DTSI » Topics » Employment Contracts, Termination of Employment Arrangements and Change in Control Arrangements

This excerpt taken from the DTSI DEF 14A filed Apr 3, 2009.

Employment Contracts, Termination of Employment Arrangements and Change in Control Arrangements

        Generally, we seek to secure the services of our executive officers with employment contracts. We do this to clarify the terms of employment, to define the obligations of the executive, and to set forth the circumstances under which he or she may become entitled to severance payments and the amounts and obligations thereof. We believe that the employment agreements provide us with reasonable contractual protections and that making severance commitments to our executives leads to stronger retention than if such benefits were not offered. We entered into an employment agreement with our CEO in 2002 and with our other named executive officers in 2005. Except with respect to Mr. Neighbors, these agreements have not been materially amended and are currently in effect.

        The Committee has not used tally sheets to calculate the value of these payments, as the levels of our termination and change in control arrangements have been determined by the Committee to be modest and well within competitive levels.

        These agreements provide the Company a balance of contractual protections in exchange for severance for the executive in the case of termination for other than good cause, and in some cases, constructive termination. The employment contracts for our named executive officers other than our Chief Executive Officer do not contain a single trigger provision that would generally allow such executive officers to terminate their employment because of a change in control of the Company and

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be entitled to benefits under their employment agreements as if they were terminated without cause. We structured their employment agreements in this fashion because we believe such executives should not be entitled to such benefits absent other factors such as a termination without cause or termination for good reason. Our CEO's employment agreement contains single trigger provisions. We structured his employment agreement in this fashion because we feel it is appropriate given that our CEO has a much closer reporting relationship to the Board of Directors. It will also eliminate any conflicts of interest as this position is more susceptible to termination due to change of control. We also believe competitive factors require this.

        The duration of the severance obligation ranges from six months to one year depending upon length of employment at the time of termination and position, and in the case of the Chief Executive Officer, 18 months. The only exceptions to our severance obligations are terminations for good cause and voluntary resignations (in the absence of constructive termination). With respect to our CEO, a termination for good cause occurs only in the case of gross negligence, material violation of any duty or any other misconduct, fraud upon DTS or conviction of (or entry of a plea of guilty or nolo contendere with respect to) any crime punishable by imprisonment. With respect to our other named executive officers, a termination for good cause occurs only in the case of negligence, material or repetitive misconduct or failure to perform, fraud upon DTS, conviction of (or a plea of guilty or nolo contendere with respect to) any crime punishable by imprisonment, or failure to execute and deliver to DTS any documents required by all employees or by employees of a similar position.

        Severance protection for most named executive officers in the event of termination (either without cause or in some cases by constructive termination) is provided in the form of salary and benefit continuation for the duration of the severance period (the periods run from between six months to one year as discussed above) and the full vesting of all unvested equity awards. In the case of our Chief Executive Officer, this severance period is 18 months. During the period that the executive receives severance pay, he or she is obligated to be available to provide up to eight hours of consulting services per week related to projects or tasks he or she had previously been involved in. In the case of our Chief Executive Officer, he is only required to provide such consulting services for a period of 12 months.

        As used with respect to any given named executive officer, the definition of change in control applicable to such officer is stated in such officer's employment agreement, a copy of which has been filed with the SEC.

        Our employment agreement with Jon Kirchner is for his service as our President and Chief Executive Officer and a member of our Board of Directors. This agreement provides for a term of 18 months, which automatically renews on a daily basis until terminated in accordance with its provisions. Under this agreement, if Mr. Kirchner's employment is terminated without cause, or is constructively terminated, we are required to pay his salary and continue his benefits for a period of 18 months and all of his equity awards will immediately vest in full. Mr. Kirchner's annual salary in 2008 was $415,000 and the cost of Mr. Kirchner's benefits were approximately $1,155 per month. In addition, in the event of a change of control or sale of our Company, Mr. Kirchner may choose to terminate his services, and as a result, all of his equity awards will immediately vest in full. In the event of change of control, Mr. Kirchner may choose to terminate his services and also receive 18 month's salary as a single lump sum payment, plus the amount of $250,000. A constructive termination includes Mr. Kirchner's removal from his position as President and Chief Executive Officer and a member of our Board of Directors or any material change by us in his functions, duties, or responsibilities, without his consent or other than for cause; a material non-voluntary reduction in his base salary and eligibility for bonus amounts; or a change of control or sale of our Company.

