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<SEC-DOCUMENT>0000950148-02-001129.txt : 20020430
<SEC-HEADER>0000950148-02-001129.hdr.sgml : 20020430
ACCESSION NUMBER:		0000950148-02-001129
CONFORMED SUBMISSION TYPE:	DEF 14A
PUBLIC DOCUMENT COUNT:		1
CONFORMED PERIOD OF REPORT:	20020614
FILED AS OF DATE:		20020430

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			SPATIALIZER AUDIO LABORATORIES INC
		CENTRAL INDEX KEY:			0000890821
		STANDARD INDUSTRIAL CLASSIFICATION:	SEMICONDUCTORS & RELATED DEVICES [3674]
		IRS NUMBER:				954484725
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		DEF 14A
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-26460
		FILM NUMBER:		02626699

	BUSINESS ADDRESS:	
		STREET 1:		20700 VENTURA BOULEVARD SUITE 140
		CITY:			WOODLAND HILLS
		STATE:			CA
		ZIP:			91364
		BUSINESS PHONE:		3102273370

	MAIL ADDRESS:	
		STREET 1:		20700 VENTURA BLVD SUITE 140
		CITY:			WOODLAND HILLS
		STATE:			CA
		ZIP:			91364
</SEC-HEADER>
<DOCUMENT>
<TYPE>DEF 14A
<SEQUENCE>1
<FILENAME>v81115def14a.htm
<DESCRIPTION>DEFINITIVE PROXY STATEMENT
<TEXT>
<HTML>
<HEAD>
<TITLE>SPATIALIZER AUDIO LABORATORIES, INC</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="center"><FONT size="2"><B>SCHEDULE 14A PRIVATE<BR>
(Rule 14A-101)<br>
&nbsp;<BR>
INFORMATION REQUIRED IN PROXY STATEMENT<BR>
SCHEDULE 14 INFORMATION<BR>
&nbsp;<BR>
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE<BR>
SECURITIES EXCHANGE ACT OF 1934
</B></FONT>

<P><FONT size="2">Filed by the Registrant &#091;X&#093;
</FONT>
<P><FONT size="2">Filed by a Party other than the Registrant &#091;&nbsp;&nbsp;&nbsp;&#093;
</FONT>
<P><FONT size="2">Check the appropriate box:
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
        <TD width="2%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="95%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">&#091;&nbsp;&nbsp;&nbsp;&#093;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
Preliminary Proxy Statement</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">&#091;&nbsp;&nbsp;&nbsp;&#093;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
Confidential, for Use of the Commission Only (as permitted by Rule&nbsp;14a-6(e)(2))</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">&#091;X&#093;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">Definitive Proxy Statement</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">&#091;&nbsp;&nbsp;&nbsp;&#093;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">Definitive Additional Materials</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">&#091;&nbsp;&nbsp;&nbsp;&#093;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">Soliciting
Material Pursuant to Rule&nbsp;14a-11(c) or Rule&nbsp;14a-12</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P>&nbsp;</P>
<P>


<P align="center"><FONT size="2">SPATIALIZER AUDIO LABORATORIES, INC.</FONT>
<HR size="1" noshade>
<DIV align="center"><FONT size="2"><B>(Name of Registrant as Specified in Its Charter)</B></FONT></DIV>


<P align="center"><FONT size="2">&nbsp;</FONT>
<HR size="1" noshade>
<DIV align="center"><FONT size="2"><B>(Name of Person(s) Filing Proxy Statement, if other than the Registrant)</B></FONT></DIV>

<P><FONT size="2">Payment of Filing Fee (Check the appropriate box):
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
        <TD width="1%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="2%">&nbsp;</TD>
        <TD width="93%">&nbsp;</TD>
</TR>

<TR valign="bottom">
        <TD valign="top"><FONT size="2">&#091;&nbsp;&nbsp;&nbsp;&#093;</FONT></TD>

<TD align="left" valign="top" colspan="4"><FONT size="2">&nbsp;&nbsp;$125
per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item&nbsp;22(a)(2) of Schedule&nbsp;14A.</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">&#091;&nbsp;&nbsp;&nbsp;&#093;</FONT></TD>

