, the provisions of the preceding sentence are intended to be severable
from the balance of the Agreement, shall survive any judgment rendered in
connection with the aforesaid legal action, and shall not be merged into any
such judgment, order or award.

         F.       Counterparts, Copies, Faxed Signatures. This Separation
Agreement may be executed in any number of counterparts by the Parties, and,
when each Party has signed and delivered at least one counterpart to the other
Parties, each counterpart shall be deemed an original and, taken together, shall
constitute and be deemed to be one and the same Agreement, and shall be binding
and effective as to all Parties. In addition, true and correct copies may be
used in lieu of the original Agreement for any purpose whatsoever. Finally,
faxed copies of the Agreement and faxed signature pages shall be binding and
effective as to all Parties and may be used in lieu of the original Agreement,
and, in particular, in lieu of original signatures, for any purpose whatsoever.

         G.       Headings. The headings to the articles and paragraphs of this
Agreement are inserted for convenience only and will not be deemed a part of
this Agreement, nor will the headings affect the construction or interpretation
of the provisions contained within this Agreement.

         H.       Survival Of Warranties. All representations and warranties
contained within this Agreement shall survive its execution, effectiveness and
delivery. It is expressly understood and agreed by the Parties that none of the
releases or covenants set forth within this Agreement are intended to or do
release or affect any claims or rights specifically arising out of this
Agreement or the breach of it.

         I.       Further Instruments. The Parties shall execute and deliver
further instruments, documents or papers and shall perform all acts necessary or
proper to carry out and effectuate the

                                       9.

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terms of this Agreement as may be required by the terms of the Agreement or as
may be reasonably requested by any Party to this Agreement.

         J.       No Presumption From Drafting. This Agreement has been
negotiated at arm's length between persons knowledgeable in the matters set
forth within this Agreement. Accordingly, given that all Parties have had the
opportunity to draft, review and/or edit the language of this Agreement, no
presumption for or against any Party arising out of drafting all or any part of
this Agreement will be applied in any action relating to, connected with or
involving this Agreement. In particular, any rule of law, including, but not
limited to, Section 1654 of the California Civil Code, or any other statutes,
legal decisions, or common law principles of similar effect, that would require
interpretation of any ambiguities in this Agreement against the party that has
drafted it, is of no application and is hereby expressly waived. The provisions
of this Agreement shall be interpreted in a reasonable manner to effect the
intentions of the Parties.

         K.       Benefits Successors. Except as limited by the terms of this
Agreement, this Separation Agreement shall be binding upon and shall inure to
the benefit of each of the Parties to the Agreement and to their respective
heirs, executors, administrators, assigns, successors-in-interest,
representatives, trustees, beneficiaries and Related Entities.

         L.       All Terms Are Contractual. Each term of this Separation
Agreement is contractual and not merely a recital.

         M.       Voluntary Execution of Agreement. Beard represents that he has
carefully read this entire Separation Agreement and that he knows and
understands its contents. Beard has had the opportunity to receive independent
legal advice from attorneys of his choice with respect to the preparation,
review and advisability of executing this Separation Agreement. Beard further
represents and acknowledges that he has freely and voluntarily executed this
Separation Agreement after independent investigation and without fraud, duress,
or undue influence, with the full understanding of the legal and binding effect
of this Separation Agreement. Beard thereby knowingly waives the twenty-one (21)
day period under the Older Workers Benefits Protection Act to review this
Separation Agreement with his attorney prior to signing.

         N.       Right of Revocation. With respect only to claims arising under
the Age Discrimination in Employment Act ("ADEA"), Beard has the right to revoke
this Separation Agreement for any reason within seven (7) days after he signs
it. To be effective, Beard's notice of revocation must be in writing and must be
hand delivered or mailed to Dan Slusser, or his successor, Digital Theater
Systems, Inc. 5171 Clareton Drive, Agoura Hills, California 91301, within the
seven (7) day period. If mailed, the revocation must be postmarked within the
seven (7) day period, properly addressed and sent by certified mail, return
receipt requested. If hand-delivered, it must be given to Dan Slusser, or his
successor, within the seven (7) day period.