        Our employment agreement with Melvin Flanigan is for his service as our Executive Vice President, Finance and Chief Financial Officer. The agreement provides for employment until

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terminated in accordance with its provisions. Under the agreement, if Mr. Flanigan's employment is terminated without cause, or is constructively terminated, we are required to pay his salary and continue his benefits for a period of 12 months. Mr. Flanigan's annual salary in 2008 was $265,000 and the cost of Mr. Flanigan's benefits were approximately $1,209 per month. In addition, in such event, all of his equity awards shall immediately vest in full. A constructive termination includes: Mr. Flanigan's removal without cause from his position as Executive Vice President, Finance and Chief Financial Officer or any material change by us in his functions, duties, or responsibilities, without his consent; or a material non-voluntary reduction in his base salary and eligibility for bonus amounts.

        Our employment agreement with Blake Welcher is for his service as our Executive Vice President, Legal, General Counsel, Corporate Secretary. The agreement provides for employment until terminated in accordance with its provisions. Under the agreement, if Mr. Welcher's employment is terminated without cause, or is constructively terminated, we are required to pay his salary and continue his benefits for a period of 12 months. Mr. Welcher's annual salary in 2008 was $250,000 and the cost of Mr. Welcher's benefits were approximately $1,209 per month. In addition, in such event, all of his equity awards shall immediately vest in full. A constructive termination includes: Mr. Welcher's removal without cause from his position as Executive Vice President, Legal, General Counsel, and Corporate Secretary or any material change by us in his functions, duties, or responsibilities, without his consent; or a material non-voluntary reduction in his base salary and eligibility for bonus amounts.

        Our employment agreement with Brian Towne is for his service as our Senior Vice President, General Manager, Consumer Division. The agreement provides for employment until terminated in accordance with its provisions. Under the agreement, if Mr. Towne's employment is terminated without cause, we are required to pay his salary and continue his benefits for a period of between six and 12 months, depending on Mr. Towne's length of service to us at the time of his termination; provided, however, that Mr. Towne has a duty to mitigate by seeking new employment and we may deduct from severance payments due to Mr. Towne the amount of salary and benefits that he receives as a result of subsequent employment or consultation with others. Mr. Towne's annual salary in 2008 was $260,000 and the cost of Mr. Towne's benefits were approximately $1,209 per month. In addition, in such event, all of his equity awards shall immediately vest in full.

        Our employment agreement with Patrick Watson is for his service as our Senior Vice President, Strategy and Business Development. The agreement provides for employment until terminated in accordance with its provisions. Under the agreement, if Mr. Watson's employment is terminated without cause, we are required to pay his salary and continue his benefits for a period of 12 months; provided, however, that Mr. Watson has a duty to mitigate by seeking new employment and we may deduct from severance payments due to Mr. Watson the amount of salary and benefits that he receives as a result of subsequent employment or consultation with others. Mr. Watson's annual salary in 2008 was $235,000.

