8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):  September 23, 2004

SRS LABS, INC.

(Exact Name of registrant as specified in its charter)

Delaware	0-21123	33-0714264
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)
2909 Daimler Street Santa Ana, California		92705
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (949) 442-1070

Not Applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2 (b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01.  Entry into a Material Definitive Agreement.

SRS Labs, Inc. (“SRS”) issued a press release on September 28, 2004 announcing that it had entered into a strategic alliance (the “Strategic Alliance”) with Coming Home Studios, LLC (“CHS”) to co-promote SRS’s technologies, CHS’s productions and each other’s respective brands to consumers and on SRS Labs’ OEM Channels world-wide.   The first project is a series of concert DVDs (the “Concert Videos”) using SRS’s Circle Surround multichannel encoding technology.  The full text of the press release is set forth in Exhibit 99.1 hereto.

In connection with the Strategic Alliance, SRS and CHS entered into four agreements:  a Strategic Alliance Agreement, the CHS/SRS LLC Operating Agreement, a Warrant Agreement and a Production Services Agreement, each of which is filed as an exhibit to this current Report and incorporated herein by reference.  The following summary of the agreements is qualified in its entirety by reference to the full text of the agreements.

Strategic Alliance Agreement.  In the Strategic Alliance Agreement CHS and SRS agree to work together to identify and implement co-promotional opportunities, including trade shows, movie theatres, video streaming, concert DVDs, artist endorsements, bundling and premium deals, web-based promotional clips and road shows.  The parties agree to share certain direct costs payable to third parties for promotional activities that benefit both parties.  The initial term of the agreement expires on July 9, 2006 and is automatically renewable for successive one-year terms unless notice of non-renewal is given by either party at least one year prior to the expiration of the then-current term.  The Strategic Alliance Agreement is attached hereto as Exhibit 10.1 and incorporated herein by reference.

CHS/SRS LLC Operating Agreement.  This agreement governs CHS/SRS, LLC, which is a joint venture CHS and SRS formed to complete and distribute the following Concert Videos:

Duran Duran

Boz Scaggs—Jazz

Boz Scaggs—Greatest Hits

Godsmack

All Access

CHS’s capital contribution to CHS/SRS, LLC consists of the artist agreements and related contracts pursuant to which CHS/SRS, LLC will produce and distribute the Concert Videos.  SRS’s capital contribution is an aggregate of $1,800,000, consisting of a $700,000 bridge loan from SRS to CHS completed on July 9, 2004 in anticipation of the strategic alliance, plus $1,100,000 in new cash.  CHS/SRS, LLC will contract with CHS as an independent contractor to complete production of the Concert Videos.  If the cost to complete the Concert Videos exceeds the SRS capital contribution, CHS must contribute the additional capital or arrange financing which is acceptable to SRS.  SRS would have the right, but not the obligation, to contribute additional capital for completion of the Concert Videos, in which case SRS would be entitled to a preferred return.

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CHS will be the Manager of the LLC, responsible for overseeing the completion of the Concert Videos, delivery of the Concert Videos (including appropriate promotional and packaging materials for CHS and SRS) and receiving and accounting for proceeds, making distributions and ensuring that all of CHS/SRS LLC’s contractual obligations are performed.  CHS will be entitled to a management fee of 5% of all net revenues after deduction of certain expenses including artists’ participations.

Profits from the distribution of the Concert Videos and related assets will be allocated and distributed equally until SRS and CHS have both received 1.75 times their original $1,800,000 capital contributions, after which profits will be allocated and distributed 90% to CHS and 10% to SRS.  Distributions are to be made not later than 15 business days following the end of each fiscal quarter.  The CHS/SRS, LLC Operating Agreement is attached hereto as Exhibit 10.2 and incorporated herein by reference.

Warrant Agreement.  Under this agreement SRS paid CHS $40,000 to acquire a warrant (the “Warrant”) to purchase up to 122,000 units of Class A membership interests in CHS, which represents approximately 10% of the equity of CHS, for an exercise price of $9.836 per unit, subject to adjustment if the pre-money valuation of CHS is less than $12,000,000 in CHS’s next round of equity financing that raises at least $1,500,000 in new equity.  The Warrant will be immediately vested and exercisable for up to two years from July 9, 2004.  It is transferable and contains standard antidilution and price protection provisions for warrants of this type.  The Warrant Agreement is attached hereto as Exhibit 10.3 and incorporated herein by reference.

Production Services Agreement.  Under this agreement, CHS/SRS, LLC will contract with CHS as an independent contractor to perform all production services and to provide all other services, personnel, materials and elements for the production, completion and delivery of the Concert Videos.  The Agreement includes a delivery schedule requiring delivery of the All Access Concert Video in October, 2004, the Boz Scaggs—Jazz Concert Video in January 2005 and the Duran Duran Concert Video in March 2005.  It also includes delivery dates of August 3, 2004 for the Boz Scaggs—Greatest Hits Concert Video and September 13, 2004 for the Godsmack Concert Video, which CHS has already met.  CHS, as the independent contractor, shall receive an aggregate of $365,000 in production fees for all of its services under the Production Services Agreement.  CHS is responsible for payment of all costs and expenses in connection with the production of the Concert Videos.  If the actual cost to complete the Concert Videos exceeds $1,800,000 CHS shall be responsible for all overages.  The Production Services Agreement is attached hereto as Exhibit 10.4 and incorporated herein by reference.

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Item 9.01. Financial Statements and Exhibits.

(c) Exhibits

Exhibit No.	Description
10.1	Strategic Alliance Agreement between SRS Labs, Inc. and Coming Home Studios, LLC dated September 23, 2004.
10.2	CHS/SRS, LLC Operating Agreement between SRS Labs, Inc. and Coming Home Studios, LLC dated September 23, 2004.
10.3	Warrant Agreement between SRS Labs, Inc. and Coming Home Studios, LLC dated September 23, 2004.
10.4	Production Services Agreement between CHS/SRS, LLC and Coming Home Studios, LLC dated September 23, 2004.
99.1	Press Release dated September 28, 2004.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	SRS LABS, INC.,
	a Delaware corporation
Date: September 28, 2004	By:	/S/ THOMAS C.K. YUEN
		Thomas C.K. Yuen
	Chairman of the Board and Chief Executive Officer

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EX-10.1

EXHIBIT 10.1

STRATEGIC ALLIANCE AGREEMENT

THIS STRATEGIC ALLIANCE AGREEMENT (the “Agreement”) is made and entered into effective as of September 23, 2004 (the “Effective Date”), by and between Coming Home Studios, LLC, a California limited liability company (“CHS”), and SRS Labs, Inc., a Delaware corporation (“SRS”).

RECITALS:

A. CHS is a live concert DVD and television production company focusing on working with artists to obtain exclusive rights to film and record live concert performances, produce a finished audiovisual entertainment product and distribute the show for DVD/home video and broadcast.

B.SRS develops and licenses audio enhancement technologies including a technology commonly known as Circle Surround and Circle Surround II.

C. The parties desire that CHS use SRS technologies, and particularly the Circle Surround technologies, in the recording and production of its music DVD productions. The parties further desire to create new opportunities to promote their respective brands and products.

D. Concurrently with this Agreement, the parties have also entered into an Operating Agreement for the CHS/SRS LLC, a California Limited Liability Company in which the parties are the only members, pursuant to which SRS is providing financing for certain, selected music DVD productions and CHS is contributing its rights with respect thereto.  CHS is the sole manager of that LLC.

AGREEMENT

Now, therefore, in consideration of the above recitals and the mutual covenants set forth below, the parties agree as follows:

1.Co-promotional Activities. The parties will use their reasonable, good faith, best efforts to identify and implement opportunities to use and promote SRS technologies, promote CHS productions and to promote their respective brands.  Set forth below is several ways the parties will work together to achieve these strategic goals.  The list below is not exclusive, and the parties may identify and implement other opportunities, or discontinue any of the below identified opportunities, by mutual consent. The parties recognize that many of these opportunities may be subject to the consent of the artists or other third parties, and each will use their reasonable, good faith best efforts to obtain such consent.

Trade shows.  CHS and SRS will attend numerous industry-related trade shows to promote their brands.  Some of the trade shows being discussed are: POPKOM,

MIDEM, NAMM, Surround Conference and CES.  The parties will cooperate to develop a strategy and presentation appropriate for such shows.

Movie Theatres.  Both parties desire to promote their brands via movie theatres.  CHS has a working relationship  with AEG TV and Regal Cinemas.  CHS is attempting to influence Regal to improve its Digital Network.  CHS will work closely with SRS to assist  SRS in placing SRS Circle Surround in the Regal Cinemas Theatres.  CHS will use its reasonable best efforts to ensure that as digital capabilities are added to the 7000 theater network of Regal that Regal agrees to include SRS equipment and that future showings of CHS’ products at Regal are shown in SRS Circle Surround.

Video Streaming.  A goal for CHS is to begin promoting its shows through video streaming methods. CHS and SRS will work together to approach Microsoft, Apple and other video streaming companies with whom SRS has a relationship to promote CHS and SRS products and brands.

Demo Reels.  CHS and SRS will create two demo reels to showcase CHS productions and SRS technologies and promote the parties’ brands; one reel targeting industry related companies and vendors and the other targeting consumers.

Concert DVDs.  CHS’ primary business is production of premium quality live concert DVDs.  CHS will encode all DVD products with SRS Circle Surround as part of its technology program.  CHS will assist SRS in the production (at SRS expense) of an SRS animated logo with SRS Audio. The SRS animated logo will be included in the opening credits of each DVD adjacent to the CHS animated logo, and every DVD will have the CHS and SRS logos prominently displayed for maximum awareness.  CHS will not include logo credit or otherwise promote or advertise the use of competing surround sound technologies in connection with its DVDs.  CHS and SRS ad slicks or ad cards will be included inside the DVD media case subject to approval of artist and distributor if required (each party will absorb the cost of printing its ad slick or ad card).  The parties will work cooperatively to assure that consumers are aware that the reason the productions look and sound the way they do is because of the technology and companies behind them – CHS and SRS.

Press Releases.  CHS and SRS will issue press releases upon each new release or sales plateau on each of its joint products to bring awareness to the success of  the parties’ alliance and brands.  These press releases will be geared towards consumers, industry people and the investment banking community. The content of all press releases using the name of either company, or both, shall be subject to the approval of such named company prior to release.

Web Sales.  SRS will begin to sell CHS/SRS DVDs through its website sharing revenues 50/50 after costs of goods, artists and publishing royalties and fulfillment costs.  CHS will use its reasonable best efforts to link the respective CHS and SRS websites to CHS’ various catalog artists websites for maximum exposure.

Artist Endorsements.  CHS prides itself on its close relationships with the artists with whom it works.  CHS will approach the artists and seek their consent, endorsement and assistance in promoting the CHS and SRS brands via interviews, advertisements, trade show appearances, in-store appearances, quotes for brochures, interview for the demo reels, etc.

Screening Room.  CHS and SRS will work together to approach manufactures regarding creation of a screening room in the Los Angeles area at which the parties’ productions and technologies can be demonstrated or showcased to clients, customers, artists and manufacturers.

Bundling and Premium Deals.  CHS and SRS will jointly approach various manufacturers and product representatives about bundling CHS products for sales promotions, and similar promotional activities.

Preloaded Demonstration Clips. SRS will work with various product manufacturers to promote preloading of clips from Circle Surround encoded CHS productions on media playback devices such as the Apple Vpod or the Portable Media Center supported by Microsoft.  These clips will carry the CHS and SRS logos and include information on purchase of the full-length productions. This is subject to the artist’s and label agreements and publishing licenses, if applicable.

Web Based Promotional Clips.  SRS and CHS will work together to produce short clips (approx 30 seconds) for web-based promotion on SRS’ and other websites.

Road Shows.  The parties will formulate a joint team to travel to seminars, trade shows, industry events and consumer events to promote the CHS and SRS brands, and showcase the parties’ products and technologies through demonstrations, presentations, brochures, etc.

2.Expenses.    Implementation of particular opportunities will involve additional direct costs payable to third parties (“Direct Costs”). If a particular activity or project benefits one party predominately then the Direct Costs related thereto will be paid by the benefited party. If a particular activity or project benefits both parties then the Direct Costs related thereto will be shared by the parties proportional to the benefit received and if the parties cannot agree upon the proportional benefit, then the dispute will be submitted to rapid dispute resolution as hereinafter provided. . Each party will absorb its own, internal expenses (including but not limited to the expense of employees, consultants, office and administrative expenses) related to performing their respective duties under this Agreement.

3.Term and Termination. Subject to earlier termination as provided below, the initial term of this Agreement expires July 9, 2006 and will automatically renew for successive one (1) year terms unless notice of non-renewal is delivered by either party at least one (1) year prior to expiration the then current term.

Termination for Breach. If a party has materially breached this Agreement then the other party may terminate this Agreement immediately upon delivery of notice; provided however, if the breach is capable of cure, then the breaching party will have thirty (30) days to cure the breach and avoid termination.

Termination for Assignment or Bankruptcy. This Agreement may be terminated by a party if the other party hereunder seeks protection under any bankruptcy, reorganization, insolvency or other debtor relief or protection law, makes any assignment of assets for the benefit of creditors, becomes generally unable to pay its debts when due, or has any such proceeding filed against it which is not fully dismissed within ninety (90) days after filing.

4. General Provisions.

LIABILITY LIMITATION. IN NO EVENT WILL EITHER PARTY BE LIABLE FOR INDIRECT, INCIDENTAL, SPECIAL, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES FOR LOSS OF PROFITS, WHETHER IN AN ACTION IN CONTRACT OR TORT RELATING TO OR ARISING FROM THIS AGREEMENT.

Governing Law. This Agreement will be interpreted and enforced in accordance with the laws of the State of California, USA, without regard to choice of law principles.

Rapid Dispute Resolution.  All disputes, claims or controversies, of any nature, arising out of or relating to this Agreement, that are not resolved by the parties’ good faith attempt to negotiate a resolution shall be submitted to one judicial referee, pursuant to the provisions of California Code of Civil Procedure. The referee shall have substantial experience in resolving disputes involving software and technology. The referee, without jury, is to try the entire case, including any issues of fact and/or law, and is to report his statement of decision in writing to the Court within twenty days after the close of testimony.  The statement of decision shall be filed with the court and judgment entered thereon in the same manner as if the action had been tried by the superior court.  The referee shall also hear and determine any post-trial motions, including, but not limited to, motions for new trial.  The parties agree that all matters shall be subject to reference in Orange County, California. The prevailing party in any proceeding shall be entitled to recover its reasonable attorneys’ fees, expert witness fees and other costs of suit in addition to any other relief to which it may be entitled.  Notwithstanding the foregoing, actions for equitable relief for breach of confidential information or other obligations for which equitable relief is appropriate may be brought in any court of competent jurisdiction.

Entire Agreement. This Agreement, including the exhibits if any constitutes the entire agreement between the parties, except for any agreements relating to the protection of confidential information in which case this Agreement is supplemental thereto and shall supercede such prior agreements only to the extent inconsistent with the prior agreement.

Assignment. Neither party may transfer, assign or sublicense its rights or duties under this Agreement without the prior written approval of the other party. A merger, sale of substantially all the assets of a party or other business combination will not be considered an assignment for purposes of this provision.

Third Party Beneficiaries. This Agreement is for the sole benefit of the parties and their permitted successors and assigns and nothing herein express or implied shall give or be construed to give any other person or entity any legal or equitable rights hereunder.

Amendments and Waiver. No amendment of this agreement will be effective unless it is writing and signed by a duly authorized representative of all parties. No waiver of any provision of this Agreement will be effective unless contained in a writing referring specifically to such provision and signed by the party against whom the waiver is alleged. Any waiver shall be effective only in the specific instance and for the specific purpose stated in such writing.

Successors and Assigns. This Agreement shall inure to the benefit of and shall be binding upon the parties and their respective permitted successors and assigns.

Severability. If any provision of this Agreement is held to be invalid or unenforceable, the remaining provisions of this Agreement will remain in full force.

Confidentiality.  Confidential Information means non-public information concerning a party’s technology, research and development, technical specifications and designs, trade secrets, customers, personnel, financial information, and other information either marked as confidential or proprietary or due to the nature of the information and the circumstances of its disclosure would be understood by a reasonable businessperson as confidential or proprietary.  Confidential Information does not include information that a receiving party can demonstrate (a) was or becomes a part of the public domain other than as a result of a disclosure by the receiving party or its directors, officers, employees, agents, contractors or advisors (“Representatives”); (b) was or becomes available to the receiving party on a non-confidential basis from a source other than the disclosing party or its advisors, provided that such source is not bound by a confidentiality obligation with disclosing party; (c) was within the receiving party’s possession prior to it being furnished to the receiving party by or on behalf of the disclosing party provided the source of such information was not bound by a confidentiality obligation owed to the disclosing party with respect thereto or (d) was developed by the receiving party independent of any use of or reference to the Confidential Information.

Any and all Confidential Information received by a party hereunder (the “Receiving Party”) that is furnished by or on behalf of the other party (the “Disclosing Party”) in connection with this Agreement will only be used for the purposes of exercising the rights and performing the obligations of the Receiving Party under this Agreement or the CHS SRS LLC agreements.  All Confidential Information will be kept confidential by the Receiving Party and its Representatives; provided, however, Confidential Information

may be disclosed (a) to the Receiving Party’s Representatives who need to know such information in order to accomplish the business purpose for which the Confidential Information was disclosed (collectively the “Informed Persons”); (b) pursuant to a lawful subpoena issued by a court of competent jurisdiction provided prior notice and opportunity to defend is given to the Disclosing Party or as otherwise reqired by law; and (c) to any person or entity to which the Disclosing Party consents in advance and in writing.  The Receiving Party will take appropriate and reasonable steps to ensure the protection, confidentiality and security of the Confidential Information including, but not limited to, ensuring that all Informed Persons are aware of the confidential and/or proprietary nature of the Confidential Information and have themselves signed confidentiality agreements providing substantially the same protections for the Disclosing Party as are provided under this Agreement.

IN WITNESS WHEREOF, this Agreement has been executed as of the Effective Date.