         O.       The "Effective Date" of this Agreement shall be the date on
which it is unanimously approved by the DTS Board of Directors, other than
Beard, and Beard agrees to sign the consent related thereto, and the execution
of the Second Amendment to Stockholders Agreement by all parties necessary to
make said Second Amendment effective. Both Beard and DTS agree to execute the
said Second Amendment concurrently with the execution of this

                                      10.

<PAGE>

Agreement. This Separation Agreement shall have no force or effect it if is not
approved by the DTS Board of Directors on or prior to May 15, 2000, and if the
Second Amendment to the Stockholders Agreement is not executed by all parties
necessary to make it effective by June 1, 2000. DTS agrees to provide Beard with
a copy of the DTS Board of Director's Resolutions approving this Separation
Agreement, certified by the DTS Secretary to be true and correct, no later than
May 15, 2000, and a copy of the Second Amendment to Stockholders Agreement
showing said necessary signatures by June 1, 2000.

         IN WITNESS WHEREOF, the Parties to this Agreement have approved and
executed this Separation Agreement on the dates set forth opposite their
respective signatures.

         DATE: April 4, 2000           TERRY BEARD

                                           /s/ Terry Beard
                                       -----------------------------------------
                                       Terry Beard

         DATE: May 4th, 2000           DIGITAL THEATER SYSTEMS, INC.

                                       By: /s/ Daniel E. Slusser
                                           -------------------------------------
                                           Daniel E. Slusser
                                       Its: Vice Chairman and
                                            Chief Executive Officer

         DATE: April 4, 2000           NUOPTIX, INC.

                                       By: /s/ Terry Beard
                                           -------------------------------------
                                           Terry Beard, President

                                      11.<PAGE>

                                                                   EXHIBIT 10.32
                              EMPLOYMENT AGREEMENT

         This Employment Agreement (this "Agreement") is entered into as of
September 30, 2002, by and between Digital Theater Systems, Inc., a Delaware
corporation (the "Company"), and Jon Kirchner ("you" or "Employee") with
reference to the following facts:

         WHEREAS, the Company desires Employee to remain in the employ of the
Company, and Employee desires to be so employed, on the terms and conditions
herein contained.

         NOW, THEREFORE, in consideration of the various covenants and
agreements hereinafter set forth, and other good and valuable consideration, the
parties hereto agree as follows:

         1.       Term of Employment. The Company hereby agrees to continue the
employment of Employee, and Employee accepts such continuing employment, subject
to the terms and conditions of this Agreement. The term of this Agreement shall
commence as of the date hereof and shall run for a period of eighteen (18)
months, unless sooner terminated, and shall automatically renew on a daily
basis, without further action of any kind by the parties, until terminated in
accordance with the provisions this Agreement (the "Term"). The phrase "term of
Employee's employment hereunder" shall mean the period of eighteen (18) months
extending from the date of this Agreement or the date of expiration or other
termination hereof, which ever is later, unless you are terminated for "good
cause", as defined herein, whereupon the "term of Employee's employment
hereunder" shall be from the date of this Agreement until the date of
termination for good cause.

         2.       Duties. You agree to serve the Company as its President and
Chief Executive Officer and member of the Board of Directors. Your duties will
be those of similar employees for a company similar to the Company and such
other duties as are specified by the Chairman of the Board of Directors. During
the Term of this Agreement, you will devote substantially full time to, and use
your best efforts to advance, the business and welfare of the Company.

         3.       Salary and Benefits.

                  (a)      Salary. For the term of employees employment
hereunder, the Company shall pay you a salary at the rate of $275,000 per year
payable biweekly and subject to payroll deductions as may be necessary or
customary in respect of the Company's salaried employees in general. Your salary
may be increased as deemed appropriate by the Chairman of the Board of Directors
of the Company, with the review and approval of the Compensation Committee of
the Company.