        We entered into an employment agreement with William Neighbors in May 2005 with respect to his service as Vice President, General Manager and entered into an amendment to the employment agreement in February 2007 with respect to his service as President, Digital Cinema division and in connection with our anticipated sale of our digital cinema and digital images businesses. We refer herein to the employment agreement, as amended, as the employment agreement. Pursuant to the employment agreement, in the event of a termination by DTS for other than good cause, we are required to pay Mr. Neighbors' salary and continue his benefits for a period of 12 months; provided, that during the twelve-month severance period, Mr. Neighbors' (1) has a duty to mitigate by seeking new employment and we may deduct from the severance payments due to him the amount of salary and benefits that he receives as a result of subsequent employment or consultation with others, (2) must make himself available as a consultant to DTS for up to eight hours per week, (3) cannot engage in activities with any venture or enterprise that is a direct competitor of our digital images business, and (4) cannot interfere with our business relationship with our customers or suppliers or

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solicit any of our employees to leave DTS. Mr. Neighbors annual salary in 2008 was $240,000 and the cost of Mr. Neighbors' benefits were approximately $1,193 per month. In addition to the severance payments described above, pursuant to the employment agreement, upon the closing of a sale of our digital cinema business (whether by a sale of substantially all of its assets or a consolidation or merger of it with another entity), all of Mr. Neighbors' unvested restricted stock and stock option awards would vest in full and any such stock options would be exercisable for three years following termination of Mr. Neighbors' employment by DTS for reasons other than cause. Pursuant to the employment agreement, we also agreed to provide Mr. Neighbors (a) a bonus of $250,000 and (b) at least 25% of any amount payable under a separate bonus pool that would be calculated as 5% of the consideration in excess of a specified amount that we received upon the sale of our digital cinema business provided that he remained continuously employed by us up to and through the closing of such sale. As discussed above, in May 2008, in connection with the sale of our digital cinema business, Mr. Neighbors employment was terminated by us without cause. Amounts paid or accrued to Mr. Neighbors in 2008 in connection with termination of his employment are reflected in the Summary Compensation Table below.

        The Committee, as plan administrator of our 2003 Plan, has the authority to grant options, SARs, and stock awards and to structure repurchase rights under that plan so that the shares subject to those options, SARs, and stock awards will immediately vest, or the repurchase rights will terminate, in the event that they are not assumed or substituted in connection with a change in control, whether by merger, asset sale, successful tender offer for more than 50% of our outstanding voting stock, or by a change in the majority of the Board by reason of one or more contested elections for Board membership. Vesting or the termination of repurchase rights will occur either at the time of the change in control or, if the options, SARs, or stock awards are assumed or substituted, then vesting or the termination of repurchase rights may occur upon the subsequent involuntary termination of the individual's service within a designated period not to exceed 18 months following the change in control.

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REPORT OF THE COMPENSATION COMMITTEE

        The Compensation Committee (the "Committee") of our Board of Directors has submitted the following report for inclusion in this Proxy Statement:

        The Committee has reviewed and discussed with management the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K and contained in this Proxy Statement. Based on the Committee's review of and the discussions with management with respect to the Compensation Discussion and Analysis, the Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement and in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2008 for filing with the Securities and Exchange Commission.

        The foregoing report is provided by the following directors, who constitute the Committee:

This excerpt taken from the DTSI DEF 14A filed Apr 14, 2008.

Employment Contracts, Termination of Employment Arrangements and Change in Control Arrangements

        Generally, we seek to secure the services of our executive officers with employment contracts. We do this to clarify the terms of employment, to define the obligations of the executive, and to set forth the circumstances under which he or she may become entitled to severance payments and the amounts and obligations thereof. We believe that the employment agreements provide us with reasonable contractual protections and that making severance commitments to our executives leads to stronger retention than if such benefits were not offered. We currently have employment agreements with all of our named executive officers.

26


        The Committee has not used tally sheets to calculate the value of these payments, as the levels of our termination and change in control arrangements have determined to be modest and well within competitive levels.