COMING HOME STUDIOS LLC
By:	/S/ DANIEL E. CATULLO III
Name:			Daniel E. Catullo III
Title:		Manager
SRS LABS, INC.
By:	/S/ THOMAS C.K. YUEN
Name:			Thomas C.K. Yuen
Title:		Chairman and Chief Executive Officer

EX-10.2

EXHIBIT 10.2

THE SECURITIES REPRESENTING MEMBERSHIP INTERESTS UNDER THIS LLC OPERATING AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE. THE SECURITIES MAY NOT BE TRANSFERRED WITHOUT REGISTRATION UNDER SUCH LAWS OR THE AVAILABILITY OF AN EXEMPTION FROM REGISTRATION UNDER SUCH LAWS.

OPERATING AGREEMENT

FOR

CHS/SRS, LLC

A CALIFORNIA LIMITED LIABILITY COMPANY

September 23, 2004

THE SECURITIES REPRESENTED BY THIS OPERATING AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS AMENDED OR THE LAWS OF ANY STATE.  THESE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, DELIVERED AFTER SALE, TRANSFERRED, PLEDGED, HYPOTHECATED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR AN OPINION OF COUNSEL, WHICH OPINION IS SATISFACTORY IN FORM AND SUBSTANCE TO THE COMPANY AND CONCURRED IN BY THE COMPANY’S COUNSEL, TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR THE LAWS OF ANY STATE OR SUCH TRANSACTION COMPLIES WITH RULES PROMULGATED BY THE SECURITIES AND EXCHANGE COMMISSION UNDER SAID ACT AND APPLICABLE STATE LAW.

CHS/SRS, LLC
OPERATING AGREEMENT

This Operating Agreement (“Agreement”) is entered into effective as of September 23, 2004, by and among COMING HOME STUDIOS, LLC (“CHS”) and SRS LABS, INC. (“SRS”) and any other parties who may from time to time execute this Agreement (collectively referred to as the “Members” or individually as an “Member”).

R E C I T A L S :

A.WHEREAS, SRS is engaged, inter alia, in the development and provision of audio technology;

B.WHEREAS CHS is engaged, inter alia, in the business of producing and exploiting the rights to the live taping of concerts, and, in connection therewith, has entered into the following agreements (the “Designated Contracts”) to produce, exploit and receive economic benefits from concert videos using SRS technology:

1.Artist agreement between CHS and Duran Duran Ltd. dated March 1, 2004;

2.Operating agreement between CHS and Duran Duran L & I dated as of May 8, 2004 relating to DD/CHS, LLC;

3.Artist agreement between CHS and Godsmack Partnership dated March 18, 2004;

4.Artist agreement between CHS and Gray Cat Records, Inc. dated as of April 11, 2003 and executed August 18, 2003;

5.Operating Agreement dated as of June 4, 2003, between CHS and the Class B members of BS Concert Video LLC; and

6.Unexecuted Distribution Agreement between CHS and Ideal Entertainment dated May 21, 2004 (collectively, the concert videos to be produced pursuant to the Designated Contracts and any related agreements will be referred to herein as the “Shows”).

C.WHEREAS, CHS and SRS wish to enter into a strategic alliance to exploit ongoing co-promotional opportunities for their respective brands and products (the “Strategic Alliance”);

D.WHEREAS, pursuant to an oral partnership agreement entered into between CHS and SRS (the “Initial Partnership”) in contemplation of establishing the Strategic Alliance and completing and distributing the Shows, SRS made a capital contribution to the Initial Partnership in the amount of $700,000 on July 9, 2004 (the “Initial SRS Contribution”);

E.WHEREAS, in connection with the Strategic Alliance and the Initial Partnership, CHS and SRS wish to form a limited liability company (“CHS/SRS, LLC” or the “Company”) to complete and promote the Shows;

F.WHEREAS, in addition to the Initial SRS Contribution, SRS wishes to contribute $1,100,000 in cash to the capital of CHS/SRS, LLC, and CHS wishes to contribute the Designated Contracts and all assets created in respect thereof or derived therefrom, including without limitation the Shows and the Proceeds (provided, however that CHS will retain legal title to the copyrights and masters in respect of the Shows), to the capital of CHS/SRS, LLC;

G.WHEREAS, on June 18, 2004, CHS/SRS, LLC was formed as a limited liability company by the filing of Articles of Organization (the “Articles”) with the California Secretary of State; and

H.WHEREAS, CHS and SRS wish to enter into this Agreement to convert the Initial Partnership into CHS/SRS, LLC and to govern the operations of the Company and document the rights and obligations of each Member with respect to the Company and the other Members.

NOW, THEREFORE, in consideration of the premises and the mutual covenants and conditions contained herein, the parties agree as follows:

A G R E E M E N T :

ARTICLE I

ORGANIZATIONAL MATTERS

1.1Definitions; Formation and Purpose.  Unless otherwise defined herein, capitalized terms shall have the meanings set forth in Section 11.1 hereof.  The Members have formed a California limited liability company by filing the Articles with the California Secretary of State and have entered into this Agreement to define the rights and liabilities of the Members.  The purpose of the Company is to Complete and distribute the Shows, to receive and distribute the Proceeds and to engage in any such other lawful business as the Members deem appropriate or advisable.

1.2Name and Term.  The name of the Company shall be “CHS/SRS, LLC”.  The business of the Company may be conducted under that name or, upon compliance with applicable laws, any other name that the Members deem appropriate or advisable.  The term of this Agreement shall be coterminous with the existence (including any winding up activities) of the Company.

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1.3Office; Agent.  The Company shall maintain an office and registered agent in California, and may locate its principal office where the Manager (as defined in Section 4.1) may determine.  Other offices may also be established as needed within and without California.  The registered agent shall be as stated in the Articles or as otherwise determined by the Manager.

1.4Continuation After Certain Events.  The Company shall not dissolve upon death, Disability, bankruptcy, retirement, resignation, expulsion or dissolution of any Member; by executing this Agreement, the Members agree that the business of the Company shall continue in any of such events.

ARTICLE II

CAPITAL CONTRIBUTIONS; USE OF PROCEEDS

2.1Capital Contributions.  Each Member shall contribute the amount set forth on Exhibit A and the respective schedules thereto as such Member’s initial Capital Contribution.  The initial Capital Contributions shall be used to Complete the Shows pursuant to a Production Services Agreement to be entered between the Company and CHS on or about the date hereof. No Member shall be required to make any additional Capital Contributions, but additional Capital Contributions may be made upon written approval of the Members or as otherwise provided herein.  All Capital Contributions and Units, as set forth on Exhibit A and the respective schedules thereto, shall be adjusted as necessary and appropriate.

2.2Cost to Complete the Shows.  If any additional capital (an “Additional Advance”) in excess of the SRS Capital Contribution is required by CHS to Complete the Shows, then the Manager will be responsible for contributing the additional capital needed or for arranging financing which is acceptable to both Members; provided, however, that (i) SRS will have the right (but not the obligation) to contribute one-half of any Additional Advance; and (ii) no Member’s ownership interest will be diluted in connection with any Additional Advance. If CHS is unable or unwilling to contribute its share of any Additional Advance, then SRS will also have the right (but not the obligation) to contribute all or any part of the needed Additional Advance. If the amount of the Additional Advance contributed by SRS exceeds the amount of the Additional Advance contributed by CHS, then SRS will be entitled to receive, from the first distributions of cash as provided in Section 7.4 below, an amount equal to 130% of the amount by which the cumulative Additional Advances made by SRS exceed the cumulative Additional Advances made by CHS.

2.3Capital Accounts.  The Company shall establish and maintain in accordance with the Regulations, a capital account (the “Capital Account”) for each Member, which shall carry over to such Member’s transferee if transferred in accordance with this Agreement.  Interest shall not be payable on any Capital Account except as provided herein.

ARTICLE III

CLASSES OF MEMBERS, VOTING RIGHTS AND PUT RIGHTS

3.1Members.  The names, addresses, and the number of Units of the Members are set forth on Exhibit A, attached hereto and made a part hereof.  Each Member, by executing this

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Operating Agreement, represents that such Member is acquiring such Member’s Units for such Member’s own account and not with a view to or for sale in connection with any distribution of such Units.

3.2Class of Membership Unit.  There shall initially be one class of membership interest:  Class A.

3.3Units of Interest in the Company.  The Company shall issue one (1) unit of Class A membership interests to each of CHS and SRS.

3.4Voting Rights of Classes.  Holders of Class A Units shall have one (1) vote for each Unit.

3.5Additional Units.  The Company shall have the right to authorize and issue additional Units and warrants to purchase additional Units from time to time subject to the restrictions set forth in this Agreement.

3.6Limited Liability.  Except as required under the Act or this Agreement, no Member shall be personally liable for any debt, obligation, or liability of the Company, whether that liability or obligation arises in contract, tort, or otherwise.

3.7Withdrawals.  The death, Disability, expulsion, bankruptcy or dissolution of a Member or the voluntary withdrawal or resignation by such Member from the Company shall be a “Withdrawal.”  Upon the Withdrawal of a Member, such Member shall become a holder of an Economic Interest only and shall thereafter be entitled only to the rights of a holder of an Economic Interest hereunder.  Upon the Withdrawal of a Member, the Company shall have the right to redeem such withdrawn Member’s Economic Interest for an amount equal to the fair market value of such withdrawn Member’s Interest.

3.8Transactions With the Company.  Unless otherwise prohibited herein, a Member may lend money to and transact other business with the Company.  Each such Member shall have, in such capacity, the same rights and obligations with respect thereto as a Person who is not a Member.

3.9Voting Rights.  The Company may take any of the following actions, but only upon the unanimous written approval of the Members:

(a)Amend the Articles of Organization or this Agreement;

(b)Select or remove a Manager, provided, however, that the Manager may be removed and a new Manager may be appointed without unanimous approval pursuant to Section 4.1 hereof;

(c)Make any distribution of cash or other assets of the Company to any Member other than in accordance with this Agreement;

(d)Make or modify any material decision or determination regarding accounting and tax matters;

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(e)Approve additional capital contributions, provided, however, that this section shall not require any vote to approve an Additional Advance by CHS or SRS pursuant to Section 2.2 hereof;

(f)Admit a new Member;

(g)Establish additional classes of Members;

(h)Compromise an obligation of a Member or return money or property paid or distributed in violation of the Act;

(i)Commit any act which would make it impossible to carry on the ordinary business of the Company;

(j)Confess to any judgment against the Company;

(k)Sell all or substantially all of the assets of the Company (unless pursuant to the Company’s duly authorized dissolution);

(l)Merge the Company with another limited liability company, limited partnership, corporation, general partnership or other Person; provided, however, that no Member shall be subjected to an economic risk of loss in excess of its Capital Contribution, in any merger without its express written consent or unless each Member is granted dissenter’s rights as described in the Act;

(m)Modify or change the business of the Company from that set forth in Section 1.1;

(n)Dissolve the Company; or

(o)Undertake a reorganization of the Company as defined in California Corporations Code Section 17600.

3.10Meetings of Members.  Meetings of Members may be held at any date, time and place within or without California.  Meetings shall be held not less frequently than monthly.  At each such meeting, the Manager shall present a summary of the Company’s activities during the preceding month, including without limitation project status for the Completion and distribution of each Show.  Unless prohibited by the Act or the Articles, special meetings of the Members may be called by any Member owning more than fifteen percent (15%) of the Class A Units for the purpose of addressing any matters on which the Members may vote or any matters relevant to the financial condition or performance of the Company or the Shows.

3.11Percentage Interests.  The Percentage Interests of the Members shall be as stated on Exhibit A hereto.

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ARTICLE IV

MANAGEMENT AND CONTROL OF THE COMPANY

4.1Management of the Company by Manager; Removal.

(a)Management of the Company by Manager.  Subject to the limitations set forth in this Agreement or the Act, the business and affairs of the Company shall be managed by or under the authority of the Manager, which shall initially be CHS.  The Manager shall have all of the rights and powers which may be possessed by a “manager” under the Act, and such rights and powers as are otherwise conferred by law or by this Agreement or are necessary to the management of the business and affairs of the Company.

(b)Removal of Manager.  The Manager may be removed as provided in Section 3.9(b) and may be unilaterally and immediately removed by any Member for fraud, embezzlement, misappropriation of Company assets and for failure to make timely distributions to Members in accordance with Article VII of this Agreement.  Provided, however, that prior to removing the Manager for failure to make timely distributions to Members pursuant to Section 7.4 hereof, a Member must deliver written notice (the “Notice”) of such failure to the Manager at the address set forth in Section 11.16 below.  If the Manager does not cure such failure within forty-eight (48) hours of delivery of the Notice, the Manager shall be removed without further action by the Members and a replacement Manager may be appointed by the Member giving the Notice.

4.2Performance of Duties.

(a)The Manager shall perform its duties consistent with its obligations as set forth in Section 17153 of the Act.

(b)The Manager will use its best efforts to, or will cause CHS to:

(i)Complete the Shows;

(ii)Deliver the Shows for distribution upon Completion and cause the Shows to be distributed;

(iii)Receive and account for Proceeds and make distributions to the Members in accordance with this Agreement;

(iv)Include SRS and CHS promotional materials, including without limitation logos and ad slicks, to be included in the packaging materials distributed with the Shows;

(v)Maintain complete, timely and accurate accounting records and financial statements;

(vi)Ensure that all of CHS’s obligations under the Designated Contracts are performed; and

(vii)Maintain adequate insurance on all assets of the Company.

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(c)The Manager shall perform its managerial duties in good faith and in the best interests of the Company, and with such care including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances.  If the Manager so performs, the Manager shall not be liable to the Company or to any Member for any loss or damage sustained by the Company or any Member, unless the loss or damage shall have been the result of fraud, deceit, gross negligence, reckless or intentional misconduct or a knowing violation of law by the Manager.

4.3Additional Obligations of CHS.

(a)Transfer of Assets.  CHS will transfer to the Company the Designated Contracts and all of its rights and interests thereunder, including without limitation the right to receive all Proceeds.  Such transfer shall not affect the rights of the respective counterparties under the Designated Contracts.  CHS will retain legal title to the copyrights to the Shows and the masters of the Shows (collectively, the “Retained Assets”) but will account for and contribute all Proceeds in respect thereof to the Company.  Notwithstanding the foregoing, nothing in this paragraph will require CHS to contribute to the Company any non-refundable cash advances received from distributors in respect of the Shows prior to the formation of the Company.

(b)Proceeds.  CHS will contribute all gross Proceeds received by CHS to the Company not later than 30 days following CHS’s receipt thereof.  CHS will keep up-to-date accounting records in respect of the Proceeds, including without limitation distribution, accounting, inventory control and receivables.  Such accounting systems and records shall be made available for the Members or their professional advisors to review at any time.

(c)Production Services Agreement.  CHS will enter into a Production Services Agreement (the “Production Services Agreement”) dated the date hereof with the Company to Complete, distribute and exploit the Shows and other assets in respect of the Designated Contracts.

(d)Warrant.  On the date hereof, CHS and SRS will enter into a warrant purchase agreement (the “Warrant Agreement”) pursuant to which CHS will sell SRS a warrant to acquire ten percent (10%) of the equity of CHS on the terms and conditions set forth therein.

(e)UCC Filings.  CHS hereby authorizes SRS to file on its behalf any authorized amendments to the applicable UCC-1 Financing Statement pursuant to that certain Amendment to Security Agreement dated on or about the date hereof among CHS, SBI Advisors, LLC and the other parties thereto. 

4.4Fees.

(a)Management Fees.  As consideration for services provided to the Company, Manager shall be entitled to a management fee of 5% of all net revenues received from the exploitation of the Shows (the “Management Fee”); provided, however, that no Management Fee will accrue or be payable until all Additional Advances, if any, are repaid in full.  For purposes of calculating the Management Fee, net revenues shall be determined by

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deducting from gross revenues:  (i) any contracted sales management fees properly chargeable by third parties in connection with the Designated Contracts, provided that such fees were contracted prior to the formation of the Company; (ii) any participations paid or payable to the artists under the Designated Contracts or any agreement ancillary thereto (“Artists’ Participations”); (iii) all Company expenses, debt payments, capital improvements, replacements and contingencies; and (iv) any reserves established for any of the foregoing.  Management Fees payable hereunder shall accrue and be paid quarterly.

ARTICLE V

REPRESENTATIONS AND WARRANTIES

5.1Representations and Warranties of CHS.  CHS hereby represents and warrants to SRS that:

(a)CHS (i) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (ii) has the power and authority, and the legal right, to conduct the business in which it is currently engaged, (iii) is duly qualified as a foreign corporation and in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification, and (d) is in compliance with all requirements of law applicable to the conduct of its business.

(b)The description of the Designated Contracts and related assets set forth on Schedule 1 to Exhibit A hereto completely and accurately describes the Designated Contracts and all of CHS’s right, title and interest in and to the Designated Contracts and any related agreements, rights and understandings with respect thereto.

(c)CHS is the owner of the assets set forth on Schedule 1 to Exhibit A and has contributed to the Company as the CHS Capital Contribution the Designated Contracts and all of its rights and interests thereunder, including without limitation the right to receive all Proceeds, free and clear of all liabilities, liens, security interests and encumbrances, and CHS has no additional rights or economic interests arising from or relating to the Designated Contracts or the Shows other than the Retained Assets.

(d)CHS has the requisite legal capacity to own its assets, to borrow money, to execute and deliver this Agreement and all other documents, certificates and instruments related thereto, and to effect and carry out the transactions contemplated herein and therein.  This Agreement and each Designated Contract has been duly authorized and, when executed and delivered, will be a valid and legally binding instrument enforceable against CHS and/or the Company, as applicable, in accordance with its terms.  The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby (a) will not (immediately or with the passage of time, or the giving of notice) violate (i) any law, order, rule or regulation or determination of an arbitrator, a court, or other governmental agency, applicable or binding upon CHS or any of the CHS’s property or as to which CHS or any of its property is subject; or (ii) any provision of any agreement, instrument, or undertaking to which CHS is a party or by which CHS or any of CHS’s property is bound and (b) will not result in the creation or imposition of any lien upon any of the property of CHS, other than those in favor of SRS.

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(e)No consents, approvals or other authorizations or notices, other than those which have been obtained and are in full force and effect, are required by any state or federal regulatory authority or other person or entity in connection with the execution, delivery and performance of this Agreement and the performance of any obligations contemplated hereby.

(f)CHS is not subject to any contractual obligation restricting or limiting the ability of CHS to enter into and perform this Agreement.

(g)All representations and warranties of CHS set forth in the Warrant Agreement and the Production Services Agreement are true and correct.