                  (b)      Vacations. You shall be entitled to four (4) weeks
paid vacation during the term of this Agreement and for each full year of
renewal thereof. Vacation shall accrue biweekly on a pro-rata basis. Any unused
pro-rata portion (not to exceed 180 hours of accumulation) of your annual paid
vacation shall be paid to you upon termination of the Agreement for any reason.

                  (c)      Annual Bonus, Incentive, Savings and Retirement
Plans. You shall be entitled to bonuses as deemed appropriate by the Chairman of
the Board of Directors of the Company. You shall also be entitled to participate
in all annual bonus, incentive, stock option, savings and retirement plans,
practices, policies and programs applicable generally to other employees of the
Company of a similar class, as determined by the Chairman of the Board of
Directors of the Company.

<PAGE>

                           (1)      Stock Options. You may be granted stock
options under this Agreement which, if any, will vest over four consecutive
12-month periods as per your STOCK OPTION AGREEMENT with the Company and
administered under the Company's STOCK OPTION PLAN. Additional stock options may
be granted to you during the period of this Agreement to the extent granted to
other employees of the Company of a similar class and as determined by the
Chairman of the Board of Directors of the Company.

                           (2)      Incentive Plan. You shall be entitled to
participate in Company Incentive Plans as applicable generally to other
employees of the Company of a similar class and as determined by the Chairman of
the Board of Directors of the Company. You shall be entitled to bonuses as
deemed appropriate by the Chairman of the Board of Directors with respect to the
realization of the Company's INCENTIVE PLAN objectives.

                           (3)      Annual Bonus. You shall be entitled to
participate in the annual bonus plan as applicable generally to other employees
of the Company of a similar class and as determined by the plan and the Chairman
of the Board of Directors of the Company.

                           (4)      Savings and Retirement Plans. You shall be
entitled to participate in savings and retirement plans and any other practices,
policies and programs applicable generally to other employees of the Company of
a similar class and as determined by the Chairman of the Board of Directors of
the Company.

                  (d)      Welfare Benefit Plans. You shall be eligible for
participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company to the extent
applicable generally to Similar Employees of the Company.

                  (e)      Expenses. The Company shall promptly reimburse
Employee for reasonable out-of-pocket expenses incurred in connection with the
Company's business and the performance of Employee's duties hereunder, subject
to (i) such policies as the Company may from time to time establish for senior
executives of the Company, and (ii) Employee furnishing the Company with
evidence in the form of receipts satisfactory to the Company substantiating the
claimed expenditures. Additionally, you will receive $1,000.00 per month
automobile expense allowance.

                  (f)      Other Benefits. You shall be entitled to other
benefits in accordance with the plans, practices, programs and policies as in
effect generally with respect to Similar Employees of the Company.

         4.       Death or Disability of Employee. If you die or become disabled
prior to the termination or other expiration of this Agreement, your employment
under this Agreement will automatically terminate. "Disability" means any
physical or mental illness that renders you unable to perform your agreed-upon
services under this Agreement for ninety (90) consecutive days or an aggregate
of one hundred twenty (120) days, whether or not consecutive, during any
consecutive 12-month period. Disability shall be determined by a licensed
physician not affiliated with you or the Company. In the event of your death or
disability, the amounts due you pursuant to this Agreement through the date of
your death or disability will be paid to you or your beneficiaries. Such
benefits shall include your stock option benefits.

         5.       Termination for Cause. Your employment under this Agreement
may be terminated immediately by the Company for "good cause." If the Company
alleges good cause, they will specify in writing the reasons and you shall have
ten (10) business days from the date such notice is given in which to

<PAGE>

cure such cause. Absent such cure within the cure period, your employment shall
be deemed terminated for good cause on the date such notice was given ("the date
of termination for good cause"). The term "good cause" is defined as any one or
more of the following occurrences:

                  (a)      Gross negligence, material violation by you of any
duty or any other material misconduct on your part;

                  (b)      Your conviction by, or entry of a plea of guilty or
nolo contendere in, a court of competent and final jurisdiction for any crime
punishable by imprisonment in the jurisdiction involved; or

                  (c)      Your commission of an act of fraud, whether prior to
or subsequent to the date of this Agreement, upon the Company.