        These agreements provide the company a balance of contractual protections in exchange for severance for the executive in the case of termination for other than "good cause", and in some cases, constructive termination. The employment contracts for our executive officers other than our Chairman of the Board of Directors and Chief Executive Officer do not contain a "single trigger" provision that would generally allow such executive officers to terminate their employment because of a change in control of the company and be entitled to benefits under their employment agreements as if they were terminated without cause. We structured their employment agreements in this fashion because we believe such executives should not be entitled to such benefits absent other factors such as a termination without cause or termination for good reason. The employment agreements of our Chairman of the Board of Directors and our Chief Executive Officer do contain "single trigger" provisions. We structured their employment agreements in this fashion because we feel it appropriate given that these individuals have a much closer reporting relationship to the Board of Directors and also because we feel competitive factors require this.

        The duration of the severance obligation ranges from 6 months to one-year depending upon length of employment at the time of termination and position, and in the case of the Chief Executive Officer, 18 months. The only exceptions to our severance obligations are terminations for "good cause" and voluntary resignations (in the absence of constructive termination). A termination for "good cause" occurs only in the case of gross negligence, material misconduct, fraud or conviction of crime involving imprisonment.

        Severance protection for most executive officers in the event of termination (either without cause or in some cases by constructive termination) is provided in the form of salary and benefit continuation for the duration of the severance period (the periods run from between 6 months to one year as discussed above) and the full vesting of all unvested equity awards. In the case of the Chief Executive Officer, this severance period is 18 months. Except with respect to the Chairman of our Board of Directors, during the period that the executive receives severance pay, he or she is obligated to be available to provide up to eight hours of consulting services per week related to projects or tasks he or she had previously been involved in. In the case of the Chief Executive Officer, he is only required to provide such consulting services for a period of 12 months.

        As used with respect to any given named executive officer, the definition of "change in control" applicable to such officer is stated in such officer's employment agreement, a copy of which has been filed with the SEC.

        Our employment agreement with Jon Kirchner is for his service as our President and Chief Executive Officer and a member of our Board of Directors. This agreement provides for a term of 18 months, which automatically renews on a daily basis until terminated in accordance with its provisions. Under this agreement, if Mr. Kirchner's employment is terminated without cause, or is constructively terminated, we are required to pay his salary and continue his benefits for a period of 18 months and all of his equity awards will immediately vest in full. Mr. Kirchner's annual salary in 2007 was $360,000 and the cost of Mr. Kirchner's benefits were approximately $1041 per month. In addition, in the event of a change of control or sale of our Company, all of Mr. Kirchner's equity awards will immediately vest in full. In the event of change of control, Mr. Kirchner may choose to terminate his services and receive 18 month's salary as a single lump sum payment, plus the amount of $250,000. A constructive termination includes Mr. Kirchner's removal from his position as President and Chief Executive Officer and a member of our Board of Directors or any material change by us in his functions, duties, or responsibilities, without his consent or other than for cause; a material

27



non-voluntary reduction in his base salary and eligibility for bonus amounts; or a change of control or sale of our Company.

        Our employment agreement with Melvin Flanigan is for his service as our Executive Vice President, Finance and Chief Financial Officer. The agreement provides for employment until terminated in accordance with its provisions. Under the agreement, if Mr. Flanigan's employment is terminated without cause, or is constructively terminated, we are required to pay his salary and continue his benefits for a period of 12 months. Mr. Flanigan's annual salary in 2007 was $255,000 and the cost of Mr. Flanigan's benefits were approximately $1,381 per month. In addition, in such event, all of his equity awards shall immediately vest in full. A constructive termination includes: Mr. Flanigan's removal without cause from his position as Executive Vice President, Finance and Chief Financial Officer or any material change by us in his functions, duties, or responsibilities, without his consent; or a material non-voluntary reduction in his base salary and eligibility for bonus amounts.