5.2Representations and Warranties of SRS.  SRS hereby represents and warrants to SRS that:

(a)SRS (i) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (ii) has the power and authority, and the legal right, to conduct the business in which it is currently engaged, (iii) is duly qualified as a foreign corporation and in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification, and (d) is in compliance with all requirements of law applicable to the conduct of its business.

(b)SRS has the requisite legal capacity to own its assets, to borrow money, to execute, deliver and this Agreement and all other documents, certificates and instruments related thereto, and to effect and carry out the transactions contemplated herein and therein.  This Agreement has been duly authorized and, when executed and delivered, will be a valid and legally binding instrument enforceable against SRS in accordance with its terms.  The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby (a) will not (immediately or with the passage of time, or the giving of notice) violate (i) any law, order, rule or regulation or determination of an arbitrator, a court, or other governmental agency, applicable or binding upon SRS or any of the SRS’s property or as to which SRS or any of its property is subject; or (ii) any provision of any agreement, instrument, or undertaking to which SRS is a party or by which SRS or any of SRS’s property is bound and (b) will not result in the creation or imposition of any lien upon any of the property of SRS, other than those in favor of SRS.

(c)No consents, approvals or other authorizations or notices, other than those which have been obtained and are in full force and effect, are required by any state or federal regulatory authority or other person or entity in connection with the execution, delivery and performance of this Agreement and the performance of any obligations contemplated hereby.

(d)SRS is not subject to any contractual obligation restricting or limiting the ability of SRS to enter into and perform this Agreement.

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ARTICLE VI

ACCOUNTING, RECORDS, REPORTING BY MEMBERS

6.1Books and Records.

(a)The Company will keep up-to-date accounting records, and the books and records of the Company shall reflect all Company transactions and shall be kept in accordance with generally accepted accounting principles.  In addition, the Manager shall maintain, keep current at all times, and reconcile on a monthly basis the Company’s general ledger, revenue accounting, royalty and distribution accounting, inventory control, receivables and payables ledgers and other supporting systems, ledgers and computations (including, but not limited to production cost amortization) supporting the financial statements, and shall properly maintain all underlying transaction documentation. Such accounting systems and records shall be made available for SRS and outside auditors to review at any time. All costs of such accounting reviews shall be borne by the Company.

(b)The Company shall maintain all of the following:  a current list of the full name and last known business or residence address of each Member and owner of Economic Interest who is not a Member (an “Economic Interest Owner”), together with the Capital Contributions, Capital Account and number of Units of each Member and Economic Interest Owner; a copy of the Articles and any and all amendments thereto together with executed copies of any powers of attorney pursuant to which the Articles or any amendments thereto have been executed; copies of the Company’s federal, state, and local income/sales/use tax or information returns and reports, if any, for the three (3) most recent taxable years; a copy of this Agreement and any and all amendments thereto together with executed copies of any powers of attorney pursuant to which this Agreement or any amendments thereto have been executed;  copies of the financial statements of the Company for the three (3) most recent Fiscal Years and such interim statements as the Company shall prepare from time to time for the stub period; and the Company’s books and records as they relate to the internal affairs of the Company for at least the current and past three (3) Fiscal Years.

6.2Delivery to Members and Inspection.  Each Member and Economic Interest Owner has the right, upon reasonable request for purposes reasonably related to the interest of the Person as Member or Economic Interest Owner, to inspect and copy during normal business hours any of the Company records described in Section 6.1 and to obtain from the Company, promptly after their becoming available, a copy of the Company’s interim or audited annual financial statement and federal, state, and local income tax or information returns for each Fiscal Year.

6.3Bank Accounts.  The Manager shall maintain the funds of the Company in one or more separate bank accounts in the name of the Company, and shall not permit the funds of the Company to be commingled in any fashion with the funds of any other Person, provided, however, that subject to the other terms and conditions of this Agreement, nothing in this paragraph shall prohibit the Company from paying such expenses as the Manager deems necessary or appropriate to Complete the Shows.

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6.4Accounting and Tax Matters.  All decisions as to accounting and tax matters shall be made by unanimous consent of the Members.  The Manager shall select a person to serve as the “Tax Matters Partner,” as defined in Code Section 6231, who shall represent the Company at the Company’s expense in connection with all examinations of the Company’s affairs by tax authorities, including resulting judicial and administrative proceedings, and shall expend the Company funds for professional services and costs associated therewith.  The Tax Matters Partner shall oversee the Company tax affairs in the overall best interests of the Company.  If for any reason the Tax Matters Partner can no longer serve in that capacity, the Manager shall designate another person to be Tax Matters Partner.

ARTICLE VII

ALLOCATIONS AND DISTRIBUTIONS

7.1Allocations of Net Profits.  After the special allocations set forth in Exhibit B have been given effect, Net Profits for any Fiscal Year shall be allocated as follows:

(a)First, to each Member with a negative Capital Account, in accordance with such negative Capital Accounts until no Member has a negative Capital Account;

(b)Second, to SRS in an amount necessary to cause its Capital Account to have a positive balance equal to its Unpaid Additional Advance;

(c)Third, to each Member with Unreturned Target in excess of its Capital Account, in accordance with such excess until there are no such excesses (for purposes of this Section 7.1(c), the Capital Account of SRS shall be deemed to have been reduced by an amount equal to the Unpaid Additional Advance);

(d)Fourth, when (i) CHS has a Capital Account at least equal to its Unreturned Target, and (ii) SRS has a Capital Account at least equal to the sum of its Unreturned Target and Unpaid Additional Advance, to the Members in order to make the excess of the Capital Account of CHS over the Unreturned Target of CHS equal to nine times the excess of the Capital Account of SRS over the sum of the Unpaid Additional Advance and the Unreturned Target of SRS; and

(e)Thereafter, 90% to CHS and 10% to SRS.

7.2Allocations of Net Losses.  After the special allocations set forth in Exhibit B have been given effect, Net Losses for any Fiscal Year shall be allocated to the Members as follows:

(a)First, when each Member has a Capital Account at least equal to its Unreturned Target, to the Members in order to make the excess of the Capital Account of CHS over the Unreturned Target of CHS equal to nine times the excess of the Capital Account of SRS over the Unreturned Target of SRS (for purposes of this Section 7.2(a), the Capital Account of SRS shall be deemed to have been reduced by an amount equal to the Unpaid Additional Advance);

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(b)Second, to each Member with a Capital Account in excess of its Unreturned Target, in accordance with such excesses until there are no such excesses (for purposes of this Section 7.2(b), the Capital Account of SRS shall be deemed to have been reduced by an amount equal to the Unpaid Additional Advance);

(c)Third, to the Members with positive Capital Accounts, in accordance with such positive Capital Accounts until no Member has a positive Capital Account (for purposes of this Section 7.2(c), the Capital Account of SRS shall be deemed to have been reduced by an amount equal to the Unpaid Additional Advance); and

(d)Fourth, to SRS until the Capital Account of SRS is reduced to zero; and

(e)Thereafter, to the Members in accordance with their Percentage Interests.

7.3Additional Allocation Provisions.  The provisions of Exhibit B are hereby incorporated by reference.

7.4Distributions.  Subject to applicable law and this Agreement, the Company shall make distributions of Net Cash to the Members not later than 15 days after the end of each fiscal quarter in the following order and priority:  (a) 100% to SRS to the extent of any Unpaid Additional Advances; (b) in accordance with their Percentage Interests until the Members have received cash distributions equal to 175% of their respective capital contributions (the “Repayment Amount”); and (c) 90% to CHS and 10% to SRS.

7.5Restriction on Distributions.  No distribution shall be made if, (i) after giving effect to the distribution, the Company would not be able to pay its debts as they become due in the usual course of business or if the Company’s total assets would be less than the sum of its total liabilities or (ii) to the extent the distribution would result in a Member having a negative Capital Account immediately thereafter (unless such Member first executes a Capital Account deficit restoration agreement).  Distributions shall be made only to the Persons who are the holders of record of the Economic Interests on the actual date of distribution.  Neither the Company nor the Members shall incur any liability for making distributions in accordance with this Section 7.  A Member, regardless of the nature of the Member’s Capital Contribution, has no right to demand and receive any distribution from the Company in any form other than money.  No Member may be compelled to accept from the Company a distribution of any asset in kind in lieu of a proportionate distribution of money being made to other Members.  Except upon a dissolution and the winding up of the Company, no Member may be compelled to accept a distribution of any asset in kind.  Except for distributions made in violation of the Act or this Agreement, no Member or Economic Interest Owner shall be obligated to return any distribution to the Company or pay the amount of any distribution for the account of the Company or to any creditor of the Company.  The amount of any distribution returned to the Company by a Member or Economic Interest Owner or paid by a Member or Economic Interest Owner for the account of the Company or to a creditor of the Company shall be added to the account or accounts from which it was subtracted when it was distributed to the Member or Economic Interest Owner.

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ARTICLE VIII

TRANSFER AND ASSIGNMENT OF INTERESTS

8.1General.

(1)Transfer.

(a)As used in this Section 8, the term “Transfer” shall refer to any transfer, sale, assignment, exchange, hypothecation, encumbrance, alienation, or other disposition of any Membership Interest or Economic Interest and may be used herein as a noun or a verb.

(b)No Membership Interest or Economic Interest may be Transferred except as provided in this Agreement.  Transfers in violation of this Section 8 shall only be effective to the extent set forth in Section 8.3.  Any Membership Interest or Economic Interest (or portion thereof) Transferred shall continue to be subject to the terms and provisions of this Agreement.

(c)Furthermore, and in addition to other restrictions contained herein, no Member or Economic Interest Owner shall Transfer all or any part of its Membership Interest or Economic Interest without first complying with all applicable state and federal securities laws, or if the Membership Interest or Economic Interest to be Transferred, when added to the total of all other Membership Interests and Economic Interests Transferred in the preceding twelve (12) consecutive months prior thereto, would cause the termination of the Company under the Code.

(d)Any permitted Transfer of all or any portion of a Membership Interest shall be effective as of the date immediately following the date upon which the requirements of this Agreement have been met.

(2)Substitution of Members.  A transferee of a Membership Interest shall have the right to become a substitute Member only if the requirements of this Section 8 are met, the admission of such Person as a substitute Member is unanimously approved by the Members, such Person agrees to be bound by the terms of this Agreement, and such Person pays any reasonable expenses in connection with its admission as a substitute Member.  The admission of a substitute Member shall not result in the release of the Member who assigned the Membership Interest from any liability that such Member may have to the Company.

(a)No Effect to Transfers in Violation of Agreement.  Transfers in violation of Section 8 shall be null and void and the purported transferee shall not become either a Member or an Economic Interest Owner.  Upon any other Transfer of a Membership Interest in violation of this Section 8, the transferee shall have no rights to vote or participate in the management of the business, property and affairs of the Company or to exercise any rights of a Member.  Such transferee shall only be entitled to become an Economic Interest Owner and thereafter shall only receive the share of the Company’s Net Profits, Net Losses and distributions of the Company’s assets to which the transferor of such Economic Interest would otherwise be entitled.  Upon any Transfer (whether arising out of an attempted charge upon that Member’s Economic Interest by judicial process, a foreclosure by a creditor of the Member or otherwise) of a Member’s Economic Interest which does not at the same time Transfer the balance of the rights associated with the Membership Interest Transferred by the Member (including, without limitation, the rights of the Member to vote or participate in the management of the business,

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property and affairs of the Company), the Company shall purchase from the Member, and the Member shall sell to the company for a purchase price of $200, all remaining rights and interests retained by the Member that immediately before the transfer, assignment, conveyance or sale were associated with the transferred Economic Interest.  Such purchase and sale shall not, however, result in the release of the Member from any liability to the Company as a Member.

(b)Transferring Member’s Representations.  In the case of a Transfer of a Membership Interest, the Transferring Member or such Member’s duly authorized legal representative shall represent and warrant to the transferee(s) that (i) such Member owns the Membership Interest being Transferred beneficially, free and clear of all liens, charges, claims, equities, restrictions and encumbrances, and (ii) such Member has the full right, power and authority to sell, transfer and deliver to the transferee(s) such Membership Interest free and clear of all liens, charges, claims, equities, restrictions and encumbrances.

8.2Assumption of Membership Obligations.  Upon the Transfer of all of the Membership Interest held by a Member in accordance with this Section 8, the remaining Members shall assume all of such Member’s Membership obligations and shall protect and indemnify such Member from any such obligations except as to those liabilities incurred as a result of such Member’s acting outside the scope of the Company activity.

8.3Restriction on Transfer.  No Member shall Transfer, or otherwise dispose of any of this Membership Interest or any right or interest therein without obtaining the prior written consent of the Company and of all other Members.

Notwithstanding any provisions in this Agreement to the contrary, any Member may transfer his Membership Interest subject to this Agreement to any other Member of the Company.  Such transferee(s) shall hold the Membership Interest subject to all of the provisions of this Agreement.

ARTICLE IX.

DISSOLUTION AND WINDING UP

9.1Dissolution.  The Company shall be dissolved, its assets shall be disposed of, and its affairs wound up on the first to occur of the following:

(1)Upon the happening of any event of dissolution specified in the Articles;

(2)Upon the entry of a decree of judicial dissolution pursuant to Section 17351 of the California Corporations Code;

(3)Upon the vote of the Members holding a majority of the Units; or

(4)The sale of all or substantially all of the assets of the Company.

As soon as possible following the occurrence of any of the foregoing events, the Manager (the “Responsible Party”), shall execute a Certificate of Dissolution in such form as shall be prescribed by the California Secretary of State and file the Certificate as required by the Act.

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9.2Winding Up.  Upon the occurrence of any event specified in Section 9.1, the Company shall continue solely for the purpose of winding up its affairs in an orderly manner, liquidating its assets, and satisfying the claims of its creditors.  The responsible Party shall be responsible for overseeing the winding up the affairs and liquidation of the Company, shall take full account of the liabilities and assets of the Company, shall cause its assets to be sold to the extent necessary to satisfy the claims and creditors and shall distribute the remaining assets to the Members as provided below.  If assets are sold, they shall be sold as promptly as is consistent with obtaining the fair market value thereof and their proceeds applied and distributed as provided in this Section 9.  The Responsible Party shall give written notice of the commencement of winding up by mail to all known creditors and claimants whose addresses appear on the records of the Company.  The Responsible Party shall be entitled to reasonable compensation for such services.

9.3Order of Payment of Liabilities Upon Dissolution.  The payment of a debt or liability, whether the whereabouts of the creditor is known or unknown, has been adequately provided for if the payment has been provided for by either the assumption or guarantee thereof in good faith by one or more financially responsible Persons or the United States government or any agency thereof, and the provision, including the financial responsibility of the Person, was determined in good faith and with reasonable care by the Manager to be adequate at the time of any distribution of the assets pursuant to this Section; or deposit of the amount of the debt or liability as provided in Section 2008 of the California Corporation Code.  This Section 9.3 shall not prescribe the exclusive means of making adequate provision for debts and liabilities.

9.4Distribution to Members.  After the determination that all known debts and liabilities of the Company in the process of winding up, including, without limitation, debts and liabilities to Members who are creditors of the Company, have been paid or adequately provided for, the remaining assets shall be distributed to the Members in accordance with the positive balances of the respective Capital Accounts of the Members.

9.5Limitations on Payments Made in Dissolution.  Except as otherwise specifically provided in this Agreement, each Member shall only be entitled to look solely at the assets of the Company for the distributions provided herein and shall have no recourse for its Capital Contribution and/or share of Net Profits (upon dissolution or otherwise) against any other Member except as provided in this Section 9.

9.6Certificate of Cancellation.  The Manager shall cause to be filed in the office of, and on a form prescribed by, the California Secretary of State, a Certificate of Cancellation of the Articles upon the completion of the winding up of the affairs of the Company.

ARTICLE X.  INDEMNIFICATION AND INSURANCE

10.1Indemnification of Agents.  The Company shall indemnify any Person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding by reason of the fact that such Person is or was a Member, Manager, officer, employee or other agent of the Company or that, being or having been such a Member, Manager, officer, employee or agent, such Person is or was serving at the request of the Company as a

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Manager, director, officer, employee or other agent of another limited liability company, Company, partnership, joint venture, trust or other enterprise (all such persons being referred to hereinafter as an “agent”), to the fullest extent permitted by applicable law in effect on the date hereof and to such greater extent as applicable law may hereafter from time to time permit.  The Manager shall be authorized, on behalf of the Company, to enter into indemnity agreements with any Person entitled to be indemnified by the Company hereunder, upon such terms and conditions as the Manager deems prudent.

10.2Insurance.  The Company shall have the power to purchase and maintain insurance on behalf on any Person who is or was an agent of the Company against any liability asserted against such Person and incurred by such Person in any such capacity, or arising out of such Person’s status as an agent, whether or not the Company would have the power to indemnify such Person against such liability under the provisions of Section 10.1 or under applicable law.  The Company shall at all times maintain adequate insurance in accordance with Section 4.2 of this Agreement.

ARTICLE XI.  DEFINITIONS; MISCELLANEOUS

11.1Definitions.  When used in this Agreement, the following terms shall have the meanings set forth below.  Terms not defined in this Section 11.1 shall have the meanings set forth elsewhere in this Agreement.

(1)“Act” shall mean the Beverly Killea Limited Liability Company Act, codified in the California Corporations Code, Section 17000 et seq., as the same may be amended from time to time.

(2)“Affiliate” shall mean any individual, partnership, corporation, trust or other entity or association, directly or indirectly, through one or more intermediaries, controlling, in the immediately preceding sentence, means with respect to a corporation or limited liability company the right to exercise, directly or indirectly, more than fifty percent (50%) of the voting rights attributable to the controlled corporation or limited liability company, and, with respect to any individual, partnership, trust, other entity or association, the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of the controlled entity.

(3)“Bankruptcy” shall mean: (a) the filing of an application by a Member for, or its consent to, the appointment of a trustee, receiver, or custodian of its other assets; (b) the entry of an order for relief with respect to a Member in proceedings under the United States Bankruptcy Code, as amended or superseded from time to time; (c) the making by a Member of a general assignment for the benefit of creditors; (d) the entry of an order, judgment, or decree by any court of competent jurisdiction appointing a trustee, receiver, or custodian of the assets of a Member unless the proceedings and the person appointed are dismissed within ninety (90) days; or (e) the failure by a Member generally to pay its debts as the debts become due within the meaning of Section 303(h)(1) of the United States Bankruptcy Code, as determined by the Bankruptcy Court, or the admission in writing of its inability to pay its debts as they become due.