         In the event of termination for "good cause," this Agreement will
terminate, and your salary and unexercised stock options will terminate as of
the last day of the month in which proper notice of your termination was given
to you, beyond which point in time Company shall have no further obligations to
you whatsoever, unless otherwise required by law.

         6.       Other Termination.

                  (a)      Severance Pay. The Company may terminate this
Agreement at any time and without cause at the Company's sole discretion,
effective five (5) days after notice to Employee, subject to the provisions of
this Agreement. Upon the termination of this Agreement for other than good
cause, the Company shall continue during the term of Employee's employment
hereunder to pay to Employee in monthly installments, as severance pay,
Employee's full Salary in effect at the time of such termination, without a duty
to mitigate.

                           Subject to approval by the Administrator, as defined
in the Company's Stock Option Plan, which approval shall be sought at the time
of the consideration by the Board of Directors of this Agreement, all options
granted to you (incentive and nonqualified) shall provide that, in the event of
termination of this Agreement (including constructive termination) for other
than "good cause," as defined herein, that each such option (a) shall
immediately vest and (b) shall be exercisable for the period set forth in the
option agreement (but not in excess of the specified maximum term of such
option). You shall also be entitled to continue to receive such benefits as you
are receiving at the time of termination of this Agreement, e.g. health plans,
etc., until the end of the term of Employee's employment hereunder, unless
otherwise required by law.

                           Constructive Termination means a termination of this
Agreement resulting from any material failure by the Company to fulfill its
obligations under this Agreement which is not cured within thirty (30) days
after receipt of written notice by the Company from you specifying the nature of
the failure, which failure shall include, but shall not be limited to, (a) your
removal, other than removal as a result of a termination for cause or voluntary
termination, as President and Chief Executive Officer of the Company and member
of the Board of Directors or any material change by the Company in your
functions, duties or responsibilities from those in which you was engaged under
this Agreement without your consent, (b) a material, non-voluntary reduction in
your base salary and eligibility for bonus amounts, or (c) an occurrence of a
Change in Control (as defined below).

                  (b)      Consulting. For the first twelve (12) months that the
Employee is receiving severance pay pursuant to subsection 6(a) above, Employee
shall be available, in person and/or by

<PAGE>

telephone, as a consultant to the Company to consult with its officers and
directors regarding the business of the Company as may be reasonable, taking
into account Employee's duties and efforts at Employee's subsequent employment
or business. It is agreed that eight (8) hours per week of consultation, in
person and/or by phone, shall be reasonable.

         7.       Termination Upon Sale and/or Change in Control of the Company.
Notwithstanding any of the provisions in this Agreement to the contrary, in the
event of a Sale of the Company and/or Change in Control (as defined herein), you
shall have the option (exercisable within ninety (90) days after the Sale of the
Company and/or Change in Control) to terminate this Agreement and to receive a
lump sum payment (payable within thirty (30) days of the date on which you
notify the Company of your intention to terminate this Agreement) equal to 18
months salary at your then current rate or to continue as an employee in
accordance with the terms and conditions outlined in this Agreement. In
addition, you shall be entitle to a one-time lump sum payment of $250,000.00 (a
"Sale of the Company Amount"). The Sale of the Company Amount shall be in
addition to any other amounts you may be entitled to under this Agreement. In
the event you terminate this Agreement in accordance with this provision, the
Company shall have no further obligations to you with respect to salary,
benefits or severance pay other than those that you have earned as to the date
of your termination. The provisions of this Section 7 shall terminate upon, and
shall not be applicable with respect to, the consummation by the Company of an
initial public offering of its securities. The term "Sale of the Company" or
"Change of Control" means (i) the time at which any person or group of persons
(other than the shareholders of the Company as of the effective date of this
Agreement) become the beneficial owner of a percentage of the Company's voting
stock equal to at least 51% or (ii) all or substantially all of the Company's
assets are sold as an entirety, or substantially as an entirety, to any legal
entity.