        Our employment agreement with Blake Welcher is for his service as our Executive Vice President, Legal, General Counsel, and Corporate Secretary. The agreement provides for employment until terminated in accordance with its provisions. Under the agreement, if Mr. Welcher's employment is terminated without cause, or is constructively terminated, we are required to pay his salary and continue his benefits for a period of 12 months. Mr. Welcher's annual salary in 2007 was $245,000 and the cost of Mr. Welcher's benefits were approximately $1,380 per month. In addition, in such event, all of his equity awards shall immediately vest in full. A constructive termination includes: Mr. Welcher's removal without cause from his position as Executive Vice President, Legal, General Counsel, and Corporate Secretary or any material change by us in his functions, duties, or responsibilities, without his consent; or a material non-voluntary reduction in his base salary and eligibility for bonus amounts.

        Our employment agreement with William Neighbors is for his service as the President of our Digital Cinema division and provides for employment until terminated in accordance with its provisions. Under the agreement, if Mr. Neighbors' employment is terminated without cause, we are required to pay his salary and continue his benefits for a period of 12 months; provided, however, that Mr. Neighbors has a duty to mitigate by seeking new employment and we may deduct from severance payments due to Mr. Neighbors the amount of salary and benefits that he receives as a result of subsequent employment or consultation with others. Mr. Neighbors annual salary in 2007 was $240,000 and the cost of Mr. Neighbors' benefits were approximately $1,419 per month. In addition, in such event, all of his equity awards shall immediately vest in full.

        We have also agreed to provide certain benefits to Mr. Neighbors upon a sale transaction with respect to our DTS Digital Cinema division (a "Division Sale"), provided that Mr. Neighbors remains continuously employed by us up to and through the closing of such Division Sale. In such event, we have agreed to pay Mr. Neighbors a bonus of $250,000 and have further agreed that he will receive at least 25% of any amount payable under a separate bonus pool that will be calculated as 5% of the consideration in excess of a specified amount that we receive in the Division Sale. In addition, upon a Division Sale, all of Mr. Neighbors equity awards will immediately vest in full.

        Our employment agreement with Brian Towne is for his service as our Senior Vice President, Consumer/Pro Division, and Mr. Towne currently serves as our Senior Vice President and General Manager, Consumer Division. The agreement provides for employment until terminated in accordance with its provisions. Under the agreement, if Mr. Towne's employment is terminated without cause, we are required to pay his salary and continue his benefits for a period of between six and 12 months, depending on Mr. Towne's length of service to us at the time of his termination; provided, however, that Mr. Towne has a duty to mitigate by seeking new employment and we may deduct from severance payments due to Mr. Towne the amount of salary and benefits that he receives as a result of subsequent employment or consultation with others.. Mr. Towne's annual salary in 2007 was $235,000

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and the cost of Mr. Towne's benefits were approximately $1566 per month. In addition, in such event, all of his equity awards shall immediately vest in full.

        The compensation committee, as plan administrator of our 2003 Plan, has the authority to grant options, SARs, and stock awards and to structure repurchase rights under that plan so that the shares subject to those options, SARs, and stock awards will immediately vest, or the repurchase rights will terminate, in the event that they are not assumed or substituted in connection with a change in control, whether by merger, asset sale, successful tender offer for more than 50% of our outstanding voting stock, or by a change in the majority of the Board by reason of one or more contested elections for Board membership. Vesting or the termination of repurchase rights will occur either at the time of the change in control or, if the options, SARs, or stock awards are assumed or substituted, then vesting or the termination of repurchase rights may occur upon the subsequent involuntary termination of the individual's service within a designated period not to exceed 18 months following the change in control.

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COMPENSATION COMMITTEE REPORT

        The Compensation Committee (the "Committee") of our board of directors has submitted the following report for inclusion in this Proxy Statement:

        The Committee has reviewed and discussed with management the Compensation Discussion and Analysis contained in this Proxy Statement. Based on the Committee's review of and the discussions with management with respect to the Compensation Discussion and Analysis, the Committee recommended to the board of directors that the Compensation Discussion and Analysis be included in this Proxy Statement and in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2007 for filing with the SEC.