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(4)“Capital Contribution” shall mean the aggregate fair market value of the cash and property (including promissory notes but less any liabilities secured by such contributed property that the Company assumes or takes subject to) contributed to the Company by Members.

(5)“Code” shall mean the Internal Revenue Code of 1986, as amended from time to time, the provisions of succeeding law, and to the extent applicable, the Regulations (as defined below).

(6)“Complete” or “Completion” shall mean, with respect to any Show, delivery by CHS of an authored DVD master of the Show ready for replication and distribution, including without limitation video, sound track, graphics, packaging (including approved CHS and SRS ad slicks and promotional materials), artwork and screen capture, as applicable, in accordance with standard industry practices.

(7)The “Disability” of a Member shall mean that a court of competent jurisdiction has adjudged which Member to be incompetent to manage such Member’s person or property.

(8)“Economic Interest” shall mean a Member’s or Economic Interest Owner’s share of one or more of the Company’s Net Profits, Net Losses, and distributions of the Company’s assets pursuant to this Agreement and the Act, but shall not include any other rights of a Member, including, without limitation, the right to vote or participate in the management, or except as provided in Section 17106 of the California Corporations Code, any right to information concerning the business and affairs of the Company.

(9)“Fiscal Year” shall mean the Company’s fiscal year, which shall be the calendar year.

(10)“Member” shall mean each Person (said term to include all authorized legal representatives) who (a) is an initial signatory to this Agreement, has been admitted to the Company as a Member in accordance with Section 8 and (b) has not resigned, withdrawn, been expelled or, if other than an individual, dissolved.

(11)“Membership Interest” shall mean the interest in the Company issued by the Company and owned by a Member.

(12)“Net Cash” shall mean the (i) gross cash proceeds received from the sale or exploitation of the Designated Contracts or any assets created in respect thereof, including without limitation the Shows, less the portion thereof used to pay or establish reserves for: any contracted sales management fees properly chargeable by third parties in connection with the designated contracts, provided that such fees were contracted prior to the formation of the Company, all Artists’ Participations, Management Fees, Company expenses, debt payments, capital improvements, replacements, and contingencies, all as determined subject to the limitations set forth in this Agreement; and (ii) net proceeds of capital transactions on refinancing transactions.

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(13)“Net Profits” and “Net Losses” shall have the meanings of the terms “Net Profit” and “Net Loss,” respectively, as set forth in Exhibit B.

(14)“Person” shall mean any individual, partnership, limited partnership, joint venture, trust, estate, association, corporation, limited liability company, or other entity, whether domestic or foreign.

(15)“Proceeds” shall mean all monies, rights, property and any other economic benefit generated from the exploitation or sale of the Designated Contracts, the Shows, all copyrights and masters created in respect thereof or of any other asset created in respect of or derived from the foregoing.

(16)“Regulations” shall, unless the context clearly indicates otherwise, mean the regulations currently in force as final or temporary that have been issues by the U.S. Department of Treasury pursuant to its authority under the Code.

(17)“Repayment Amount” shall have the meaning set forth in Section 7.4.

(18)“Units” shall mean the units of Membership Interest held by a Member.

(19)“Unpaid Additional Advance” shall mean an amount equal to (i) 130% of the excess, if any, of the amount by which the cumulative Additional Advances made by SRS exceed the cumulative Additional Advances made by CHS, less (ii) all prior distributions to SRS pursuant to Section 7.4(a).

(20)“Unreturned Target” of a Member shall mean the excess, if any, of (a) 175% of the capital contribution of such Member over (b) the distributions to such Member pursuant to Section 7.4(a).

11.2Legends.  Each Member understands and agrees that the certificates (if any) evidencing the Membership Interest may bear the following or a substantially similar legend:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE LAWS OF ANY STATE, AND MAY NOT BE OFFERED FOR SALE, SOLD, DELIVERED AFTER SALE, TRANSFERRED, PLEDGED, OR HYPOTHECATED UNLESS QUALIFIED AND REGISTERED UNDER APPLICABLE STATE AND FEDERAL SECURITIES LAWS OR UNLESS, IN THE OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, SUCH QUALIFICATION AND REGISTRATION IS NOT REQUIRED.

11.3Headings; Interpretation.  All headings herein are inserted only for convenience and ease of reference and are not to be considered in the construction or interpretation of any provision of this Agreement.  Numbered or lettered articles, sections and subsections herein contained refer to articles, sections and subsections of this Agreement unless otherwise expressly

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stated.  In the event any claim is made by any Member relating to any conflict, omission or ambiguity in this Agreement, no presumption or burden of proof or persuasion shall be implied by virtue of the fact that this Agreement was prepared by or at the request of a particular Member or its counsel.  All pronouns and all variations thereof shall be deemed to refer to the masculine, feminine, or neuter, singular or plural, as the context in which they are used may require.  Any statutes or laws will include all amendments, modifications, or replacements of the specific sections and provisions concerned.

11.4Arbitration.  Any controversy or claim arising out of or relating to this Agreement, or the breach thereof shall be settled by arbitration in Los Angeles, California, by one (1) arbitrator (unless the parties mutually agree to accept multiple arbitrators) in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.  The cost of any such arbitration shall be borne equally by the parties involved unless the arbitrator(s) deem such division of costs to be inequitable, in which event the arbitrator(s) may allocate the costs of arbitration among the parties thereto as they deem just and equitable under the circumstances.  The parties hereto specifically agree that the provisions of Section 1283.05 of the Code of Civil Procedure of the State of California are incorporated into, made a part of, and made applicable to any arbitration pursuant to this Section 11.4 where the aggregate amount in controversy exceeds Ten Thousand Dollars ($10,000), exclusive of costs, expenses and fees.

11.5Jurisdiction.  Each Member hereby consents to the exclusive jurisdiction of the state and federal courts sitting in Los Angeles, California in any action on a claim arising out of, under or in connection with this Agreement or the transactions contemplated by this Agreement.  Each Member further agrees that personal jurisdiction over it may be effected by service of process by registered or certified mail addressed as provided in Section 11.8, and that when so made shall be as if served upon it personally within California.

11.6Severability.  If any provision of this Agreement or the application of such provision to any Person or circumstance shall be held invalid, the remainder of this Agreement or the application of such provision to Persons or circumstances other than those to which it is held invalid shall not be affected thereby.  All Exhibits attached to this Agreement are incorporated and shall be treated as if set forth herein.

11.7Additional Documents and Acts.  Each Member agrees to execute and deliver such additional documents and instruments and to perform such additional acts as may be necessary or appropriate to effectuate, carry out and perform all of the terms, provisions, and conditions of this Agreement and the transactions contemplated hereby.

11.8Notices.  All notices, demands or other communications given hereunder shall be in writing and shall be sufficiently given if delivered by overnight delivery service or sent by communication, addressed to the Members at the addresses specified for such Members in Exhibit A hereto or such other address such Member designate upon five (5) days notice (given in accordance with this Section).  Any such notice, demand or communication shall be deemed to have been given (i) if so mailed, as of the close of the third business day following the date so mailed, and (ii) if personally delivered or otherwise sent as provided above, on the date delivered or sent if sent by telecopy, and on the next business day after the date sent in all other cases.

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11.9Reliance on Authority of Person Signing.  If a Member is not a natural Person, neither the Company nor any Member will be required to determine the authority of the individual signing this Agreement to make any commitment or undertaking on behalf of such entity or to determine any fact or circumstance bearing upon the existence of the authority of such individual or be responsible for the application or distribution of proceeds paid or credited to individuals signing this Agreement on behalf of such entity.

11.10No Interest in Company Property.  No Member or Economic Interest Owner has any interest in specific property of the Company.  Without limiting the foregoing, each Member and Economic Interest Owner irrevocably waives during the term of the Company any right that he or she may have to maintain any action for partition with respect to the property of the Company.

11.11Attorney’s Fees.  In the event that any dispute between the Company and the Members or among the Members should result in litigation or arbitration, the prevailing party in such dispute shall be entitled to recover from the other party all reasonable fees, costs and expenses of enforcing any right of the prevailing party, including without limitation, reasonable attorneys’ fees and expenses.

11.12Time is of the Essence; Remedies Cumulative.  All dates and times in this Agreement are of the essence.  The remedies under this Agreement are cumulative and shall not exclude any other remedies to which any person may be lawfully entitled.

11.13Public Disclosure; Confidentiality.  No Member will make any public statement, disclosure or communication regarding the Company, the relationship between the Members or otherwise without the other Member’s prior written consent; provided, however that this Section 11.14 shall not prohibit (i) bona fide marketing and promotional activities to promote the Company, its products and its Members; or (ii) any disclosure that may be required by applicable law.  CHS expressly acknowledges that SRS is a publicly traded company and is therefore subject to, among other things, certain accounting and disclosure obligations under applicable federal and state law.

11.14Binding Effect; Parting in Interest.  Subject to the provisions of this Agreement relating to transferability, this Agreement will be binding upon and inure to the benefit of the Members, Economic Interest Owner, and their respective successors and assigns.  Except as expressly provided in the Act, nothing in this Agreement shall confer any rights or remedies under or by reason of this Agreement on any Persons other than the Members and their obligation or liability of any third person to any party to this Agreement, nor shall any provision give any third person any right of subrogation or action over or against any party to this Agreement.

11.15Complete Agreement; Amendments.  This Agreement and the articles constitute the complete and exclusive statement of agreement among the Members with respect to the subject matter herein and therein and replace and supersede all prior written and oral agreements or statements by and among the Members or any of them.  To the extent that any provision of the Articles conflicts with any provision of this Agreement, the Articles shall control.  All amendments to this Agreement must be in writing and signed by all of the Members.  This

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

11.16Notices.  All notices and other communications under or in connection with this Agreement shall be in writing and shall be deemed given (a) if delivered personally, upon delivery, (b) if delivered by registered or certified mail (return receipt requested), upon the earlier of actual delivery or three days after being mailed, or (c) if given by telecopy, upon confirmation of transmission by telecopy, in each case to the parties at the following addresses:

(a)If to SRS, addressed to:

SRS Labs, Inc.
2909 Daimler Street
Santa Ana, California 92705

Attention:  Chief Legal Officer

Facsimile:  (949) 852-1099

With an additional copy to:

Paul, Hastings, Janofsky & Walker LLP
Seventeenth Floor
695 Town Center Drive
Costa Mesa, California  92626-1924
Attention:  John F. Della Grotta, Esq.
Facsimile:  (714) 979-1921

(b)If to CHS or to the Manager, addressed to:

Coming Home Studios, LLC
6161 Santa Monica Boulevard, Suite 100
Los Angeles, California  90038
Attention: Daniel E. Catullo III

Manager

Facsimile:  (323) 467-6400

With an additional copy to:

Loeb & Loeb LLP
10100 Santa Monica Boulevard, Suite 2200
Los Angeles, California  90067
Attn:  David L. Ficksman, Esq.
Facsimile:  (310) 282-2200

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IN WITNESS WHEREOF, the undersigned, being all of the Members of CHS/SRS, LLC, a California limited liability company, have executed this Agreement, effective as of the day and year first herein written.

COMING HOME STUDIOS, LLC
By:	/S/ DANIEL E. CATULLO III
	Daniel E. Catullo III
SRS LABS, INC.
By:	/S/ THOMAS C.K. YUEN
Its:   Chairman and Chief Executive Officer

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EXHIBIT A

CAPITAL CONTRIBUTION OF MEMBERS AND ADDRESSES OF MEMBERS

Member’s Name	Member’s Address	Capital Contribution	Number of Class A Units	Number of Class B Units	Percentage Interest		Initial Capital Account
Coming Home Studios, LLC	6161 Santa Monica Blvd., Suite 100 Los Angeles, CA 90038	SEE SCHEDULE 1: ASSETS & LIABILITIES CONTRIBUTED BY COMING HOME STUDIOS LLC	1		50	%	$	1,800,000
SRS Labs, Inc.	2909 Daimler Street Santa Ana, CA 92705	$1,800,000	1		50	%	$	1,800,000
		SEE SCHEDULE 2:  ASSETS CONTRIBUTED BY SRS

Exhibit A

Schedule 1

Assets Contributed by Coming Home Studios LLC to CHS/SRS LLC

Coming Home Studios LLC will contribute the following assets to CHS/SRS LLC free and clear of any liens, security interests or other encumbrances:

(a)(i)The following agreements (collectively, the “Designated Contracts”) and all of Coming Home Studios LLC’s rights and economic interests thereunder, subject only to the rights of the respective counterparties thereto:

2.Artist agreement between CHS and Duran Duran Ltd. dated March 1, 2004;

3.Operating agreement between CHS and Duran Duran L & I dated as of May 8, 2004 relating to DD/CHS, LLC;

4.Artist agreement between CHS and Godsmack Partnership dated March 18, 2004;

5.Artist agreement between CHS and Gray Cat Records, Inc. dated as of April 11, 2003 and executed August 18, 2003;

6.Operating Agreement dated as of June 4, 2003, between CHS and the Class B members of BS Concert Video LLC; and

7.Unexecuted Distribution Agreement between CHS and Ideal Entertainment dated May 21, 2004;

provided, however, that Coming Home Studios LLC will retain the legal title to the copyrights to and the masters of the Shows, pursuant to the terms and conditions of the Operating Agreement between Coming Home Studios LLC and SRS Labs, Inc., and provided further that Coming Home Studios LLC’s transfer of its rights and interests under the Designated Contracts shall not affect  the rights under the Designated Contracts of the respective counterparties thereto

(ii)All assets of any kind derived from or created in respect of or acquired in connection with the Designated Contracts, including without limitation all Accounts, Books, Deposit Accounts, Equipment, General Intangibles (including without limitation all copyright interests), Inventory, Investment Property, Negotiable Collateral, and Supporting Obligations (all as defined in Article 9 of the Uniform Commercial Code), present and future inventory and merchandise, all present and future goods held for sale or lease or to be furnished under a contract of service, all raw materials, work in process (including without limitation, Film Footage, audio, graphics screen capture and photographs) and finished goods, all packing

materials, supplies and containers  relating to or used in connection with any of the foregoing, and all bills of lading, warehouse receipts or documents of title relating to any of the foregoing; and

(b)all proceeds and products, whether tangible or intangible, of any of the foregoing, including, without limitation, the proceeds of insurance covering any or all of the foregoing, and any proceeds resulting from the sale, exchange, collection, or other disposition of any of the foregoing, or any portion thereof or interest therein, and the proceeds and products thereof.  As used herein, “proceeds” means: whatever is acquired upon the sale, lease, license, exchange or other disposition of the foregoing assets; whatever is collected on, or distributed on account of the foregoing assets; and any rights arising out of the foregoing assets.

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Exhibit A

Schedule 2

ASSETS CONTRIBUTED BY SRS LABS, INC.

Asset	Value
Initial SRS Capital Contribution	$	700,000
Cash	$	1,100,000
Total	$	1,800,000

EXHIBIT B

Additional Allocation Provisions

Section 1.Allocations.

1.1Allocation of Income, Gain, Loss, and Deduction.  After making any special allocations pursuant to Sections 1.2, 1.3 and 1.4 of this Exhibit B, all items of income, gain, loss and deduction shall be allocated pursuant to Section 7 of this Agreement.

1.2Special Allocations.  The following special allocations shall be made in the following order:

1.2.1Minimum Gain Chargeback.  Notwithstanding any other provision of this Section 1, if there is a net decrease in minimum gain (“Company Minimum Gain”) during any Company taxable year, as determined under Treasury Regulations Section 1.704-2(d), each Member shall be specially allocated items of Company income and gain for such year (and, if necessary, subsequent years) in an amount equal to such Member’s share of the net decrease in Company Minimum Gain, determined in accordance with Treasury Regulations Section 1.704-2(g).  A Member is not subject to this minimum gain chargeback requirement to the extent (i) the Member’s share in the net decrease in Company Minimum Gain is caused by a guarantee, refinancing, or other change in the debt instrument causing it to become partially or wholly recourse or treated as a “Member Nonrecourse Debt” (having the meaning set forth in Treasury Regulations Section 1.704-2(b)(4) for the phrase “partner nonrecourse debt”) made by such Member or a “Related Person” of such Member (within the meaning of Treasury Regulation Section 1.752-4(b)), and the Member bears the economic risk of loss (within the meaning of Treasury Regulations Section 1.752-2) for the newly guaranteed, refinanced or otherwise changed liability, (ii) the Member contributes capital to the Company that is used to repay the nonrecourse liability, and the Member’s share of the net decrease in Company Minimum Gain results from such repayment, or (iii) the Company receives consent from the appropriate United States federal taxing authority to waive the minimum gain chargeback requirement of this Section 1.2.1 because such requirement would cause a distortion in the economic arrangement among the Members and it is not expected that the Company will have sufficient other income to correct this distortion.  This Section 1.2.1 is intended to comply with the minimum gain chargeback requirement in Treasury Regulations Section 1.704-2(f) and shall be interpreted consistently therewith.

1.2.2Member Minimum Gain Chargeback.  Notwithstanding any other provision of this Section 1, if there is a net decrease in the minimum gain attributable to a Member Nonrecourse Debt (“Member Minimum Gain”) during any Company taxable year, as determined under Treasury Regulations Section 1.704-2(i), each Member who has a share of Member Minimum Gain attributable to a Member Nonrecourse Debt made by such Member or a Related Person of such Member to the Company, determined in accordance with Treasury Regulations Section 1.704-2(i)(5), shall be specially allocated items of Company income and gain for such year (and, if necessary, subsequent years) in an amount equal to such Member’s share of the net decrease in Member Minimum Gain attributable to such Member’s or Related Person’s Member Nonrecourse Debt, determined in accordance with Treasury Regulations

Section 1.704-2(i)(4) and (5).  The exceptions mentioned above in Section 1.2.1 of this Exhibit B in connection with the minimum gain chargeback shall similarly apply with respect to Member Nonrecourse Debt in appropriate circumstances.  This Section 1.2.2 is intended to comply with the minimum gain chargeback requirements in Treasury Regulations Section 1.704-2(i)(4) and shall be interpreted consistently therewith.