         8.       Confidential Information. You shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, which you shall have obtained during your
employment by the Company or any of its affiliated companies (including the
Partnership and Digital Theater Systems Corp.) and which shall not be or become
public knowledge (other than by acts by you or your representatives in violation
of this Agreement). After termination of your employment with the Company, you
shall not, without the prior written consent of the Company, or as may otherwise
be required by law or legal process, communicate or divulge any such
information, knowledge or data to anyone other than the Company and those
designated by it in writing. You acknowledge that such actions could cause
irreparable harm to the Company and that the Company may obtain an injunction or
other equitable relief to enforce this provision. Furthermore, upon termination
of this Agreement, you will promptly deliver to the Company all books,
memoranda, records and written data in original form of every kind relating to
the business and affairs of the Company that may then be in your possession,
custody or control.

         9.       Non-Compete. You agree that for the period commencing on the
date of this Agreement and ending upon the completion of the term of Employee's
employment hereunder or other termination or expiration hereof, except on behalf
of the Company and its affiliates in accordance with this Agreement, you shall
not, directly or indirectly, as employee, agent, consultant, stockholder,
director, partner or in any other individual or representative capacity, own,
operate, manage, control, engage in, invest in or participate in any manner in,
act as a consultant or advisor to, render services for (alone or in association
with any person, firm, corporation or entity), or otherwise assist, for
compensation or otherwise, any person or entity that engages in or owns, invests
in, operates, manages or controls any venture or enterprise that engages in any
activity, involving the research, development, licensing or sale of
multi-channel (surround sound) digital audio encoding technology for consumer
applications, or involving the research, development, licensing, manufacture or
sale of multi-channel (surround sound) digital audio coding equipment for
theatrical

<PAGE>

applications, (the "Business"); provided, however, that nothing contained in
this Agreement shall be construed to prevent you from investing in the stock of
any competing corporation listed on a national securities exchange or traded in
the over-the-counter market, but only if you are not involved in the business of
said corporation and if you and your affiliates collectively do not own more
than an aggregate of 5% of the stock of such corporation.

         10.      Non-Solicitation. During the Term of this Agreement, and
without limiting the generality of the provisions of Section 8 above, you agree
that, except on behalf of the Company and its affiliates in accordance with this
Agreement, you will not interfere with or disrupt or attempt to disrupt the
Company's business relationship with its customers or suppliers or solicit any
of the employees of the Company to leave the employment of the Company.

         11.      Inventions. All processes, technologies and inventions
relating to the Business (collectively, "Inventions"), including new
contributions, improvement, ideas, discoveries, trademarks, copyrights and trade
names ("Intellectual Property"), conceived, developed, invented, made or found
by you, alone or with others, during the term of your employment hereunder,
whether or not patentable and conceived, developed, invented, made or found on
the Company's time or with the use of the Company's facilities or materials,
shall be the property of the Company and shall be promptly and fully disclosed
by you to the Company. You shall perform all necessary acts (including, without
limitation, executing and delivering any confirmatory assignments, documents or
instruments requested by the Company) to vest title to any such Inventions or
other Intellectual Property in the Company and to enable the Company, at its
expense, to secure and maintain domestic and/or foreign patents or any other
rights for such Inventions and other Intellectual Property.

         12.      WAIVER OF JURY. WITH RESPECT TO ANY DISPUTE ARISING UNDER OR
IN CONNECTION WITH THIS AGREEMENT, EACH OF YOU AND THE COMPANY IRREVOCABLY
WAIVES ALL RIGHTS IT MAY HAVE TO DEMAND A JURY TRIAL. YOU SHALL BE ENTITLED TO A
TRIAL BEFORE A JUDGE, OR ELECT TO PARTICIPATE IN BINDING ARBITRATION. THIS
WAIVER IS KNOWINGLY, INTENTIONALLY, AND VOLUNTARILY MADE AND EACH PARTY
ACKNOWLEDGES THAT NONE OF THE OTHER PARTIES NOR ANY PERSON ACTING ON BEHALF OF
THE OTHER PARTIES HAS MADE ANY REPRESENTATION OF FACT TO INDUCE THIS WAIVER OF
TRIAL BY JURY OR IN ANY WAY TO MODIFY OR NULLIFY ITS EFFECT. THE PARTIES EACH
FURTHER ACKNOWLEDGE THAT THEY HAVE BEEN REPRESENTED (OR HAVE HAD THE OPPORTUNITY
TO BE REPRESENTED) IN THE SIGNING OF THIS AGREEMENT AND IN THE MAKING OF THIS
WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF THEIR OWN FREE WILL, AND THAT
THEY HAVE HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL. THE PARTIES
EACH FURTHER ACKNOWLEDGE THAT THEY HAVE READ AND UNDERSTAND THE MEANING AND
RAMIFICATIONS OF THIS WAIVER PROVISION.