<TD align="left" valign="top" colspan="4"><FONT size="2">&nbsp;&nbsp;$500
per each party to the controversy pursuant to Exchange Act
Rule&nbsp;14a-6(i)(3).</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">&#091;&nbsp;&nbsp;&nbsp;&#093;</FONT></TD>

<TD align="left" valign="top" colspan="4"><FONT size="2">&nbsp;&nbsp;Fee computed on table below per Exchange Act Rules&nbsp;14a-6(i)(4) and 0-11.</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
(1)
</FONT></TD>
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top" colspan="2"><FONT size="2">Title of each class of securities to which transaction applies:<BR><BR>
        <HR size="1" noshade></FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
(2)
</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">Aggregate number of securities to which transaction applies:<BR><BR>
        <HR size="1" noshade></FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
(3)
</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule&nbsp;0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):<BR><BR>
        <HR size="1" noshade></FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
(4)
</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">Proposed maximum aggregate value of transaction:<BR><BR>
        <HR size="1" noshade></FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
(5)
</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">Total fee paid:<BR><BR>
        <HR size="1" noshade></FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">&#091;&nbsp;&nbsp;&nbsp;&#093;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top" colspan="3"><FONT size="2">Fee paid previously with preliminary materials.</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">&#091;&nbsp;&nbsp;&nbsp;&#093;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top" colspan="3"><FONT size="2">Check box if any part of the fee if offset as provided by Exchange Act Rule&nbsp;0-11(a)(2) and identify the
filing for which the offsetting fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.</FONT></TD>
</TR>

<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
&nbsp;
</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;<BR><BR>
        </FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
(1)
</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">Amount Previously Paid:<BR><BR>
        <HR size="1" noshade></FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
(2)
</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">Form, Schedule or Registration Statement No.:<BR><BR>
        <HR size="1" noshade></FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
(3)
</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">Filing Party:<BR><BR>
        <HR size="1" noshade></FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
(4)
</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">Date Filed:<BR><BR>
        <HR size="1" noshade></FONT></TD>
</TR>
</TABLE>
</CENTER>

<P align="center"><FONT size="2"></FONT>



<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P><FONT size="2">&#091;LOGO&#093;
</FONT>

<P><FONT size="2">May&nbsp;8, 2002
</FONT>

<P><FONT size="2">Dear Stockholder:
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On behalf of the Board of Directors (the &#147;Board&#148;), I cordially invite
you to the annual meeting of the stockholders (the &#147;Annual Meeting&#148;) of
Spatializer Audio Laboratories, Inc. (the &#147;Company&#148;) which will be held on
Friday, June&nbsp;14, 2002 at 2:30 p.m. at the Hilton Woodland Hills, located at 6360
Canoga Avenue in Woodland Hills, California 91367. I hope that you will be able
to attend in person. Following the formal business of the Annual Meeting,
management will be available to respond to your questions.
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At the Annual Meeting, stockholders will be asked to consider and vote upon
the following matters:
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
   <TD width="1%" align="right" nowrap><FONT size="2">(1)</FONT></TD>
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;</FONT></TD>
   <TD width="97%"><FONT size="2">The nomination and election of one person to serve as a Director
of the Company until the Annual Meeting of Stockholders to be held
in 2005; and</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
   <TD width="1%" align="right" nowrap><FONT size="2">(2)</FONT></TD>
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;</FONT></TD>
   <TD width="97%"><FONT size="2">To consider and vote on such other matters as may properly be
presented at the Annual Meeting or any adjournment or postponement
thereof.</FONT></TD>
</TR>
</TABLE>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Board has approved and recommends that the stockholders vote FOR the
Director nominated by the Board.
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At the Annual Meeting, each holder of record of shares of common stock, par
value $0.01 per share (&#147;Common Stock&#148;) as of May&nbsp;6, 2002, the record date (the
&#147;Record Date&#148;) will be entitled to one (1)&nbsp;vote on each matter properly brought
before the Annual Meeting. Since only a single Director is being elected, he
will need to receive a majority of the votes cast pursuant to Article&nbsp;II,
Section&nbsp;3 of the Bylaws of the Company.
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The qualifications of the nominee for Director of the Company and other
important information are set forth in the accompanying Proxy Statement and
should be considered carefully by stockholders.
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;I hope that you will attend the Annual Meeting. Whether or not you plan to
attend the Annual Meeting, and regardless of the number of shares of stock you
own, please complete, date and sign the enclosed proxy card and return it
promptly in the accompanying envelope. You may, of course, attend the Annual
Meeting and vote in person, even if you have previously returned your proxy
card.
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
        <TD width="50%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="50%"><FONT size="2">Sincerely,<BR>
SPATIALIZER AUDIO LABORATORIES, INC.</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
        <TD width="50%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="50%"><FONT size="2">HENRY R. MANDELL<BR>
Chairman of the Board and<BR>
Chief Executive Officer</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">&nbsp;
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<!-- TOC -->
<A name="toc"><DIV align="CENTER" style="page-break-before:always"><U><B>TABLE OF CONTENTS</B></U></DIV></A>

