AMENDED AND RESTATED CHANGE IN CONTROL PROTECTION PLAN

 

SRS LABS, INC.

 

AMENDED AND RESTATED
CHANGE IN CONTROL PROTECTION PLAN
(also functioning as a Summary Plan Description)

 

 

Table of Contents

 

 

			PAGE
1.	BENEFITS PAYABLE UNDER THE PLAN		1
	(a)            Change in Control Severance Benefit		1
	(b)            Paid Leave in Lieu of Notice		1
	(c)            Definition of Change in Control		2
2.	PLAN ELIGIBILITY		3
3.	VESTING AND ELIGIBILITY RULES FOR BENEFITS		3
	(a)            Covered Terminations		3
	(b)            Definitions		4
	(c)            Agreements Precedent to Collecting Benefits; Recapture of Benefits		5
4.	ADDITIONAL BENEFITS		6
5.	TAXES, AND AUTHORIZATIONS FOR TAX LAW COMPLIANCE		7
6.	RELATION TO OTHER PLANS AND AGREEMENTS		7
7.	CLAIMS PROCEDURES		8
	(a)            Claims Normally Not Required		8
	(b)            Disputes		9
	(c)            Time for Filing Claims		9
	(d)            Procedures		9
8.	PLAN ADMINISTRATION		11
	(a)            Discretion		11
	(b)            Finality of Determinations		11
	(c)            Drafting Errors		11
	(d)            Scope		11
9.	COSTS, INDEMNIFICATION, AND REIMBURSEMENT FOR LITIGATION EXPENSES		12
10.	PLAN AMENDMENT AND TERMINATION; LIMITATION ON EMPLOYEE RIGHTS; CONDITIONS OF RECEIPT OF BENEFITS		12
	(a)            Sponsor May Amend or Terminate the Plan		12

 

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	(b)            Application of Amendment or Termination of the Plan			12
	(c)            No Right to Continued Employment			13
11.	PLAN FUNDING			13
12.	GOVERNING LAW			13
13.	MISCELLANEOUS			13
14.	OTHER INFORMATION			13
	(a)            Type of Plan			13
	(b)            Addresses, etc.			13
	(c)            Agent for Service of Legal Process			14
	(d)            Funding			14
	(e)            Plan Amendment or Termination			14
	(f)             Statement of ERISA Rights			14
	(g)            Whom to Call for Additional Information			15
Exhibit A		Form of Participation Agreement – Version 1 (Persons with Employment/Severance Agreements) and Version 2 (Persons without Employment/Severance Agreements)
Exhibit B		Grantor Trust Agreement

 

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SRS LABS, INC.

 

AMENDED AND RESTATED
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 Amended and Restated 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 and was amended and restated on August 3, 2009.   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.

 

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

 

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(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 Company, 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 satisfy the conditions set forth in Section 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

 

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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) your engagement in fraud, misappropriation or a material breach of the Company’s code of ethics; (II) your engagement in intentional conduct which is materially injurious, monetarily or otherwise, to the Company or its affiliates, (III) your commission of an act of deliberate and material dishonesty; (IV) your failure to follow a lawful and material directive related to your job responsibilities or otherwise related to your position at the Company; (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, provided however, in case of (II) and (IV), such events shall not constitute “Cause” until after you have been given written notice of such and have failed to cure such within thirty (30) days following such notice.

 

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(iv)           For purposes of this Plan, and unless otherwise stated in a Participant’s Participation Agreement, “ Good Reason ” shall mean (I) 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 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.  Notwithstanding the foregoing, “Good Reason” shall only be found to exist if prior to your resignation for Good Reason, you have provided written notice to the Company within ninety (90) days following the existence of such Good Reason event indicating and describing the event resulting in such Good Reason, and the Company does not cure such event within thirty (30) days following the receipt of such notice.  In the event the Company fails to timely cure, you must resign within ninety (90) days following the expiration of the cure period in order for the resignation to constitute Good Reason.

 

(c)            Conditions 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 (provided such agreements if required must be executed and delivered to the Company within 21 days following your receipt of such agreements) and comply with the following obligations:

 

(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:

 

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(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)                               Upon termination of your employment, you must return all property of the Company and reimburse the Company for any personal telephone calls, credit card charges and other expenses, and pay 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 above and 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 reimbursed for COBRA continuation premiums you pay 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.

 

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5.                                       Taxes, and Authorizations for Tax Law Compliance

 

Taxes will be withheld from your Change in Control Benefits to the extent the Plan Administrator, it its sole discretion, determines that this is appropriate or 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

 

(b) 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; 280G Limitations

 

By signing your Participation Agreement, you recognize and agree that any prior severance or similar plan of the Company (including a prior version of this Plan or a related Participation Agreement) 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, equity 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.

 

The amount of any cash payment to be received by Participant  pursuant to this Plan shall be reduced (but not below zero) to the extent required so that no portion of any payment or benefit in the nature of compensation received or to be received by Participant (whether payable pursuant to the terms of this Plan or pursuant to any other plan, contract, agreement or arrangement with the Employer or any other person) (such payments or benefits are referred to collectively as the “ Total Payments ”) shall be treated as an “excess parachute payment” within the meaning of section 280G(b)(1) of the Code. Only amounts

 

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payable under this Plan, and no other payments or benefits included in the Total Payments, shall be reduced pursuant to this Section 6.  Notwithstanding the foregoing, Participant may elect in writing to reduce other benefits payable by the Company to Participant outside of the Plan (in lieu of reducing all or some of the benefits payable hereunder) in order to avoid having any such “excess payments;” provided that the written notice of such election must be received by the Company’s Chief Executive Officer prior to the date on which any payments are required to be made under the Plan.

 

The determination of whether any reduction in payments is required pursuant to  Section 6 of this Plan shall be made in writing by the Company’s independent public accountants, or such other independent accounting firm or tax advisors selected by the Plan Administrator in its sole discretion (the “ Accountants ”), whose determination shall be conclusive and binding upon Participant and the Company for all purposes under this Plan.  For the purposes of making the calculations required by this Section 6, the Accountants may make reasonable assumptions and approximations regarding applicable taxes and applicable tax rates and may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code, applicable regulations and other authority.  The Plan Administrator and the Participant shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination under this Section.  The Accountants shall provide detailed supporting calculations, in writing, to both the Plan Administrator and the Participant of determinations made pursuant to this Section 6.  The Company shall bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this Section.

 

In the event of any uncertainty as to whether a reduction in payments to a Participant is required pursuant to Section 6 of this Plan, the Company shall initially make the payment to Participant, and Participant shall be required to refund to the Company any amounts ultimately determined not to have been payable under the terms of this Plan.

 

The Company and the Participant shall promptly deliver to each other copies of any written communications, and summaries of any verbal communications, with any taxing authority regarding the applicability of Section 280G or 4999 of the Code to any portion of the Total Payments.  In the event of any controversy with the Internal Revenue Service or other taxing authority with regard to the applicability of Section 280G or 4999 of the Code to any portion of the Total Payments, the Company shall have the right, exercisable in its sole discretion, to control the resolution of such controversy at its own expense.  Participant and the Company shall in good faith cooperate in the resolution of such controversy.

 

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.

 

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(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 such benefits are due and payable, 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;

 

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(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,