1.2.3Qualified Income Offset.  No Member shall be allocated any item of loss or deduction to the extent such allocation would cause or increase a deficit balance in such Member’s Capital Account (in excess of any limited dollar amount of such deficit balance that such Member is obligated to restore or is deemed obligated to restore under Treasury Regulations Sections 1.704-2(g) and 1.704-2(i)(5)) as of the end of the taxable year to which such allocation relates).  In the event any Member unexpectedly receives any adjustments, allocations, or distributions described in Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of Company income and gain shall be specially allocated to such Member in an amount and manner sufficient to eliminate, to the extent required by the Treasury Regulations, such adjusted Capital Account deficit of such Member as quickly as possible, provided that an allocation pursuant to this Section 1.2.3 shall be made only if and to the extent that such Member would have a Capital Account deficit (determined after reducing such Member’s Capital Account for the items set forth in Treasury Regulations Section 1.704-1(b)(2)(ii)(d) and after adjusting such Member’s Capital Account upward for any amounts such Member is obligated to restore or is deemed obligated to restore pursuant to Treasury Regulations Sections 1.704-2(g) and 1.704-2(i)(5)) after all other allocations provided for in this Section 1 have been tentatively made as if this Section 1.2.3 were not in this Exhibit B.

1.2.4Gross Income Allocation.  In the event any Member has a deficit Capital Account at the end of any Company fiscal year which is in excess of the amount such Member is obligated to restore or is deemed to be obligated to restore pursuant to Treasury Regulations Sections 1.704-2(g) and 1.704-2(i)(5), such Member shall be specially allocated items of Company income and gain in the amount of such excess as quickly as possible, provided that an allocation pursuant to this Section 1.2.4 shall be made only if and to the extent that such Member would have a Capital Account deficit (determined after reducing such Member’s Capital Account for the items set forth in Treasury Regulations Section 1.704-1(b)(2)(ii)(d) and after adjusting such Member’s Capital Account upward for any amounts such Member is obligated to restore or is deemed obligated to restore pursuant to Treasury Regulations Sections 1.704-2(g) and 1.704-2(i)(5)) in excess of such amount after all other allocations provided for in this Section 1 have been tentatively made as if Section 1.2.3 of this Exhibit B and this Section 1.2.4 were not in this Exhibit B.

1.2.5Nonrecourse Deductions.  Nonrecourse Deductions shall be specially allocated to the Members in accordance with their respective Percentage Interests.  For this purpose, “Nonrecourse Deductions” has the meaning set forth in Treasury Regulations Section 1.704-2(c), and the amount of Nonrecourse Deductions for a Company taxable year equals the net increase, if any, in the amount of Company Minimum Gain during such year, reduced (but not below zero) by the aggregate distributions made during the year of proceeds of any nonrecourse liability (as defined under Treasury Regulations Section 1.752-1(a)(2)) that are allocable to an increase in Company Minimum Gain (determined in accordance with Treasury Regulations Section 1.704-2(h)).

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1.2.6Member Nonrecourse Deductions.  Any Member Nonrecourse Deductions shall be allocated to the Member who bears the economic risk of loss (within the meaning of Treasury Regulations Section 1.752-2) with respect to the Member Nonrecourse Debt to which such Member Nonrecourse Deductions are attributable.  For this purpose, “Member Nonrecourse Deductions” has the meaning set forth in Treasury Regulations Section 1.704-2(i)(2) for the phrase “partner nonrecourse deductions”, and for any Company taxable year, the amount of Member Nonrecourse Deductions with respect to a Member Nonrecourse Debt equals the net increase, if any, in the amount of Member Minimum Gain during such year, reduced (but not below zero) by proceeds of the Member Nonrecourse Debt distributed during the year to the Member bearing the economic risk of loss for such debt that are both attributable to the debt and allocable to an increase in the Member Minimum Gain.

1.2.7Section 754 Adjustments.  To the extent an adjustment to the adjusted basis of any Company asset pursuant to Section 734(b) of the Code or Section 743(c) of the Code is required, pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital Accounts, the amount of such adjustment to Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis) and such gain or loss shall be specially allocated to the Members in a manner consistent with the manner in which their Capital Accounts are required to be adjusted pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m).

1.2.8Allocations Relating to Taxable Issuance of Company Interests.  Any income, gain, loss, or deduction realized as a direct or indirect result of the issuance of a Company interest by the Company to a Member (the “Issuance Items”) shall be allocated among Members so that, to the extent possible, the net amount of such Issuance Items, together with all other allocations under this Exhibit B to each Member, shall be equal to the net amount that would have been allocated to each such Member if the Issuances Items had not been realized.

1.3Curative Allocations.

1.3.1Regulatory Allocations.  The “Regulatory Allocations” consist of the “Basic Regulatory Allocations,” as defined in Section 1.3.2 of this Exhibit B, the “Nonrecourse Regulatory Allocations,” as defined in Section 1.3.3 of this Exhibit B, and the “Member Nonrecourse Regulatory Allocations,” as defined in Section 1.3.4 of this Exhibit B.

1.3.2Basic Regulatory Allocations.  The “Basic Regulatory Allocations” consist of allocations pursuant to Sections 1.2.3, 1.2.4, and 1.2.7 of this Exhibit B.  Notwithstanding any other provision of this Exhibit B, other than the Regulatory Allocations, the Basic Regulatory Allocations shall be taken into account in allocating items of income, gain, loss, and deduction among the Members so that, to the extent possible, the net amount of such allocations of such other items and the Basic Regulatory Allocations to each Member shall be equal to the net amount that would have been allocated to each such Member if the basic Regulatory Allocations had not occurred.  For purposes of applying the foregoing sentence, allocations pursuant to this Section 1.3.2 shall be made only with respect to allocations pursuant to Section 1.2.7 hereof to the extent the Members reasonably determine that such allocations will otherwise be inconsistent with the economic agreement among the parties to this Agreement.

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1.3.3Nonrecourse Regulatory Allocations.  The “Nonrecourse Regulatory Allocations” consist of all allocations pursuant to Sections 1.2.1 and 1.2.5 of this Exhibit B.  Notwithstanding any other provision of this Exhibit B, other than the Regulatory Allocations, the Nonrecourse Regulatory Allocations shall be taken into account in allocating items of income, gain, loss, and deduction among the Members so that, to the extent possible, the net amount of such allocations of such items and the Nonrecourse Regulatory Allocations to each Member shall be equal to the net amount that would have been allocated to each such Member if the Nonrecourse Regulatory Allocations had not occurred.  For purposes of applying the foregoing sentence (i) no allocations pursuant to this Section 1.3.3 shall be made prior to the Company taxable year during which there is a net decrease in Company Minimum Gain, and then only to the extent necessary to avoid any potential economic distortion caused by such net decrease in Company Minimum Gain, and (ii) allocations pursuant to this Section 1.3.3 shall be deferred with respect to allocations pursuant to Section 1.2.5 hereof to the extent the Members reasonably determine that such allocations are likely to be offset by subsequent allocations pursuant to Section 1.2.1 hereof.

1.3.4Member Nonrecourse Regulatory Allocations.  The “Member Nonrecourse Regulatory Allocations” consist of all allocations pursuant to Sections 1.2.2 and 1.2.6 of this Exhibit B. Notwithstanding any other provision of this Exhibit B, other than the Regulatory Allocations, the Member Nonrecourse Allocations shall be taken into account in allocating items of income, gain, loss, and deduction among the Members so that, to the extent possible, the net amount of such allocations of such items and the Member Nonrecourse Regulatory Allocations to each Members shall be equal to the net amount that would have been allocated to each such Member if the Member Nonrecourse Regulatory Allocations had not occurred.  For purposes of applying the foregoing sentence (i) no allocations pursuant to this Section 1.3.4 shall be made with respect to allocations pursuant to Section 1.2.6 relating to a particular Member Nonrecourse Debt prior to the Company taxable year during which there is a net decrease in Member Minimum Gain attributable to such Member Nonrecourse Debt, and then only to the extent necessary to avoid any potential economic distortions caused by such net decrease in Member Minimum Gain, and (ii) allocations pursuant to this Section 1.3.4 shall be deferred with respect to allocations pursuant to Section 1.2.6 hereof relating to a particular Member Nonrecourse Debt to the extent the Members reasonably determine that such allocations are likely to be offset by subsequent allocations pursuant to Section 1.2.2 hereof.

1.3.5Member Discretion.  The Members shall have reasonable discretion, with respect to each Company taxable year, to (i) apply the provisions of Section 1.3.2, 1.3.3, and 1.3.4 of this Exhibit B in whatever order is likely to minimize the economic distortions that might otherwise result from the Regulatory Allocations, and (ii) divide all allocations pursuant to Sections 1.3.2, 1.3.3, and 1.3.4 of this Exhibit B among the Members in a manner that is likely to minimize such economic distortions.

1.4Tax Allocations.  Section 704(c) of the Code.  In accordance with Section 704(c) of the Code and the Treasury Regulations thereunder and Treasury Regulations Section 1.704-1(b)(4)(i), income, gain, loss and deduction (as computed for tax purposes) with respect to any property contributed to the capital of the Company or otherwise revalued on the books of the Company may, solely for tax purposes, be allocated among the Members to take into account any variation between the adjusted basis of such property to the Company for federal income tax

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purposes and its fair market value as determined at the time of the contribution.  In addition, if any gain (as computed for tax purposes) on the sale or other disposition of Company property shall constitute recapture of depreciation under Sections 291, 1245 or 1250 of the Code or any similar provision, such gain shall (to the extent possible) be divided among the Members in proportion to the depreciation deductions previously claimed by them giving rise to such recapture; provided, however, that this sentence shall not affect the amount of gain otherwise allocable to a Member.

Section 2.  Net Profit and Net Loss.

Definition.  “Net Profit” and “Net Loss” of the Company means for each fiscal year or other period, an amount equal to the Company’s taxable income or loss for such year or period, determined in accordance with Code Section 703(a).  For this purpose, all items of income, gain, loss or deduction required to be stated separately pursuant to Code Section 703(a)(1) shall be included in taxable income or loss, with the following adjustments:

(a)Any income of the Company that is exempt from federal income tax and not otherwise taken into account in computing Net Profit or Net Loss shall be added to such taxable income or loss;

(b)Any expenditures of the Company described in Code Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing Net Profit or Net Loss, shall be subtracted from such taxable income or loss;

(c)If property other than cash has been contributed to the Company or the Capital Accounts of the Members have been adjusted pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(f), depreciation, amortization, gain or loss with respect to assets of the Company may be computed in accordance with Section 1.4 hereof; and

(d)Nonrecourse Deductions and Member Nonrecourse Deductions for any fiscal year, or any other allocation period, shall not be taken into account in computing Net Profit or Net Loss, but shall be separately allocated to the Members in accordance with Paragraph 1.2.5 and 1.2.6 hereof.

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EX-10.3

EXHIBIT 10.3

NEITHER THIS WARRANT NOR ANY OF THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAW. NO TRANSFER OF THIS WARRANT OR OF THE SECURITIES ISSUABLE UPON EXERCISE HEREOF SHALL BE VALID OR EFFECTIVE UNLESS (A) SUCH TRANSFER IS MADE PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAW, OR (B) THE HOLDER SHALL DELIVER TO THE COMPANY AN OPINION OF COUNSEL IN FORM AND SUBSTANCE REASONABLY ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND OF ANY APPLICABLE STATE SECURITIES LAW.

WARRANT NO. 1 SEPTEMBER 23, 2004

COMING HOME STUDIOS LLC

CLASS A UNIT PURCHASE WARRANT

This Class A Unit Purchase Warrant (this “Warrant”) is being issued as of September 23, 2004 in connection with that certain CHS/SRS LLC Operating Agreement dated September 23, 2004 (the “LLC Agreement”) between SRS Labs, Inc., a Delaware corporation (“SRS”) and Coming Home Studios LLC, a California limited liability company (the “Company”).  For consideration of $40,000, the Company hereby grants to SRS, or its permitted assigns or transferees (SRS and each such permitted assignee or transferee being referred to herein as a “Holder” and collectively as the “Holders”) the right to purchase, at any time after the Original Issue Date (as defined below) and from time to time on and after the date hereof until the Expiration Date (as defined below), up to 122,000 units of Class A membership interests in the Company (the “Class A Units”) at a price per Class A Unit of $9.836 (the “Exercise Price”), on the terms and subject to the conditions set forth below.

This Warrant was originally issued on September 23, 2004 (the “Original Issue Date”). This Warrant shall expire and be of no further force or effect on the later of the following dates (the “Expiration Date”):  (i) July 9, 2006; and (ii) 60 days after the Closing (as defined below).  Appropriate provisions shall be made in accordance with Section 3.2 below so that Holder shall have the right to receive a similar warrant for the remainder of such term in the event of a merger, consolidation, reorganization or similar transaction.

Article I.
Exercise Of Warrant

1.1Exercise.

(a)Subject to adjustment as hereinafter provided, the rights represented by this Warrant are exercisable on and after the Original Issue Date until the Expiration Date, at a price per Class A Unit issuable hereunder (hereinafter, “Warrant Units”) equal to the Exercise Price. The Exercise Price shall be payable in cash, by certified or official bank check or wire transfer as hereinafter provided.  This Warrant is fully vested as of the Original Issue Date.

(b)This Warrant may be exercised in full or in part by the Holder by surrender of this Warrant, together with the form of subscription attached hereto as Annex A, duly executed by the Holder, to the Company at its principal office, accompanied by payment, in cash or by certified or official bank check payable to the order of the Company, of the Exercise Price of the Warrant Units to be purchased hereunder in an amount equal to such Exercise Price.  For any partial exercise hereof, the Holder shall designate in a subscription in the form of Annex A attached hereto delivered to the Company the number of Warrant Units that it wishes to purchase.  On any such partial exercise, the Company at its expense shall forthwith issue and deliver to the Holder a new warrant of like tenor, in the name of the Holder, which shall be exercisable for such number of Class A Units represented by this Warrant which have not been purchased upon such exercise.

(c)Upon surrender of this Warrant with a duly executed Notice of Exercise in the form of Annex A hereto, together with payment, if applicable, of the Exercise Price for the Warrant Units purchased, at the Company’s principal executive offices presently located at 6161 Santa Monica Boulevard, Suite 100, Los Angeles, California  90038, or at such other address as the Company shall have advised the Holder in writing (the “Designated Office”), the Holder shall be entitled to receive a certificate or certificates for the Warrant Units so purchased. The Company agrees that the Warrant Units shall be deemed to have been issued to the Holder as of the close of business on the date on which this Warrant shall have been surrendered together with the Notice of Exercise and payment, if applicable, for such Warrant Units.

Article II.
Transfer; Issuance of Certificates; Restrictive Legends

2.1Transfer. Subject to compliance with the restrictions on transfer set forth in this Article II, each transfer of this Warrant and all rights hereunder, in whole or in part, shall be registered on the books of the Company to be maintained for such purpose, upon surrender of this Warrant at the Designated Office, together with a written assignment of this Warrant in the form of Annex B hereto duly executed by the Holder or its agent or attorney. Upon such surrender and delivery, the Company shall execute and

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deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, if any. A Warrant, if properly assigned in compliance with the provisions hereof, may be exercised by the new Holder for the purchase of Warrant Units without having a new Warrant issued. All Warrants issued upon any assignment of Warrants shall be the valid obligations of the Company, evidencing the same rights, and entitled to the same benefits as the Warrants surrendered upon such registration of transfer or exchange.

2.2Certificates. Certificates for the Warrant Units shall be delivered to the Holder within a reasonable time after the rights represented by this Warrant shall have been exercised pursuant to Article I, and a new Warrant representing the Class A Units or fraction of a Class A Unit, if any, with respect to which this Warrant shall not then have been exercised shall also be issued to the Holder within such time. The issuance of certificates for Warrant Units upon the exercise of this Warrant shall be made without charge to the Holder including, without limitation, any tax that may be payable in respect thereof; provided, however, that the Company shall not be required to pay any income tax to which the Holder may be subject in connection with the issuance of this Warrant or the Warrant Units.

2.3Restrictive Legends.

(a)Except as otherwise provided in this Article II, each certificate for Warrant Units initially issued upon the exercise of this Warrant, and each certificate for Warrant Units issued to any subsequent transferee of any such certificate, shall be stamped or otherwise imprinted with a legend in substantially the following form:

THE UNITS REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAW. NO TRANSFER OF THE UNIT REPRESENTED BY THIS CERTIFICATE SHALL BE VALID OR EFFECTIVE UNLESS (A) SUCH TRANSFER IS MADE PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS, OR (B) THE HOLDER SHALL DELIVER TO THE COMPANY AN OPINION OF COUNSEL IN FORM AND SUBSTANCE REASONABLY ACCEPTABLE TO THE COMPANY THAT SUCH PROPOSED TRANSFER IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND OF ANY APPLICABLE STATE SECURITIES LAWS.

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(b)Except as otherwise provided in this Article II, each Warrant shall be stamped or otherwise imprinted with a legend in substantially the following form:

NEITHER THIS WARRANT NOR ANY OF THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAW. NO TRANSFER OF THIS WARRANT OR OF THE SECURITIES ISSUABLE UPON EXERCISE HEREOF SHALL BE VALID OR EFFECTIVE UNLESS (A) SUCH TRANSFER IS MADE PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAW, OR (B) THE HOLDER SHALL DELIVER TO THE COMPANY AN OPINION OF COUNSEL IN FORM AND SUBSTANCE REASONABLY ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND OF ANY APPLICABLE STATE SECURITIES LAW.

(c)Notwithstanding the foregoing, the legend requirements of this Section 2.3 shall terminate as to any particular Warrant or Warrant Unit when the Company shall have received from the holder thereof an opinion of counsel in form and substance reasonably acceptable to the Company that such legend is not required in order to ensure compliance with the Securities Act and any applicable state securities laws. Whenever the restrictions imposed by this Section 2.3 shall terminate, the Holder or of Warrant Units, as the case may be, shall be entitled to receive from the Company without cost to such Holder a new Warrant or certificate for Warrant Units of like tenor, as the case may be, without such restrictive legend.

Article III.
Adjustment of Number of Warrant Units; Exercise Price; Nature of Securities Issuable Upon Exercise of Warrants

3.1Exercise Price; Adjustment of Number of Warrant Units. The Exercise Price set forth in Article I hereof and the number of Class A Units purchasable hereunder shall be subject to adjustment from time to time as hereinafter provided.