<P><CENTER>
<TABLE border="0" width="90%" cellpadding="0" cellspacing="0">
<TR>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="76%"></TD>
</TR>
<TR><TD colspan="9"><A HREF="#000">NOTICE OF ANNUAL MEETING OF STOCKHOLDERS</A></TD></TR>
<TR><TD colspan="9"><A HREF="#001">REPORT OF COMPENSATION COMMITTEE</A></TD></TR>
<TR><TD colspan="9"><A HREF="#002">PERFORMANCE GRAPH OF COMPANY STOCK</A></TD></TR>
<TR><TD colspan="9"><A HREF="#003">INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS</A></TD></TR>
<TR><TD colspan="9"><A HREF="#004">EXECUTIVE COMPENSATION</A></TD></TR>
<TR><TD colspan="9"><A HREF="#005">TEN-YEAR OPTION/SAR REPRICINGS</A></TD></TR>
<TR><TD colspan="9"><A HREF="#006">REPORT OF THE AUDIT COMMITTEE</A></TD></TR>
</TABLE>
</CENTER>
<!-- /TOC -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>


<!-- link1 "NOTICE OF ANNUAL MEETING OF STOCKHOLDERS" -->
<DIV align="left"><A NAME="000"></A></DIV>
<P align="center"><FONT size="2">NOTICE OF ANNUAL MEETING OF STOCKHOLDERS</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Notice is hereby given that Spatializer Audio Laboratories, Inc. (the
&#147;Company&#148;) will hold its Annual Meeting of Stockholders on Friday, June&nbsp;14, 2002
at 2:30 p.m., at the Hilton Woodland Hills, located at 6360 Canoga Avenue in
Woodland Hills, California 91367, for the following purposes:
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
   <TD width="1%" align="right" nowrap><FONT size="2">&nbsp;</FONT></TD>
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;</FONT></TD>
   <TD width="97%"><FONT size="2">To elect one Director of the Company to serve until the Annual
Meeting of Stockholders to be held in 2005; and</FONT></TD>
</TR>
</TABLE>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To act upon other matters that may properly come before the Annual
Meeting.
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Board of Directors has fixed May&nbsp;6, 2002 as the Record Date for the
determination of the stockholders entitled to notice of, and to vote at, the
Annual Meeting or any adjournment or postponement of the Annual Meeting.
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At the Annual Meeting, each share of Common Stock represented will be
entitled to one (1)&nbsp;vote on each matter properly brought before the Annual
Meeting. The election of the Director requires the person nominated as the
Director receive a majority of the votes cast.
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Your attention is directed to the accompanying Proxy Statement.
Stockholders who do not expect to attend the Annual Meeting in person are
requested to date, sign and mail the enclosed proxy as promptly as possible in
the enclosed envelope.
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
        <TD width="35%">&nbsp;</TD>
        <TD width="15%">&nbsp;</TD>
        <TD width="50%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">DATED: May&nbsp;8, 2002</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
BY ORDER OF THE BOARD OF DIRECTORS</FONT></TD>
</TR>
<TR><TD>&nbsp;</TD></TR>