         13.      Miscellaneous.

                  13.1     Modification and Waiver of Breach. No waiver or
modification of this Agreement shall be binding unless it is in writing signed
by you and the Company. No waiver of a breach of this Agreement shall be deemed
to constitute a waiver of a future breach, whether of a similar or dissimilar
nature.

                  13.2     Notices. All notices and other communications
required or permitted under this Agreement shall be in writing, served
personally on, or mailed by certified or registered United States Mail

<PAGE>

to, the party to be charged with receipt thereof. Notices and other
communications served by mail shall be deemed given hereunder 72 hours after
deposit of such notice or communication in the United States Post Office as
certified or registered mail with postage prepaid and duly addressed to whom
such notice or communication is to be given, in the case of (a) the Company,
5171 Clareton Drive, Agoura Hills, California 91301, Attention: Chairman of the
Board of Directors, or (b) to you, to the address set forth below your name on
the signature page of this Agreement. You and the Company may change their
address for purposes of this Section by giving to the party intended to be bound
thereby, in the manner provided herein, a written notice of such change.

                  13.3     Counterparts. This instrument may be executed in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same Agreement.

                  13.4     Construction of Agreement. This Agreement shall be
construed in accordance with, and governed by, the internal laws of the State of
California.

                  13.5     Legal Fees. If any legal action, arbitration or other
proceeding is brought for the enforcement of this Agreement, or because of any
alleged dispute, breach, default or misrepresentation in connection with this
Agreement, the successful or prevailing party shall be entitled to recover
reasonable attorneys' fees and other costs it incurred in that action or
proceeding, in addition to any other relief to which it may be entitled.

                  13.6     Severability Clause. If any provision of this
Agreement or the application thereof is held invalid, the invalidity shall not
affect other provisions or applications of the Agreement which can be given
effect without the invalid provisions or applications and to this end the
provisions of this Agreement are declared to be severable.

                  13.7     Complete Agreement. This instrument constitutes and
contains the entire agreement and understanding concerning your employment and
the other subject matters addressed in this Agreement between you and the
Company, and supersedes and replaces all prior negotiations and all agreements
proposed or otherwise, whether written or oral, concerning the subject matters
hereof (including any previous agreements relating to your employment with
Digital Theater Systems, Inc., Digital Theater System Corp. or the Partnership).
This is an integrated document.

                  13.8     Third Party Beneficiaries. This Agreement does not
create, and shall not be construed as creating, any rights enforceable by any
person not a party to this Agreement, except as expressly contemplated herein.

                  13.9     Non-transferability of Interest. None of the rights
of Employee to receive any form of compensation payable pursuant to this
Agreement shall be assignable or transferable except through a testamentary
disposition or by the laws of descent and distribution upon the death of
Employee. Any attempted assignment, transfer, conveyance, or other disposition
(other than as aforesaid) of any interest in the rights of Employee to receive
any form of compensation to be made by the Company pursuant to this Agreement
shall be void.

<PAGE>

         IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
day and year first above written.

EMPLOYEE:                                         THE COMPANY:

                                                  DIGITAL THEATER SYSTEMS, INC.

 /s/ Jon Kirchner                             By: /s/ Dan Slusser
---------------------------------                 ------------------------------
JON KIRCHNER                                      DAN SLUSSER
                                                  CHAIRMAN

Address: Address of Record
         with DTS Human
         Resources Dept.

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