3.2Reorganization, Reclassification, Consolidation, Merger or Sale. If any capital reorganization or reclassification of the capital of the Company, or any consolidation or merger of the Company with another entity, or the sale of all or substantially all of the Company’s assets to another person or entity (collectively referred to as a “Transaction”) shall be effected in such a way that holders of units of any class of membership interest in the Company (“Units”) shall be entitled to receive stock, securities, cash or assets with respect to or in exchange for Units, then, as a condition of

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such Transaction, reasonable, lawful and adequate provisions shall be made whereby the Holder shall thereafter have the right to purchase and receive upon the basis and upon the terms and conditions specified in this Warrant, upon exercise of this Warrant and in lieu of the Warrant Units immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby, such number, amount and like kind of shares of stock, securities, cash or assets as may be issued or payable pursuant to the terms of the Transaction with respect to or in exchange for the number of Units immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby as if such shares were outstanding immediately prior to the Transaction, and in any such case appropriate provision shall be made with respect to the rights and interest of the Holders to the end that the provisions hereof (including, without limitation, provisions for adjustments of the Exercise Price and of the number of Warrant Units purchasable and receivable upon the exercise of this Warrant and the remaining term of this Warrant) shall thereafter be applicable, as nearly as may be practicable, in relation to any shares of stock or securities thereafter deliverable upon the exercise hereof.

3.3Stock Splits, Stock Dividends and Reverse Stock Splits. In case at any time the Company shall subdivide its outstanding Units into a greater number of units, or shall declare and pay any dividend with respect to its outstanding Units that has the effect of increasing the number of outstanding Units, the Exercise Price in effect immediately prior to such subdivision or dividend shall be proportionately reduced and the number of Warrant Units purchasable pursuant to this Warrant immediately prior to such subdivision or dividend shall be proportionately increased, and conversely, in case at any time the Company shall combine its outstanding Units into a smaller number of units, the Exercise Price in effect immediately prior to such combination shall be proportionately increased and the number of Warrant Units purchasable upon the exercise of this Warrant immediately prior to such combination shall be proportionately reduced.

3.4Dissolution, Liquidation or Winding-Up. In case the Company shall, at any time prior to the exercise of this Warrant, dissolve, liquidate or wind up its affairs, the Holder shall be entitled, upon the exercise of this Warrant, to receive, in lieu of the Warrant Units which the Holder would have been entitled to receive, the same kind and amount of assets as would have been issued, distributed or paid to such Holder upon any such dissolution, liquidation or winding up with respect to such Warrant Units, had such Holder been the Holder of record of the Warrant Units receivable upon the exercise of this Warrant on the record date for the determination of those persons entitled to receive any such liquidating distribution.

3.5Issuance of Additional Units.

(a)Next Round of Equity Financing.  If, upon the closing of the Company’s first round of equity financing following the Original Issue Date (including the issuance of convertible debt) that raises not less than $1,500,000 in new equity (the “Closing”), the pre-money valuation of the Company immediately prior to the

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Closing is less than $12,000,000, the Exercise Price shall be adjusted to equal 10% of the pre-money valuation of the Company immediately prior to the Closing divided by the number of Warrant Units.

(b)Other Issuances.  If at any time or from time to time after the Original Issue Date, the Company issues or sells, or is deemed by the provisions of this Section 3.5 to have issued or sold, Additional Units (as hereinafter defined), otherwise than in connection with a Transaction as provided in Section 3.2 or a dividend or split as provided in Section 3.3, for an Effective Price (as hereinafter defined) that is less than the Exercise Price, then,

(i)the number of Warrant Units shall be adjusted to equal the product obtained by multiplying the number of Warrant Units immediately prior to such issuance or sale by a fraction (A) the numerator of which shall be the sum of (1) the number of Unit Equivalents Outstanding (as hereinafter defined) immediately prior to such issue or sale plus (2) the number of Additional Units so issued or sold (or deemed so issued and sold); and (B) the denominator of which shall be the sum of (1) the number of Unit Equivalents Outstanding immediately prior to such issue or sale of Additional Units plus (2) the quotient obtained by dividing the Aggregate Consideration Received (as hereinafter defined) by the Company for the total number of Additional Units so issued or sold (or deemed so issued and sold) by the Exercise Price in effect immediately prior to such issue or sale; and

(ii)the Exercise Price shall be adjusted by multiplying such Exercise Price in effect prior to such adjustment by a fraction (A) the numerator of which shall be the number of Warrant Units immediately prior to such issue or sale; and (B) the denominator of which shall be the number of Warrant Units immediately after such issue or sale.

(c)Certain Definitions.  For the  purpose of making any adjustment required under this Section 3.5:

(i)“Additional Units” shall mean all Units issued by the Company, whether or not subsequently reacquired or retired by the Company, other than:  (1) Units issued in connection with the Closing; (2) Units (or options, warrants or rights therefor) issued to employees, officers or directors of, or contractors, consultants or advisers to, the Company or any subsidiary pursuant to equity purchase or option plans, equity bonuses or awards, incentive equity arrangements, warrants, contracts or other arrangements, provided that the exercise price for such options, warrants and rights are at the fair market values of such securities as determined by the Management Committee of the Company at the time of issuance and are approved by the Management Committee of the Company; and (3) Units issued upon the exercise of the outstanding options and warrants described in Section 5.4 of this Warrant.

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(ii)The “Aggregate Consideration Received” by the Company for any issue or sale (or deemed issue or sale) of securities shall (1) to the extent it consists of cash, be computed at the gross amount of cash received by the Company before deduction of any underwriting or similar commissions, compensation or concessions paid or allowed by the Company in connection with such issue or sale and without deduction of any expenses payable by the Company; (2) to the extent it consists of property other than cash, be computed at the fair value of that property as determined in good faith by the Management Committee; and (3) if Additional Units, Convertible Securities or Rights or Options to purchase either Additional Units or Convertible Securities are issued or sold together with other stock or securities or other assets of the Company for a consideration which covers both, be computed as the portion of the consideration so received that may be reasonably determined in good faith by the Management Committee to be allocable to such Additional Units, Convertible Securities or Rights or Options.

(iii)“Unit Equivalents Outstanding” shall mean the number of Units that is equal to the sum of (1) all Units of the Company that are outstanding at the time in question, plus (2) all Units of the Company issuable upon conversion of all Convertible Securities that are outstanding at the time in question, plus (3) all Units of the Company that are issuable upon the exercise of Rights or Options that are outstanding at the time in question assuming the full conversion or exchange into Units of all such Rights or Options that are Rights or Options to purchase or acquire convertible Securities into or for Units.

(iv)“Convertible Securities” shall mean units or other securities convertible into or exchangeable for Units.

(v)The “Effective Price” of Additional Units shall mean the quotient determined by dividing the total number of Additional Units issued or sold, or deemed to have been issued or sold, by the Company under this Section 3.5, into the Aggregate Consideration Received, or deemed to have been received, by the Company under this Section 3.5, for the issue of such Additional Units;

(vi)“Rights or Options” shall mean warrants, options or other rights to purchase or acquire Units or Convertible Securities.

(d)Deemed Issuances.  For the purpose of making any adjustment required under this Section 3.5, if the Company issues or sells any Rights or Options or Convertible Securities and if the Effective Price of the Units issuable upon exercise of such Rights or Options and/or the conversion or exchange of Convertible Securities (computed without reference to any additional or similar protective or antidilution clauses) is less than the Exercise Price then in effect, then the Company shall be deemed to have issued, at the time of the issuance of such Rights, Options or Convertible Securities, that number of Additional Units that is equal to the maximum number of Units issuable upon exercise of conversion of such Rights or Options or

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Convertible Securities upon their issuance and to have received, as the Aggregate Consideration Received for the issuance of such shares, an amount equal to the total amount of the consideration, if any, received by the Company for the issuance of such Rights or Options or Convertible Securities, plus, in the case of such Rights or Options, the minimum amounts of consideration, if any, payable to the Company upon the exercise in full of such Rights or Options, plus, in the case of Convertible Securities, the minimum amounts of consideration, if any, payable to the Company (other than by cancellation of liabilities or obligations evidenced by such Convertible Securities) upon the conversion or exchange thereof; provided that:

(i)if the minimum amounts of such consideration cannot be ascertained, but are a function of antidilution or similar protective clauses, then the Company shall be deemed to have received the minimum amounts of consideration without reference to such clauses;

(ii)if the minimum amount of consideration payable to the Company upon the exercise of Rights or Options or the conversion or exchange of Convertible Securities is reduced over time or upon the occurrence or non-occurrence of specified events other than by reason of antidilution or similar protective adjustments, then the Effective Price shall be recalculated using the figure to which such minimum amount of consideration is reduced; and

(iii)if the minimum amount of consideration payable to the Company upon the exercise of such Rights or Options or the conversion or exchange of Convertible Securities is subsequently increased, then the Effective Price shall again be recalculated using the increased minimum amount of consideration payable to the Company upon the exercise of such Rights or Options or the conversion or exchange of such Convertible Securities.

No further adjustment of the Exercise Price or number of Warrant Units, adjusted upon the issuance of such Rights or Options or Convertible Securities, shall be made as a result of the actual issuance of Units on the exercise of any such Rights or Options or the conversion or exchange of any such Convertible Securities.  If any such Rights or Options or the conversion rights represented by any such Convertible Securities shall expire without having been fully exercised, then the as adjusted upon the issuance of such Rights or Options or Convertible Securities shall be readjusted to the Exercise Price or number of Warrant Units which would have been in effect had an adjustment been made on the basis that the only Units so issued were the Units, if any, that were actually issued or sold on the exercise of such Rights or Options or rights of conversion or exchange of such Convertible Securities, and such Units, if any, were issued or sold for the consideration actually received by the Company upon such exercise, plus the consideration, if any, actually received by the Company for the granting of all such Rights or Options, whether or not exercised, plus the consideration received for issuing or selling all such Convertible Securities actually converted or exchanged, plus the

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consideration, if any, actually received by the Company (other than by cancellation of liabilities or obligations evidenced by such Convertible Securities) on the conversion or exchange of such Convertible Securities.

3.6Accountant’s Certificate.  In each case of an adjustment in the Exercise Price, number of Warrant Units or other stock, securities or property receivable upon the exercise of this Warrant, the Company shall compute, and upon the Holder’s request shall at the Company’s expense cause independent public accountants of recognized standing selected by the Company and reasonably acceptable to the Holder to certify such computation, such adjustment in accordance with the terms of this Warrant and prepare a certificate setting forth such adjustment and showing in detail the facts upon which such adjustment is based, including a statement of (i) the number of Units of each class outstanding or deemed to be outstanding, (ii) the adjusted Exercise Price and (iii) the number of Warrant Units issuable upon exercise of this Warrant.  The Company will forthwith mail a copy of each such certificate to the Holder.  In the event that the Holder disputes such adjustment, the Holder shall be entitled to select an additional firm of independent certified public accountants of national standing and paid for by the Holder to certify such adjustment and the Company and the Holder shall use their good faith best efforts to agree on such adjustment based on the reports of the two accounting firms. In the event that the Company and the Holder are still unable to reach agreement as to such adjustment, the Company and the Holder agree to submit such determination to binding arbitration pursuant to Article XII.  Upon determination of such adjustment, the Management Committee shall forthwith make the adjustments described therein.

3.7Certain Other Events.  If any change in the outstanding Units of the Company or any other event occurs as to which the other provisions of this Article III are not strictly applicable or if strictly applicable would not fairly protect the purchase rights of the Holder of the Warrant in accordance with such provisions, then the Management Committee of the Company shall make an adjustment in the number and class of Warrant Units, the Exercise Price or the application of such provisions, so as to protect such purchase rights as aforesaid.  The adjustment shall be such as will give the Holder of the Warrant upon exercise for the same aggregate Exercise Price the total number, class and kind of shares as the Holder would have owned has the Warrant been exercised prior to the event and had the Holder continued to hold such shares until after the event requiring adjustment.

Article IV.
 Registration; Exchange and Replacement of Warrant; Reservation of Units

4.1The Company shall keep at the Designated Office a register in which the Company shall provide for the registration, transfer and exchange of this Warrant. The Company shall not at any time, except upon the dissolution, liquidation or winding-up of the Company, close such register so as to result in preventing or delaying the exercise or transfer of this Warrant.

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4.2The Company may deem and treat the person in whose name this Warrant is registered as the Holder and owner hereof for all purposes and shall not be affected by any notice to the contrary, until presentation of this Warrant for registration or transfer as provided in this Article IV.

4.3Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and upon surrender and cancellation of this Warrant, if mutilated, the Company will make and deliver a new Warrant of like tenor, in lieu of this Warrant without requiring the posting of any bond or the giving of any security.

4.4The Company shall at all times reserve and keep available out of its authorized Units, solely for the purpose of issuance upon the exercise of this Warrant, such number of Units as shall be issuable upon the exercise hereof.  The Company covenants and agrees that, upon exercise of this Warrant and payment of the Exercise Price therefor, if applicable, all Warrant Units issuable upon such exercise shall be duly and validly issued, fully paid and non-assessable.

Article V.
Representations and Warranties of the Company

The Company hereby represents and warrants to each Purchaser as follows:

5.1Organization; Good Standing; Qualification.  The Company is a limited liability company duly organized, validly existing and in good standing under the laws of the State of California and has full power and authority to conduct its business as presently conducted and as proposed to be conducted by it and to enter into this Warrant and to carry out the transactions contemplated in this Warrant.

5.2Authorization.  The Company has taken all limited liability company action required to authorize the execution and delivery of this Warrant and the performance of its obligations hereunder including the issuance of the Warrant Units. This Agreement is a legal, valid and binding agreement of the Company enforceable against the Company in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, moratorium or other similar laws relating to creditors’ rights generally and except that the availability of equitable remedies, including specific performance, is subject to the discretion of the court before which any proceeding therefor may be brought.

5.3Valid Issuance of Warrant Units.  When issued to and paid for by the Holder in accordance with the terms of this Warrant, the Warrant Units will be duly authorized, validly issued, fully paid and nonassessable free and clear of all liens, pledges, restrictions and encumbrances, and the issuance of the Warrant Units will not be subject to any preemptive or similar rights.  The Company shall at all times reserve and keep available, out of its authorized but unissued Units, solely for the purpose of

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effecting the exercise of this Warrant, the full number of Class A Units issuable upon the exercise of this Warrant.

5.4Capitalization.  As of the Original Issue Date, the authorized and outstanding capitalization of the Company consists of (i) a total of 600,000 Class A Units, all of which are outstanding; (ii) a total of 400,000 units of Class B Membership (“Class B Units”), all of which are outstanding.  All of such outstanding Units are validly issued, fully paid and nonassessable, and have been issued in compliance with the applicable federal and state securities laws, and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities.  In addition to the foregoing, as of the Original Issuance Date, the following options and warrants are outstanding:  (i) an option to purchase a total of up to 60,000 Class A Units at an exercise price of $5.00 per Class A Unit issued to Steven Savluk; (ii) an option to purchase up to 10,000 Class B Units at an exercise price of $4.00 per Class B Unit issued to John Bendheim; and (iii) a warrant to purchase up to 28,000 Class A Units issued to SBI Advisors, LLC.  All Units issuable upon exercise of such options and warrants, upon issuance in accordance with the terms thereof, will be validly issued, fully paid and nonassessable.  Except as set forth in this Section 5.4, there are no other outstanding options, warrants or similar agreements or rights for the purchase from the Company of any Units or any securities convertible into or ultimately exchangeable or exercisable for any Units, whether or not having anti-dilution rights.  Without limiting the foregoing, no preemptive right, co-sale right, right of first refusal, registration right, or other similar right exists with respect to the issuance and sale of the Warrant Units.

5.5Defaults.  Neither the issuance and sale of the Warrant Units hereunder nor execution and delivery of this Warrant and the performance of the Company’s other obligations hereunder will (A) violate or conflict with, result in a breach of or constitute a default (or an event that, with notice or lapse of time, would constitute a default) under (i) the articles of organization or operating agreement of the Company; (ii) any decree, judgment, order or determination of any court, governmental agency or body, or any arbitrator having jurisdiction over the Company or any of the Company’s assets; (iii) any law, rule or regulation applicable to the Company; or (iv) any contract, agreement, mortgage, indebtedness, indenture, or instrument by which the Company is bound or to which any property or assets of the Company is subject, or (B) result in the creation or imposition of any lien, encumbrance, claim, security interest or restriction whatsoever upon any of the properties or assets of the Company or an acceleration of indebtedness pursuant to any obligation, agreement or condition contained in any bond, debenture, note or any other evidence of indebtedness or any indenture, mortgage, deed of trust or any other agreement or instrument to which the Company is a party or by which it is bound or to which any of the property or assets of the Company is subject.

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Article VI.
Amendment to Operating Agreement of the Company

Immediately following the execution of this Agreement the Company shall cause the Coming Home Studios LLC Operating Agreement dated March 21, 2003 (the “Operating Agreement”)  to be amended and restated as follows:

6.1Units of Interest in the Company.  Section 3.3 of the Operating Agreement shall be deleted and replaced in its entirety as follows:

3.3  Units of Interest in the Company.  The Company shall issue 400,000 Units of Class A membership interests to Daniel E. Catullo III and 200,000 Units of Class A membership interests to Tilton Gardener (each such Unit being a “Class A Unit”).  The Company shall issue 400,000 Units of Class B membership interests to Arthur Sterling (each such Unit being a “Class B Unit”).  The Company shall not initially issue any Units of Class C Membership interests (each such Unit being a “Class C Unit”).  The term “Unit” means a Class A Unit, a Class B Unit or a Class C Unit.  Immediately upon the exercise of the warrant to purchase Class A Units issued to SRS Labs, Inc. on September 23, 2004 pursuant to a warrant agreement between SRS Labs, Inc. and the Company (the “Warrant Agreement”):  (i)  the Company shall issue that number of Class A Units to SRS Labs, Inc. determined in accordance with the terms and conditions of the Warrant Agreement, (ii) SRS Labs, Inc. shall become a Member of the Company with all attendant rights and obligations and (iii) Exhibit A hereto shall be amended to set forth the ownership interest of SRS Labs, Inc. in the Company.