<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
HENRY R. MANDELL<BR>
Chairman of the Board and<BR>
Chief Executive Officer</FONT></TD>
</TR>
</TABLE>
</CENTER>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;THE BOARD HAS APPROVED AND RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
DIRECTOR NOMINATED BY THE BOARD.
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IT IS IMPORTANT THAT ALL STOCKHOLDERS VOTE. WE URGE YOU TO SIGN AND RETURN
THE ENCLOSED PROXY WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING. THE
PROXY MAY BE REVOKED AT ANY TIME PRIOR TO ITS EXERCISE. IN ORDER TO FACILITATE
THE PROVIDING OF ADEQUATE ACCOMMODATIONS, PLEASE INDICATE ON THE PROXY WHETHER
YOU PLAN TO ATTEND THE ANNUAL MEETING.
</FONT>

<P align="center"><FONT size="2">&nbsp;
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="center"><FONT size="2">PROXY STATEMENT</FONT>

<P>
<HR width="26%" align="center" size="1" noshade>
<P>


<P align="center"><FONT size="2">ANNUAL MEETING OF STOCKHOLDERS<BR>
JUNE 14, 2002</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The accompanying proxy is solicited by the Board of Directors of
Spatializer Audio Laboratories, Inc. (the &#147;Company&#148;) for use at the Annual
Meeting of Stockholders of the Company to be held on Friday, June&nbsp;14, 2002 at
2:30 p.m., at the Hilton Woodland Hills, located at 6360 Canoga Avenue in
Woodland Hills, California 91367, and at any adjournments or postponements of
the Annual Meeting. This proxy statement and accompanying proxy will be mailed
beginning on or about May&nbsp;8, 2002, to give holders of record of the Company&#146;s Common Stock on May&nbsp;6, 2002, the
Record Date, an opportunity to vote at the Annual
Meeting.
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
   <TD width="1%" align="right" nowrap><FONT size="2">&nbsp;</FONT></TD>
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;</FONT></TD>
   <TD width="97%"><FONT size="2">To elect one Director of the Company to serve until the Annual
Meeting of Stockholders to be held in 2005; and</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
   <TD width="1%" align="right" nowrap><FONT size="2">&nbsp;</FONT></TD>
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;</FONT></TD>
   <TD width="97%"><FONT size="2">To act upon other matters that may properly come before the meeting.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">VOTING</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In voting, please specify your choices by marking the appropriate spaces on
the enclosed proxy, signing and dating the proxy and returning it in the
accompanying envelope. If no directions are given and the signed proxy is
returned, the proxy holders will vote the shares in favor of the nominee for
Director at their discretion on any other matters that may properly come before
the Annual Meeting. In situations where brokers are prohibited from exercising
discretionary authority for beneficial owners who have not returned proxies to
the brokers (so-called &#147;broker non-votes&#148;), the affected shares will be counted
for purposes of determining the presence or absence of a quorum for the
transaction of business but will not be included in the vote totals. Therefore,
a failure by a stockholder to return a proxy and indicate their vote concerning
the Director will, in effect, be treated as a non-vote, since shares cannot be
counted as a &#147;FOR&#148; vote if a proxy is not returned.
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;THE BOARD OF DIRECTORS RECOMMENDS VOTING &#147;FOR&#148; THE ELECTION OF THE ONE
PERSON NOMINATED AS A DIRECTOR OF THE COMPANY.
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A STOCKHOLDER HAS THE RIGHT TO APPOINT A PERSON (WHO NEED NOT BE A
STOCKHOLDER) TO ATTEND AND ACT FOR HIM AND ON HIS BEHALF AT THE MEETING OTHER
THAN THE PERSONS DESIGNATED IN THE ACCOMPANYING FORM OF PROXY. TO EXERCISE THIS
RIGHT, THE STOCKHOLDER MAY INSERT THE NAME OF THE DESIRED PERSON IN THE BLANK
SPACE PROVIDED IN THE PROXY AND STRIKE OUT THE OTHER NAMES OR MAY SUBMIT ANOTHER
PROXY.
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;THE SHARES REPRESENTED BY PROXIES IN FAVOR OF MANAGEMENT WILL BE VOTED ON
ANY BALLOT (SUBJECT TO ANY RESTRICTIONS THEY MAY CONTAIN) IN FAVOR OF THE
MATTERS DESCRIBED IN THE PROXY.
</FONT>