        The foregoing report is provided by the following directors, who constitute the Committee:

    COMPENSATION COMMITTEE

 

 

C. ANN BUSBY, CHAIR
RONALD N. STONE

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This excerpt taken from the DTSI DEF 14A filed Apr 10, 2007.

Employment Contracts, Termination of Employment Arrangements and Change in Control Arrangements

Generally, we seek to secure the services of our executive officers with employment contracts. We do this to clarify the terms of employment, to define the obligations of the executive, and to set forth the circumstances under which he or she may become entitled to severance payments and the amounts and obligations thereof. We believe that the employment agreements provide us with reasonable contractual protections and that making severance commitments to our executives leads to stronger retention than if such benefits were not offered. We currently have employment agreements with all of our named executive officers.

27




The Committee has not used tally sheets to calculate the value of severance payments at termination, as the levels of severance offered have been deemed to be modest and well within competitive levels.

These agreements provide the company a balance of contractual protections in exchange for severance for the executive in the case of termination for other than “good cause”,  in some cases, constructive termination, or in the case of our Chief Executive Officer and the Chairman of our Board of Directors, a change in control. The duration of the severance obligation ranges from 6 months to one-year depending upon length of employment and position, and in the case of the Chief Executive Officer, 18 months. The only exception that prevents executives from receiving severance benefits is a “good cause” termination, or voluntary resignation. Termination for “good cause” occurs only in the case of gross negligence, material misconduct, fraud or conviction of crime involving imprisonment.

Severance protection for most executive officers in the event of termination (either without cause or in some cases by constructive termination) is provided in the form of salary and benefit continuation for the duration of the severance period (the severance period runs from between 6 months to one-year depending upon length of employment and position) and the full vesting of all unvested equity awards. In the case of the Chief Executive Officer, this severance period is 18 months. Except with respect to the Chairman of our Board of Directors, during the period that the executive receives severance pay, he or she is obligated to be available to provide up to eight hours of consulting services per week related to projects or tasks he or she had previously been involved in. In the case of the Chief Executive Officer, he is only required to provide such consulting services for a period of 12 months.

As used with respect to any given named executive officer, the definition of “change in control” applicable to such officer is stated in such officer’s employment agreement, a copy of which has been filed with the SEC.

Our employment agreement with Jon Kirchner is for his service as our President and Chief Executive Officer and a member of our Board of Directors. This agreement provides for a term of 18 months, which automatically renews on a daily basis until terminated in accordance with its provisions. Under this agreement, if Mr. Kirchner’s employment is terminated without cause, or is constructively terminated, we are required to pay his salary and continue his benefits for a period of 18 months and all of his options will immediately vest in full. Mr. Kirchner’s current annual salary is $360,000; the cost of Mr. Kirchner’s benefits are approximately $477 per month. In addition, in the event of a change of control or sale of our Company, all of Mr. Kirchner’s stock options will immediately vest in full. In the event of change of control, Mr. Kirchner may choose to terminate his services and receive 18 month’s salary as a single lump sum payment, plus the amount of $250,000. A constructive termination includes Mr. Kirchner’s removal from his position as President and Chief Executive Officer and a member of our Board of Directors or any material change by us in his functions, duties, or responsibilities, without his consent or other than for cause; a material non-voluntary reduction in his base salary and eligibility for bonus amounts; or a change of control or sale of our Company.

Our employment agreement with Dan Slusser is for his service as the Chairman of our Board of Directors. The term of this agreement expires on May 31, 2007. Under this agreement, if Mr. Slusser’s employment is terminated without cause, or is constructively terminated, we are required to make a lump sum severance payment to him equal to the remaining salary due through the term of the agreement and to continue his benefits through the term of the agreement. In addition, in such event all of his options and restricted stock awards will immediately vest in full. Mr. Slusser’s current annual salary is $100,000; the cost of Mr. Slusser’s benefits are approximately $46 per month. In addition, in the event of a change of control or sale of our Company, all of Mr. Slusser’s stock options and restricted stock awards will immediately vest in full. A constructive termination includes Mr. Slusser’s removal from his position as Chairman of the Board of Directors or any material change by us in his functions, duties, or responsibilities, without his

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consent or other than for cause; a material non-voluntary reduction in his base salary and eligibility for bonus amounts; or a change of control or sale of our Company.