6.2Tag Along Rights.  New Section 7.5 shall be added to the Operating Agreement as follows:

7.5.Tag Along Rights.  Notwithstanding the foregoing:

(a)If any holder of Units (an “Offering Unitholder”) desires to transfer all or any portion of such holder’s Units pursuant to a bona fide offer from a proposed acquiror (a “Proposed Acquiror”), it shall be a  condition precedent to such sale by such Offering Unitholder that each of the other Unit holders have the right to sell to the Proposed Acquiror, at the same price per Unit and on the same terms and conditions as the sale by such Offering Unitholder, a pro rata portion of the number of Units proposed to be sold to the Proposed Acquiror.  A Unit holder who elects to participate in a sale to a Proposed Acquiror under this section is referred to herein as a “Participating Unitholder”  The pro rata portion of Units which any Participating Unitholder shall be entitled to sell to the Proposed Acquiror shall be that number of Units as shall equal the total number of Units proposed to be sold to the Proposed Acquiror multiplied by a fraction, the numerator of which is the number of Units then owned by such Participating Unitholder, and the denominator of which is the number of Units owned by all Participating Unitholders.

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(b)Each Participating Unitholder who wishes to transfer units to a Proposed Acquiror shall give to each other Unitholder notice that the Offering Unitholder proposes to transfer offered Units to the Proposed Acquiror, and that the other Unitholders have the right to participate in such transfer on a pro rata basis.  Such notice shall be given at least twenty (20) days prior to the date of the proposed sale of the Proposed Acquiror.  Each Participating Unitholder wishing to participate in any transfer pursuant shall notify the Offering Unitholder in writing of such intention within fifteen (15) days after such Unit holder’s receipt of the notice described in the preceding sentence, and if such Unit holder fails to give notice within such time period, will conclusively deemed to have waived such right.

(c)The Offering Unitholder and each Participating Unitholder shall sell to the Proposed Acquiror all, or at the option of the Proposed Acquiror, any part of the Units proposed to be sold by them at a price and upon the other terms and conditions not more favorable to the Proposed Acquiror than those set forth in the notice provided by the Offering Unitholder provided, however, that any purchase of less than all of such Units by the Proposed Acquiror shall be made from the Offering Unitholder and each Participating Unitholder pro rata based upon the relative number of Units that the Offering Unitholder and each Participating Unitholder is otherwise entitled to sell.

6.3Bring-Along  Rights.  New Section 7.6 shall be added to the Operating Agreement as follows:

7.6Bring-Along Rights.  If the holders of more than 50% of the issued and outstanding common Units of the Company (the “Selling Unitholders”) propose to sell or otherwise dispose of all of their Units to a third-party buyer in a single transactions or related series of transactions, then each Unit holder who is not a Selling Unitholder (collectively the “Minority Unitholders”) shall, at the Company’s election, (i) sell or otherwise dispose of all of its Units pursuant to the terms and conditions negotiated by the Selling Unitholders for the sale or other disposition of the Selling Unitholders’ Units; and (ii) exercise or convert any option, warrant or other security exercisable for or convertible into common Units, including, without limitation, this Warrant, and sell or otherwise dispose of the common Units resulting therefrom pursuant to the terms and conditions negotiated by the Selling Unitholders for the sale or other disposition of their Units; provided, however, that the terms and conditions (including the price per Unit and form of consideration) for such sale shall be no less favorable to each Minority Unitholder than to the Selling Unitholders.  Subject to the foregoing, each Minority Unitholder hereby agrees, at the Company’s request, (i) to execute and deliver a definitive agreement providing for the sale of his minority Units, together with any related documents, in such form as determined by the Company, and (ii) to vote all of its minority Units in favor of approval and

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adoption of a merger or other acquisition agreement between the Company, the Selling Unitholders and the third-party buyer, in such form as determined by the Company; provided, further, that in no event shall any Minority Unitholder be required to make any representations or warranties (other than as to title to its minority Units) or provide any indemnities (other than as to title to its minority Units) to the third-party buyer in connection with any sale or other disposition of the minority Units pursuant to this Section 5.2.  Notwithstanding anything in this Agreement to the contrary, the Minority Unitholders shall have no obligation to reimburse the Company or the Selling Unitholders for any expenses or fees incurred by the Company or the Selling Unitholders.

Article VII.
Notices

All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed to have been duly made when delivered personally, or mailed by registered or certified mail, return receipt requested, or telecopied or telexed and confirmed in writing and delivered personally or mailed by registered or certified mail, return receipt requested:

(a)If to the Holder, to the address of such Holder as shown on the books of the Company; or

(b)If to the Company, to the Designated Office;

or at such other address as the Holder or the Company may hereafter have advised the other.

Article VIII.
Successors

All the covenants, agreements, representations and warranties contained in this Warrant shall bind the parties hereto and their respective heirs, executors, administrators, distributees, successors, assigns and transferees.

Article IX.
Law Governing

This Warrant shall be construed and enforced in accordance with, and governed by, the laws of the State of California (not including the choice of law rules thereof) regardless of the jurisdiction of creation or domicile of the Company or its successors or of the Holder at any time hereof.

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Article X.
Entire Agreement; Amendments and Waivers

This Warrant sets forth the entire understanding of the parties with respect to the transactions contemplated hereby. The failure of any party to seek redress for the violation or to insist upon the strict performance of any term of this Warrant shall not constitute a waiver of such term and such party shall be entitled to enforce such term without regard to such forbearance. This Warrant may be amended, and any breach of or compliance with any covenant, agreement, warranty or representation may be waived, only if the Company has obtained the written consent or written waiver of the Holder, and then such consent or waiver shall be effective only in the specific instance and for the specific purpose for which given.

Article XI.
Severability; Headings.

If any term of this Warrant as applied to any person or to any circumstance is prohibited, void, invalid or unenforceable in any jurisdiction, such term shall, as to such jurisdiction, be ineffective to the extent of such prohibition or invalidity without in any way affecting any other term of this Warrant or affecting the validity or enforceability of this Warrant or of such provision in any other jurisdiction. The Article and Section headings in this Warrant have been inserted for purposes of convenience only and shall have no substantive effect.

Article XII.
Arbitration

In the event a dispute occurs with respect to any claim, dispute or other matter arising out of or relating to this Warrant, the parties hereto will promptly attempt to settle such dispute through consultation and negotiation in good faith and in a spirit of mutual cooperation. If agreement is reached concerning the resolution of such dispute, then such agreement shall be final, conclusive and binding on the parties hereto. If, on or before the tenth day after written notice of such dispute is given by one party to the other parties, such dispute has not been resolved by the agreement of all the parties, such dispute shall be settled by an expedited arbitration proceeding conducted in accordance with the then-current CPR Non-Administered Arbitration Rules and the Federal Rules of Evidence by a panel of three arbitrators who shall have experience relating to the dispute or matter to be resolved. Each of the Company and the Holder shall select an arbitrator, and those two arbitrators shall select a third arbitrator. The parties hereto shall provide such arbitrators with such information as may be reasonably requested in connection with the arbitration of such dispute and shall otherwise cooperate with each other and such arbitrators in good faith and with the goal of resolving such dispute as promptly as reasonably practicable. The arbitrators’ decision and award with respect to the dispute referred to shall be final and binding on the parties hereto and may be entered in any court with jurisdiction, and the parties hereto shall abide by such decision and award. The cost of the arbitration

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proceeding and any proceeding in court to confirm or to vacate any arbitration award, as applicable (including, without limitation, attorneys’ fees and costs), shall be borne by the unsuccessful party (if any) and shall be awarded as part of the arbitrators’ award; provided however, that if the arbitrators do not find one party to be unsuccessful then the cost of the arbitral proceeding shall be paid equally by the parties hereto.

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IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed as of the date first written above.

	COMING HOME STUDIOS LLC
	By:	/S/ DANIEL E. CATULLO III
	Name:			Daniel E. Catullo III
	Title:		Manager
Accepted and agreed:
	SRS LABS, INC.
	By:	/S/ THOMAS C.K. YUEN
	Name:			Thomas C.K. Yuen
	Title:		Chairman and Chief Executive Officer

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ANNEX A

NOTICE OF EXERCISE

(TO BE EXECUTED UPON PARTIAL OR

FULL EXERCISE OF THE WITHIN WARRANT)

The undersigned hereby irrevocably elects to exercise the right to purchase                      Units of Coming Home Studios LLC covered by the within Warrant according to the conditions hereof and herewith makes payment of the Exercise Price of such Units in full in the amount of $                                  .

		(Print Name)
	By:	(Signature of Registered Holder)
Dated:

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ANNEX B

ASSIGNMENT FORM

FOR VALUE RECEIVED the undersigned registered owner of this Warrant hereby sells, assigns and transfers unto the Assignee named below all of the rights of the undersigned under this Warrant, with respect to the number of Units set forth below:

No. of Units Name and Address of Assignee

and does hereby irrevocably constitute and appoint                                            attorney-in-fact to register such transfer onto the books of Coming Home Studios LLC maintained for the purpose, with full power of substitution in the premises.

		(Print Name)
	By:	(Signature of Registered Holder)
Dated:

NOTICE: The signature on this assignment must correspond with the name as written upon the face of this Warrant in every particular, without alteration or enlargement or any change whatsoever.

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EX-10.4

EXHIBIT 10.4

PRODUCTION SERVICES AGREEMENT

This Agreement (the “Agreement”) dated as of September 23, 2004 between Coming Home Studios, LLC, a limited liability company organized under the laws of the State of California, whose address is at 6161 Santa Monica Boulevard, Suite 100, Los Angeles, California 90028 (“Contractor”), on the one hand; and CHS/SRS, LLC, a limited liability company organized under the laws of the State of California, whose address is at 6161 Santa Monica Boulevard, Suite 100, Los Angeles, California 90028 (the “Company”) on the other hand, is made with reference to the following:

A.The Company wishes to provide $1,800,000 (the “Funding Amount”) to finance the Completion (as defined below) and distribution of the following concert videos (the “Concert Videos”) under the respective artist agreements set forth on Exhibit A hereto (the “Artist Agreements”):

Duran Duran

Boz Scaggs—Jazz

Boz Scaggs—Greatest Hits

Godsmack

All Access

B.The Company desires to engage Contractor to produce the Concert Videos.

In consideration of the mutual promises and covenants set forth herein, the parties hereto agree as follows:

1.Services.

A.Subject to the terms and conditions set forth herein, the Company engages Contractor, and Contractor accepts such engagement on an independent contractor basis, to perform all production services and provide all other services, personnel, materials and elements requested by the Company or otherwise necessary, desirable or appropriate for the production, completion and delivery to the Company of the Concert Videos (the “Services”), including, but not limited to, (i) all equipment, stage/set construction material for the Concert Videos; (ii) all transportation services or arrangements for the Concert Videos; (iii) ensuring compliance with Artists Agreements; (iv) sound editing and mixing; (v) music editing; (vi) rough cut and final edits of the Concert Videos; (vii) coordinating all budgeting and accounting activities (and in the event that the cost to complete the Concert Videos exceeds the Funding Amount, any such excess costs shall be paid by Contractor or by additional funding contributed by the Company in accordance with the Company’s Operating Agreement); (vii) coordinating the hiring of all above-the-line and below-the-line personnel; (ix) coordinating all pre-production, production and post-production schedules subject to the Company’s prior written approval; (x) obtaining all necessary and customary legal clearances; (xi) ensuring compliance with all applicable laws and governmental regulations and guild agreements, if any; (xii) obtaining all production-related

agreements prepared by Contractor’s business and legal affairs personnel; (xiii) providing written reports (including cost, schedule and progress reports) to the Company as to all development, pre-production, production, and post-production activities; and (xiv) any other services necessary to produce, Complete and deliver ready for exhibition and/or exploitation the Concert Videos.  The Concert Videos will consist of footage from live concert performances by the artists as set forth in each respective Artist Agreement.  The Concert Videos will be comprised of music performances totaling not less than 90 minutes for exploitation in domestic and foreign television markets, not less than 60 minutes for an alternate television version, and not less than 120 minutes for exploitation in domestic and foreign home video markets (including, but not limited to, VHS and DVD). The Company at any time may inspect and/or cause to be inspected the production of the Concert Videos and the performance of the Services, and the Company may make objections thereto to Contractor, which Contractor agrees to promptly correct.

B.Contractor agrees that all contracts and agreements with persons or entities rendering services, furnishing facilities, equipment or other material or granting rights in connection with such production, completion and delivery shall be entered into in Contractor’s name, shall be fully assignable to the Company and shall contain the terms and conditions customary in the United States  entertainment industry for the applicable type of services, material or rights being rendered, furnished or granted. It is expressly understood that all rights and benefits flowing to Contractor under each such contract and agreement shall inure to the benefit of the Company and shall be deemed, and hereby are, irrevocably assigned to the Company throughout the universe in perpetuity concurrently with the effectiveness of such contract or agreement.  Notwithstanding anything herein to the contrary, all copyrights to the Concert Videos shall be co-owned by Contractor and the artists under the respective Artist Agreements, provided, however, that all proceeds received by the Contractor in respect of its ownership interest in the copyrights shall be contributed by the Contractor to the Company in accordance with the Operating Agreement of the Company.

C.Contractor hereby agrees that Contractor has entered into or will enter into valid and binding written agreements with all persons or entities rendering services in connection with the Concert Videos which shall provide, among other things, a representation and warranty from every person and entity who contributes to the creation of the Concert Videos, whether under employment or engagement to Contractor by formal agreement or otherwise (each, a “Contributor”), that the results and proceeds of all the Contributor’s services shall be a “work-made-for-hire” within the meaning of the U.S. Copyright laws (and to the extent any such results and proceeds are not deemed a “work-made-for-hire”, all rights in such results and proceeds shall be automatically and irrevocably assigned to Contractor throughout the universe in perpetuity), that the Contributor waives all moral rights in connection with the Concert Videos together with any other rights which are not capable of assignment, that the Contributor agrees not to make unauthorized disclosure or use of the Company’s proprietary information, that the Contributor agrees to execute any further documentation relating to such transfer or waiver or relating to the results and proceeds of Contributor’s services at the request of Contractor, failing which Contractor, or the Company as Contractor’s attorney-in-fact, is authorized to execute same as Contributor’s attorney-in-fact, and that the Contributor will look solely to Contractor for payment of compensation for all services in connection with the Concert Videos. Contractor hereby agrees to make or cause to be made when due all payments which may be required to be

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remitted to persons or entities rendering services or furnishing equipment, facilities, rights or other material to Contractor in connection with the Concert Videos and to make such deductions and withholdings from and payments on account of such sums, including, without limitation, all payments of taxes and other contributions which have arisen or may arise out of the services to be rendered or the equipment, facilities, rights or other material to be furnished by any Contributor in connection with the Concert Videos as are required or permitted to be deducted and withheld from or paid on account of sums paid to the Contributor under the provisions of applicable laws or regulations or applicable union or guild agreements, if any.

D.Contractor shall keep and maintain books and records with respect to the production of the Concert Videos which books and records any member of the Company or its designee shall have access to at all times reasonably required by any member of the Company and which shall be subject to audit and inspection by the Company or its designee at any time. Said books and records, along with vouchers, receipts and other documents and information reflecting all receipts by Contractor and all expenses and charges incurred by Contractor in connection with the production of the Concert Videos, shall be the sole property of the Company.

2.Start Date.  Contractor’s engagement hereunder shall commence on or about the date hereof.

3.Delivery.  Contractor agrees to deliver for distribution Complete Concert Videos in accordance with the delivery schedule set forth as Exhibit “B”, which is attached hereto and incorporated herein by this reference.  “Complete” or “Completion” shall mean, with respect to any Convert Video, delivery by Contractor of an authored DVD master of the Concert Video ready for replication and distribution, including without limitation video, sound track, graphics, packaging (including approved Coming Home Studios LLC and SRS Labs, Inc. ad slicks and promotional materials), artwork and screen capture, as applicable, in accordance with standard industry practices.  Contractor acknowledges that time is of the essence.

4.(a)  Compensation & Expenses.  As complete consideration for all of Contractor’s services hereunder and for all rights granted and to be granted hereunder by Contractor, provided Contractor is not in breach or default hereof, Contractor shall be entitled to receive the following production fees:

Concert Video	Production Fee
Duran Duran	$	200,000
Godsmack	$	75,000
Boz Scaggs	$	90,000	(aggregate, Jazz and Greatest Hits)
All Access	$	—
Total	$	365,000

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(b)  Allocation of Funding Amount; Costs and Expenses.  The Contractor and the Company agree that the Funding Amount shall be allocated for accounting purposes among the Concert Videos as follows:

Concert Video	Funding Amount
Duran Duran	$	860,000
Godsmack	$	340,000
Boz Scaggs Jazz	$	175,000
Boz Scaggs Greatest Hits	$	175,000
All Access	$	250,000
Total	$	1,800,000

Contractor shall be responsible for the payment of all costs and expenses in connection with the production of the Concert Videos, and the completion and delivery of the elements and materials in connection therewith, including, but not limited to, all fees, compensation, and expenses due in connection with the services of all above-the-line and below-the-line personnel engaged or employed in connection with the Concert Videos, and obtaining all underlying rights, licenses, clearances or permissions, including licenses for music synchronization, music performance and literary and other material (except as otherwise owned or controlled by the Company).  Notwithstanding the foregoing, in the event that the actual cost to produce the Concert Videos exceeds the Funding Amount, Contractor shall be responsible for all overages unless such overages are funded by additional funding from the Company in accordance with the Company’s Operating Agreement.  All profits, losses and cash distributions in respect of the Concert Videos are to be allocated pursuant to the terms of the Company Operating Agreement

5.Tax Treatment.  In the event it is determined by the Company, in its sole discretion, to elect to create a structure in order to qualify for favorable tax treatment, tax relief and/or tax shelter arrangements in connection with the Concert Videos, Contractor hereby agrees to fully cooperate in connection therewith, including such efforts as may be required in contracting with third parties in order to facilitate the aforementioned purposes. It is expressly understood and agreed that any and all tax relief or benefits relating hereto shall accrue and be payable solely to the Company. The terms of any such election will be set forth, if at all, in an amendment to this Agreement or in any “long form” formal agreement that may be entered into by the parties hereto in connection with the subject matter hereof.

6.Subcontractors.  All work performed by such key subcontractor(s) shall be warranted to the same extent as that performed by Contractor, and Contractor shall remain responsible for the actions of such third parties.

7.Key Personnel.  Contractor warrants and represents that Daniel E. Catullo, III shall be available on a non-exclusive, but first-priority basis to perform producer services on, and oversee production of, the Concert Videos; and has or will have a valid employment agreement with Contractor, and will continue his employment with Contractor until delivery of all Concert Videos under this Agreement.