<P align="left"><FONT size="2">REVOCABILITY OF PROXIES</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any stockholder giving a proxy has the power to revoke it at any time
before the proxy is voted. In addition to revocation in any other manner
permitted by law, a proxy may be revoked by instrument in writing executed by
the stockholder or by his attorney authorized in writing, or, if the stockholder
is a corporation, under its corporate seal or by an officer or attorney thereof
duly authorized, and deposited at the corporate offices of the Company located
at 900 Lafayette Street, Suite&nbsp;710, Santa Clara, California 95050, or at
Computershare Investor Services, 2 North LaSalle Street, Chicago, IL 60690-1689
(&#147;The Transfer Agent&#148;) at any time and up to and including the last business day
preceding the day of the meeting, or any adjournment thereof, or with the
chairman of the meeting on the day of the meeting. Attendance at the Annual
Meeting will not in and of itself constitute revocation of a proxy.
</FONT>

<P align="center"><FONT size="2">&nbsp;
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="left"><FONT size="2">OUTSTANDING STOCK</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Holders of record of Common Stock at the close of business on May&nbsp;6, 2002,
the Record Date, will be entitled to receive notice of and vote at the meeting.
Currently, the Company is authorized to issue 65,000,000 shares of Common Stock
and 1,000,000 shares of Preferred Stock, par value of $.01 US per share
(&#147;Preferred Stock&#148;). On the Record Date, there were 47,406,939 shares of Common
Stock and 87,967 shares of Preferred Stock issued and outstanding. The holders
of Common Stock are entitled to one (1)&nbsp;vote for each share held.
</FONT>

<P align="left"><FONT size="2">SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth information (except as otherwise indicated
by footnote) as to shares of Common Stock owned as of May&nbsp;6, 2002 or which can
be acquired in sixty days, by (i)&nbsp;each person known by management to
beneficially own more than five percent (5%) of the Company&#146;s outstanding Common
Stock, (ii)&nbsp;each of the Company&#146;s Directors, and officers, (iii)&nbsp;all executive
officers and Directors as a group. On May&nbsp;6, 2002 there were 47,406,939 shares
of Common Stock outstanding.
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="85%">
<TR valign="bottom">
        <TD width="74%">&nbsp;</TD>
        <TD width="5%">&nbsp;&nbsp;&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="6%">&nbsp;</TD>
        <TD width="5%">&nbsp;&nbsp;&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="2%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">AMOUNT AND NATURE OF</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">PERCENT OF</FONT></TD>
</TR>
<TR valign="bottom">
        <TD nowrap align="center"><FONT size="1">NAME AND ADDRESS OF BENEFICIAL OWNER(1)</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">BENEFICIAL OWNERSHIP</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">CLASS</FONT></TD>
</TR>
<TR valign="bottom">
        <TD nowrap align="center"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">DIRECTORS AND OFFICERS</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Carlo Civelli(2)(3)</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">3,920,958</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">8.2</FONT></TD>
        <TD nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Stephen W. Desper(3)</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">1,195,202</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">2.5</FONT></TD>
        <TD nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Henry Mandell(3)(4)</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">2,156,572</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">4.5</FONT></TD>
        <TD nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">James D. Pace(3)</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">291,967</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">*</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Gilbert N. Segel(3)</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">155,000</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">*</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">All directors and executive officers as a group
(6 persons)(3)</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">7,719,699</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">16.3</FONT></TD>
        <TD nowrap><FONT size="2">%</FONT></TD>
</TR>
</TABLE>
</CENTER>