Our employment agreement with Melvin Flanigan is for his service as our Executive Vice President, Finance and Chief Financial Officer. The agreement provides for employment until terminated in accordance with its provisions. Under the agreement, if Mr. Flanigan’s employment is terminated without cause, or is constructively terminated, we are required to pay his salary and continue his benefits for a period of 12 months. Mr. Flanigan’s current annual salary is $255,000; the cost of Mr. Flanigan’s benefits are approximately $1,078 per month. In addition, in such event, all of his stock options shall immediately vest in full. A constructive termination includes: Mr. Flanigan’s removal without cause from his position as Executive Vice President, Finance and Chief Financial Officer or any material change by us in his functions, duties, or responsibilities, without his consent; or a material non-voluntary reduction in his base salary and eligibility for bonus amounts.

Our employment agreement with Blake Welcher is for his service as our Executive Vice President, Legal, General Counsel, and Corporate Secretary. The agreement provides for employment until terminated in accordance with its provisions. Under the agreement, if Mr. Welcher’s employment is terminated without cause, or is constructively terminated, we are required to pay his salary and continue his benefits for a period of 12 months. Mr. Welcher’s current annual salary is $245,000; the cost of Mr. Welcher’s benefits are approximately $1,075 per month. In addition, in such event, all of his stock options shall immediately vest in full. A constructive termination includes: Mr. Welcher’s removal without cause from his position as Executive Vice President, Legal, General Counsel, and Corporate Secretary or any material change by us in his functions, duties, or responsibilities, without his consent; or a material non-voluntary reduction in his base salary and eligibility for bonus amounts.

Our employment agreement with William Neighbors provides for employment until terminated in accordance with its provisions. Under the agreement, if Mr. Neighbors’ employment is terminated without cause, we are required to pay his salary and continue his benefits for a period of 12 months; provided, however, that Mr. Neighbors has a duty to mitigate by seeking new employment and we may deduct from severance payments due to Mr. Neighbors the amount of salary and benefits that he receives as a result of subsequent employment or consultation with others. Mr. Neighbors current annual salary is $240,000; the cost of Mr. Neighbors’ benefits are approximately $1,115 per month. In addition, in such event, all of his stock options shall immediately vest in full.

We have also agreed to provide certain benefits to Mr. Neighbors upon a sale transaction with respect to our DTS Digital Cinema division (a “Division Sale”), provided that Mr. Neighbors remains continuously employed by us up to and through the closing of such Division Sale. In such event, we have agreed to pay Mr. Neighbors a bonus of $250,000 and have further agreed that he will receive at least 25% of any amount payable under a separate bonus pool that will be calculated as 5% of the consideration in excess of a specified amount that we receive in the Division Sale. In addition, upon a Division Sale, all of Mr. Neighbors unvested stock options and restricted stock awards will immediately vest in full.

The compensation committee, as plan administrator of our 2003 Plan, has the authority to grant options, SARs, and stock awards and to structure repurchase rights under that plan so that the shares subject to those options, SARs, and stock awards will immediately vest, or the repurchase rights will terminate, in the event that they are not assumed or substituted in connection with a change in control, whether by merger, asset sale, successful tender offer for more than 50% of our outstanding voting stock, or by a change in the majority of the Board by reason of one or more contested elections for Board membership. Vesting or the termination of repurchase rights will occur either at the time of the change in control or, if the options, SARs, or stock awards are assumed or substituted, then vesting or the termination of repurchase rights may occur upon the subsequent involuntary termination of the individual’s service within a designated period not to exceed 18 months following the change in control.

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