8.Independent Contractor.  It is understood and agreed that Contractor is acting as an independent contractor in the performance of the services hereunder, and nothing herein contained shall be deemed to create an agency relationship between Contractor and the Company. Contractor shall in no event be entitled to participate in, or to receive any benefits

4

from, any of the Company’s benefit or welfare plans, specifically including, but not limited to, coverage under the Company’s workers’ compensation program. the Company shall have no obligation whatsoever to compensate Contractor on account of any damages or injuries which Contractor may sustain as a result or in the course of the performance of Contractor’s services hereunder. Contractor shall be solely responsible for the payment of all Federal and state income taxes, social security taxes, Federal and state unemployment insurance and similar taxes and all other assessments, taxes, contributions or sums payable with respect to the Contractor and/or Contractor’s employees and Subcontractors as a result of or in connection with the services performed by Contractor hereunder and Contractor shall file all returns and reports with respect to any of the foregoing. The exercise by the Company of its rights of direction, control and approval under this Agreement shall not operate to relieve Contractor of its obligations; nor shall it create any agency, employment or partnership between Contractor and the Company; nor shall it render the Company to be the employer or supervisor of Contractor or any of its employees nor shall it create any liability on the part of the Company as such.

9.Representations & Warranties.

A.Contractor represents and warrants that: (i) Contractor is a duly organized and existing limited liability company and is presently in good standing under the laws of the state, province and/or country of its organization; (ii) the consent of no other person or entity is necessary for Contractor to enter into and fully perform this Agreement and Contractor has not done and will not do any act and has not made and will not make any grant, assignment or agreement which will or might conflict or interfere with the complete enjoyment of all of the Company’s rights hereunder; (iii) the Concert Videos shall be of first-class quality and shall have at least the same production standards as works produced by first-class producers of feature length motion pictures for home video distribution and network television broadcast; (iv) all material composed or created by Contractor hereunder shall be original with Contractor and shall not infringe upon or violate the privacy of, or constitute a libel or slander against, or violate any common law statutory right or any other right of any person, firm, or corporation; and (v) none of the rights herein granted or agreed to be granted to or vested in the Company has been transferred to any third party and all said rights are free of any liens, claims and encumbrances whatsoever in favor of any third party.  None of said rights or any right to exercise the same has been in any way limited, diminished or impaired, there being no claims, litigation or other proceedings pending or threatened adversely affecting the Company’s rights hereunder.

B.The Company represents and warrants that: (i) the Company is a duly organized and existing limited liability company and is presently in good standing under the laws of the state, province and/or country of its incorporation; (ii) the consent of no other person or entity is necessary for the Company to enter into and fully perform this Agreement; (iii) all material provided by the Company to Contractor shall be original with the Company and/or owned and controlled by the Company, and shall not infringe upon or violate the privacy of, or constitute a libel or slander against, or violate any common law statutory right or any other right of any person, firm, or corporation.

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10.Indemnification.

A.Contractor shall defend, hold harmless and indemnify the Company and its subsidiaries, its Members, related and affiliated companies, assignees and licensees, and the officers, directors, employees and agents of each of the foregoing and hold it and them harmless from and against any and all claims, demands, causes of action, losses, liabilities and expenses (including, without limitation, attorneys’ fees) in connection with any third party claim or action arising out of the breach of any of Contractor’s representations, warranties or agreements herein.

B.The Company shall defend, hold harmless and indemnify Contractor and its subsidiaries, related and affiliated companies and the officers, directors, employees and agents of each and to hold it and them harmless from and against any and all claims, demands, causes of action, losses, liabilities and expenses (including, without limitation, attorneys’ fees) in connection with any third party claim or action arising out the breach of any of the Company’s representations, warranties or agreements herein, excluding such matters as are covered by Contractor’s indemnification of the Company hereunder or which result from Contractor’s tortious conduct.

11.Insurance.  Contractor shall, at Contractor’s cost and expense, procure and maintain in full force and effect at all times during production of the Concert Videos a comprehensive general liability policy (including, but not limited to, providing coverage for loss or damage to the delivery materials and other production elements), worker’s compensation and event cancellation, errors and omissions and such other insurance policies as are customarily required by the Company. Contractor shall deliver to the Company upon execution of this Agreement evidence satisfactory to the Company of such insurance coverage in the form of valid insurance certificates listing the Company as a named additional insured. The foregoing policies must cover claims, regardless of when raised, based on occurrences relating in any way to the Services and/or the Concert Videos and shall include a provision requiring the insurer to give the Company prompt written notice, not exceeding thirty (30) days, of any cancellation or modification. The errors and omissions policy must remain in full force and effect for a period of seven (7) years from the date of completion of the Concert Videos. Contractor shall promptly replace any insurance which has been cancelled or modified.

12.Publicity.  No publicity or public announcements by Contractor regarding the business relationship set forth herein shall be made without prior written consent of the Company, provided, however that nothing herein shall prohibit any member of the Company from making any disclosure regarding this Agreement or the business relationship set forth herein which may be required under applicable law, as determined in the sole discretion of such member.

13.No Obligation.  The Company shall not be obligated exhibit, distribute, transmit, advertise, exploit or otherwise make use of the Concert Videos or any of the Results and Proceeds created by or worked upon by Contractor.

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14.Termination.

A.The Company may, by written notice to Contractor, terminate this Agreement if Contractor is in material breach of any term, condition or provision of this Agreement, which breach is not cured within five (5) days after receiving written notice of such breach, if curable; provided that if Contractor has previously been notified of a curable material breach of this Agreement, and has cured such breach, Contractor shall not be entitled to any additional opportunity to cure such, or subsequently similar, breaches of this Agreement. (For purposes of clarification, in the event Contractor fails to timely deliver materials, is provided written notice from the Company of a breach, cures, and then subsequently fails again to timely deliver materials, Contractor shall not be entitled to cure such subsequent breach.)

B.The Company reserves its right to terminate this Agreement without any further obligation to Contractor if the development or production of the Concert Videos is terminated. In the event the development or production of the Concert Videos is terminated at the Company’s election, and not as a result of a breach by Contractor, the Company shall pay Contractor all non-cancelable, fully burdened and accrued payments through the date of such termination within thirty (30) business days of terminating this Agreement.

15.Remedies.  In the event of any breach of this Agreement by the Company, Contractor’s rights shall be limited to the right, if any, to seek money damages in an action at law. The Company waives any right to rescind the rights granted to the Company hereunder (all of which rights shall immediately and fully vest with the Company) and waives any right to enjoin the development, production, promotion, distribution or other exploitation of the Concert Videos (or any part thereof). Contractor hereby agrees that the Company shall be entitled to seek injunctive and other equitable relief to restrain, enjoin or prevent the breach of any obligation herein by Contractor, in addition to any other rights which the Company may have; however, pursuit by the Company of one remedy shall not be construed as a waiver of any other remedy. The failure or delay of the Company to enforce any of its rights hereunder shall not be deemed a waiver of any kind.

16.Assignment.  This Agreement shall not be assigned by Contractor or modified except by mutual written agreement between Contractor and the Company. In addition, the Company shall have the right to assign this Agreement (or any of its rights hereunder) to any person, firm or corporation. The Company shall be released and discharged from the obligations so assumed if such person, firm or corporation is financially responsible and assumes in writing the obligations of the Company hereunder.

17.Attorneys’ Fees.  If any legal action arises under this Agreement or by reason of any asserted breach of it, the prevailing party shall be entitled to recover all costs and expenses, including all reasonable attorneys’ fees, incurred in enforcing or attempting to enforce any of the terms, covenants or conditions, and all of the costs and expenses, including, reasonable attorneys’ fees, incurred in any appeal from an action brought to enforce any of the terms, covenants or conditions hereof.

18.Governing Law; Venue; Jurisdiction.  This Agreement shall be governed by and construed in accordance with the laws of the United States and the State of California, without

7

regard to conflict of law principles. Contractor agrees that any suit, action or proceeding arising out of or relating to this Agreement or any of the transactions contemplated herein (including without limitation, tort claims) shall be instituted and prosecuted under the exclusive jurisdiction of any state or Federal court empowered to enforce this Agreement located in Los Angeles County, California and waives any objection thereto on the basis of personal jurisdiction or venue. However, the Company may, in its sole and exclusive discretion, exercise the option to initiate (or to dismiss its suit, action or proceeding in California and then initiate) any such suit, action or proceeding in any court of competent jurisdiction in any territory in which Contractor is present or conducts business or other activities. In any suit, action or proceeding initiated in any state or Federal court in California, Contractor irrevocably submits to the jurisdiction and venue of all state and Federal courts of California and waives any and all objection to such jurisdiction that Contractor  may have under the laws of the State of California or the United States and also waives any right to challenge the convenience of California as an appropriate forum.

19.Severability.  If any provision of this Agreement shall for any reason be declared by a court of competent jurisdiction to be invalid, illegal, unenforceable, inoperative or otherwise ineffective, that provision shall be limited or eliminated to the minimum extent necessary so that this Agreement shall otherwise remain in full force and effect and enforceable.

20.Paragraph Headings.  Paragraph headings are for ease of reference only and shall not have any effect upon the construction of this Agreement or any of the terms or provisions hereof.

21.More Formal Agreement.  The parties hereto may enter into a more formal agreement containing the foregoing and such other standard terms and conditions customarily included in the Company’s agreements of this type (including, but not limited to, force majeure, termination, insurance, security interests, incapacity and default, confidentiality, name and likeness/publicity, notices, etc.) which are incorporated herein by this reference. However, until such time as said more formal agreement is executed by the parties hereto, if ever, this Agreement shall constitute the sole and complete and binding agreement between the parties regarding the subject matter hereof.

22.Counterparts.  This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. One or more executed counterparts of this Agreement may be delivered by facsimile, with the intention that they shall have the same effect as an original executed counterpart hereof.

[Signature Page Follows]

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[Signature Page to Production Services Agreement]

IN WITNESS WHEREOF, Contractor and the Company have duly executed this Agreement as of the date first written above.

CHS/SRS, LLC			COMING HOME STUDIOS, LLC
(the “Company”)			(“Contractor”)
By:		COMING HOME STUDIOS LLC
		Its:  Manager	/S/ DANIEL E. CATULLO III
			By:  DANIEL E. CATULLO III
			Its:  Manager
By:	/S/ DANIEL E. CATULLO III
	DANIEL E. CATULLO III

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EXHIBIT “A”

ARTIST AGREEMENTS

1.Artist agreement between CHS and Duran Duran Ltd. dated March 1, 2004;

2.Operating agreement between CHS and Duran Duran L & I dated as of May 8, 2004 relating to DD/CHS, LLC;

2.Artist agreement between CHS and Godsmack Partnership dated March 18, 2004;

3.Artist agreement between CHS and Gray Cat Records, Inc. dated as of April 11, 2003 executed August 18, 2003; and

5.Unexecuted Distribution Agreement between CHS and Ideal Entertainment dated May 21, 2004.

EXHIBIT “B”

DELIVERY DATES

Boz Scaggs—Greatest Hits	August 3, 2004
Godsmack	September 13, 2004
All Access	October 2004
Boz Scaggs—Jazz	January 2005
Duran Duran	March 2005

EX-99.1

Exhibit 99.1

NEWS RELEASE

FOR IMMEDIATE RELEASE

Investor Contact:	Media Contact:	Coming Home Studios Contact:
Tami Yanito	Jennifer Drescher	Daniel E. Catullo III
(949) 442-1070 x 3093	(949) 442-1070 x 5010	(323) 467-6000
tami@srslabs.com	jenniferd@srslabs.com	dan@cominghomestudios.com

SRS LABS AND COMING HOME STUDIOS FORM STRATEGIC ALLIANCE THAT INCLUDES WORLDWIDE BRANDING OF CIRCLE SURROUND^® ON MUSIC CONCERT DVDs

Companies Team up for Promotion of SRS Circle Surround,

With Five New CS-Encoded DVD Releases to be Launched Worldwide

SANTA ANA, Calif., Sept. 28, 2004 - SRS Labs, Inc. (NASDAQ: SRSL), a leading provider of innovative audio, voice and semiconductor technology solutions and Coming Home Studios, LLC, a Los Angeles-based full service television and DVD production and distribution company, today announced that they have formed a strategic alliance (the “Strategic Alliance”) to co-promote SRS’s technologies, Coming Home Studios’ productions and each other’s respective brands to consumers and SRS Labs’ OEM Channels world-wide.  The first project is a series of concert DVDs produced by Coming Home Studios LLC using the SRS Labs’ Circle Surround multichannel encoding technology.

The Strategic Alliance brings together SRS Labs’ state-of-the-art surround sound technology and Coming Home Studios’ cutting edge music DVD productions to deliver powerful live music concert DVDs to music fans as well as exposing the SRS brand to millions of consumers worldwide. Prior to forming this Strategic Alliance, SRS Labs and Coming Home Studios collaborated on the recent concert DVD, SHOW – A Night in the Life of Matchbox Twenty. In addition to being nominated for a Surround Music Award, SHOW went platinum in the first week of sales and launched at #1 on the Billboard charts.

“I believe this is a win-win situation, where both companies can jointly benefit from this partnership,” said Thomas C.K. Yuen, chairman and CEO of SRS Labs. “Coming Home Studios is a respected leader in the growing concert DVD market.  By forming this partnership, consumers will be exposed to an animated SRS logo at the beginning of each DVD release.  We believe that this exposure, coupled with our other branding efforts, will have the effect of increasing customer awareness so that they look for the SRS brand in more of the consumer electronics products they purchase.  At the same time, we can promote Coming Home Studios’ DVD products and recording artists to our broad channel of consumer electronics manufacturers and their customers.”

Daniel Catullo III, president and CEO for Coming Home Studios said, “The SRS Labs brand continues to represent a symbol of audio excellence all over the world, and we believe that we should benefit from SRS Labs’ strong relationships with global consumer electronics manufacturers.  Now, with each new music DVD project released under this new partnership, consumers can experience the closest thing to a live concert right in their living room.  In working together with SRS, we can deliver the highest quality concert DVDs from today’s hottest recording artists and yesterday’s music legends.”

- more -

SRS Labs, Inc. 2909 Daimler Street, Santa Ana, CA  92705    Tel 949-442-1070    Fax 949-852-1099   www.srslabs.com

SRS and CHS Form Strategic Alliance That Includes Worldwide Branding of CS on Concert DVDs

As part of the Strategic Alliance, SRS Labs and Coming Home Studios entered into four agreements, a Strategic Alliance Agreement, a CHS/SRS LLC Operating Agreement, a Warrant Agreement and a Production Services Agreement.  Under the Operating Agreement, SRS Labs has made an investment of $1.8 million in a joint venture which will entitle SRS Labs to participate in net profits (after payment of artist royalties) generated from sales of five live music DVD projects that are expected to be released through early 2005.  The investment will be recorded under the equity method of accounting in the third quarter of 2004.  For additional details regarding this Strategic Alliance, please refer to SRS Labs’ Form 8-K filing, which is expected to be filed with the U.S. Securities and Exchange Commission today.

Chief financial officer of SRS Labs, Janet Biski said, “Through this alliance, we are excited to be a part of the growing music DVD segment. Due to the fact that this segment is still somewhat young and unpredictable, we have initially invested in five projects to diversify our risk.  This alliance is part of our ongoing strategy to build our brand, while at the same time controlling expenses.  We believe that this relationship with CHS will further enhance our branding efforts, and ultimately produce value for our shareholders.”

Circle Surround is a breakthrough, patented surround format that allows a 5.1 or 6.1 surround mix to be stored or transferred over any two-channel format, including the stereo track of a DVD. Listeners with a surround sound system will enjoy the original 5.1 mix that the artist and engineers created. Also, any Circle Surround-encoded clip that is broadcast over television or radio, compressed for distribution online, or stored digitally on standard media, such as CDs, DVD-Rs, or digital audio players, will retain the surround sound information. One of the most powerful features of the technology is that it is 100 percent compatible with all playback environments, from one-speaker mono to two-speaker stereo or multi-speaker surround sound. One mix now satisfies everyone.  For more information on licensing SRS technology, contact sales@srslabs.com.  To hear an online demonstration of SRS technologies, visit www.srslabs.com/Demonstrations.asp.

About Coming Home Studios

Coming Home Studios is a full service television and DVD production and distribution company that uses cutting edge production methods to provide music fans with a front row seat at the concert. Coming Home Studios has worked with a who’s who of platinum artists, including Matchbox Twenty, Rush, Dave Matthews Band, Duran Duran, Godsmack, Usher, Boz Scaggs, Marilyn Manson, The Go-Gos, Etta James and many more. For more information about Coming Home Studios please contact Daniel E. Catullo III or visit http://www.cominghomestudios.com.

About SRS Labs Inc.

SRS Labs is a recognized leader in the advancement of audio and voice technology.  The company works with the world’s top manufacturers to provide a richer entertainment experience through patented sound techniques.  SRS Labs’ technologies can be heard through products ranging from televisions, flat panel displays, DVD players, mobile phones, car audio systems, headphones and notebook and desktop computers.  The company also offers hardware and software tools to professionals and consumers for the creation, production and broadcast of content featuring SRS Labs’ technologies.  SRS Labs’ wholly owned subsidiary, ValenceTech, is a Hong Kong-based semiconductor company that designs and sells custom ASICs and standard ICs to leading manufacturers worldwide. Based in Santa Ana, Calif., the company also has licensing representation in Hong Kong, Japan, Europe, and Korea.  For more information about SRS Labs, Inc. please visit www.srslabs.com.  The information on the aforementioned websites of SRS Labs and Coming Home Studios are not incorporated by reference into this press release.

Except for historical information contained in this release, statements in this release, including those by Mr.Yuen in paragraph three and Ms. Biski in paragraph six, are forward-looking statements and projections (which include statements concerning plans and objectives of management for future operations) that are based on management’s belief, as well as assumptions made by, and information currently available to, management.  While the Company believes that its expectations are based upon reasonable assumptions, there can be no assurances that the Company’s goals and strategy will be realized. Numerous factors, including risks and uncertainties, may affect the Company’s actual results and may cause results to differ materially from those expressed in forward-looking statements made by or on behalf of the Company. Some of these factors include the acceptance of new SRS Labs’ products and technologies, the success of the Strategic Alliance with Coming Home Studios, the impact of competitive products and pricing, the timely development and release of technologies by the Company, general business and economic conditions, especially in Asia, and other factors detailed in the Company’s Form 10-K and other periodic reports filed with the SEC.  SRS Labs specifically disclaims any obligation to update or revise any forward-looking statement whether as a result of new information, future developments or otherwise.

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