<P>
<HR size="1" width="18%" align="left" noshade>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
      <TD width="1%" align="left" nowrap><FONT size="2">*</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="96%"><FONT size="2">Indicates that the percentage of shares beneficially owned does not exceed
one percent (1%) of the class.</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="top">
      <TD width="1%" align="left" nowrap><FONT size="2">(1)</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="96%"><FONT size="2">Each of the Directors and officers named can be reached at the Company&#146;s
corporate offices located at 900 Lafayette Street, Suite&nbsp;710, Santa Clara,
California 95050, except for Carlo Civelli, whose address is Gerberstrasse
5, 8023 Zurich, Switzerland. The persons named in the table have sole voting
and investment power with respect to all shares shown to be beneficially
owned by them, subject to community property laws, where applicable, and the
information contained in the footnotes to this table.</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="top">
      <TD width="1%" align="left" nowrap><FONT size="2">(2)</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="96%"><FONT size="2">Carlo Civelli controls Clarion Finanz AG, a non-reporting investment
company. Holdings of Mr.&nbsp;Civelli and Clarion Finanz AG are combined, and
include all shares of the Company held of record or beneficially by them,
and all additional shares over which he either currently exercises full or
partial control, without duplication through attribution.</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="top">
      <TD width="1%" align="left" nowrap><FONT size="2">(3)</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="96%"><FONT size="2">Includes an aggregate of 1,320,210 performance shares held in escrow as of
May&nbsp;6, 2002, as follows: Carlo Civelli, 417,264 shares; Stephen W. Desper,
578,903 shares; Gilbert N. Segel 33,000; James D. Pace 38,099 and Henry
Mandell 252,944. Includes 50,000 vested options granted to each Director on
May&nbsp;25, 2001, and exercisable at $0.30 per share and 50,000 vested options
exercisable at $0.11 per share and granted to Gilbert N. Segel effective
January&nbsp;2, 2002 to correct an ongoing inequity in his grants because of the
timing of his election to the Board.</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="top">
      <TD width="1%" align="left" nowrap><FONT size="2">(4)</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="96%"><FONT size="2">Includes 1,300,000 options held by Mr.&nbsp;Mandell of which 800,000 are
vested and are exercisable at various prices from $.125 to $0.55 and
500,000 options reserved in January 2002 for grant at the 2002 Annual
Meeting and exercisable at the market price on that date. The options
have varying expiration dates of which the final such expiration date
will be June&nbsp;13, 2007.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">2
</FONT>

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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>



<P align="left"><FONT size="2">SOLICITATION</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company will bear the entire cost of the solicitation of proxies,
including preparation, assembly and mailing of this proxy statement, the proxy
and any additional material furnished to stockholders. Proxies may be solicited
by Directors, officers and a small number of regular employees of the Company
personally or by mail, telephone or telegraph, but such persons will not be
specially compensated for such services. Copies of solicitation material will be
furnished to brokerage houses, fiduciaries and custodians which hold shares of
Common Stock of record for beneficial owners for forwarding to such beneficial
owners. The Company may reimburse persons representing beneficial owners for
their costs of forwarding the solicitation material to such owners.
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;YOUR VOTE IS IMPORTANT. PLEASE RETURN YOUR MARKED PROXY PROMPTLY SO YOUR
SHARES CAN BE REPRESENTED, EVEN IF YOU PLAN TO ATTEND THE ANNUAL MEETING IN
PERSON.
</FONT>

<P align="left"><FONT size="2">NOMINATION AND ELECTION OF DIRECTOR</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At this Annual Meeting, management intends to nominate Mr.&nbsp;Civelli for a
three year term expiring in 2005. The current Bylaws of the Company provide for
a Board of Directors of no less than three to be categorized into three classes,
Directors in each class being elected to serve for three years and requiring
that the classes be allocated in as equal a number as possible. The Company
currently has five Directors, none of whose term currently expires in 2002. To
equalize the classes, as provided for in the Company&#146;s Bylaws, Carlo Civelli has
consented to be nominated for a three year term expiring in 2005, even though
his current term does not expire until 2003. In the event that a quorum is not
present at the meeting, Mr.&nbsp;Civelli&#146;s term will continue until 2003. Assuming
Mr.&nbsp;Civelli is re-elected, the Board will consist of five directors with the
terms of two directors expiring in each of 2003 and 2004 and Mr.&nbsp;Civelli, with a
term expiring in 2005.
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each of the elected Directors will continue in office until such
Director&#146;s successor is elected and has been qualified, or until such Director&#146;s
earlier death, resignation or removal. The Bylaws state that in any election of
more than one Director, the persons receiving a plurality of the votes cast, up
to the number of Directors to be elected in such election, shall be deemed to be
elected. Since only one Director is being elected this year, he will need to
receive a majority of the votes cast to be elected. Shares represented by
proxies marked &#147;withhold authority&#148; for the nominee will be counted as a
negative vote.
</FONT>

<P align="center"><FONT size="2">3
</FONT>

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<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;THE BOARD OF DIRECTORS RECOMMENDS A VOTE &#147;FOR&#148; MR. CIVELLI.
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth certain information with respect to the
Directors and executive officers of the Company as of May&nbsp;6, 2002. As described
above, Carlo Civelli, whose term ends in 2003, is to be considered for election
to the Board of Directors with a term expiring in 2005. In the event that a
quorum is not present at the meeting, Mr.&nbsp;Civelli&#146;s term will continue until
2003.
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="85%">
<TR valign="bottom">
        <TD width="44%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="43%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD nowrap align="center"><FONT size="1">NAME</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">AGE</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center"><FONT size="1">POSITION</FONT></TD>
</TR>
<TR valign="bottom">
        <TD nowrap align="center"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">Carlo Civelli</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right" valign="top"><FONT size="2">
53
</FONT></TD>
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">Director &#151; 3/93 to date.
Vice President Finance, Europe &#151; 8/91 to 3/95.
Member of Audit Committee.</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>

<TR valign="bottom">
        <TD valign="top"><FONT size="2">DIRECTORS WITH TERMS ENDING 2003:</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">Stephen W. Desper</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right" valign="top"><FONT size="2">
59
</FONT></TD>
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">Director &#151; 7/92 to date.
Chairman of the Board &#151; 7/92 to 12/95.
Vice Chairman of the Board &#151; 12/95 to date.
Member of Audit Committee.</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">Henry R. Mandell</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right" valign="top"><FONT size="2">
45
</FONT></TD>
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">Chairman of the Board and Chief Executive
Officer &#151; 2/00 to date, Secretary &#151; 9/98 to date.
Chief Financial Officer &#151; 3/98 to date.</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">DIRECTORS WITH TERMS ENDING IN 2004:</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">James D. Pace</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right" valign="top"><FONT size="2">
46
</FONT></TD>
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">Director &#151; 2/95 to date.
Member of Compensation Committee
&#151; 2/95 to date.</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">Gilbert N. Segel</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right" valign="top"><FONT size="2">
69
</FONT></TD>
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">Director &#151; 5/95 to date.
Member of Audit and Compensation
Committee &#151; 5/95 to date.</FONT></TD>
</TR>
</TABLE>
</CENTER>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;CARLO CIVELLI. Director since March 1993. VP Finance &#151; Europe from August
1991 to March 1995. Has extensive experience in financing emerging public
companies. Managing director of Clarion Finanz AG, Zurich, Switzerland, for more
than the last five years. Director and Financial Consultant to Clarion Finanz
AG.
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;STEPHEN W. DESPER. Vice Chairman of the Board, Inventor. Mr.&nbsp;Desper devoted
his full time for a number of years to developing and refining Spatializer&#174;
technology. Recording engineer, over twenty (20)&nbsp;years experience; Director of
Engineering for The Beach Boys Organization. Acoustician, Acoustic Design and
Noise Control Engineer. December, 1991 to December, 1995, Chairman of
Spatializer Audio Laboratories, Inc. Since December, 1995 Vice Chairman of
Spatializer Audio Laboratories, Inc. Inventor and President of Desper Products;
Inc. (&#147;DPI&#148;) from June 1986 to October, 1991. Vice President and Director of
Research, DPI from October 1991 to December 1996.
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;HENRY R. MANDELL. Chairman and Chief Executive Officer since February 2000.
Interim Chief Executive Office from September 1998 to February 2000. Secretary
since September 1998; Chief Financial Officer since March 1998; Senior Vice
President, Finance from March 1998 until September 1998. Executive Vice
President and Chief Financial Officer of The Sirena Apparel Group, Inc. from
November 1990 to January, 1998 (The Sirena Apparel Group filed for protection
under Chapter&nbsp;11 of the Bankruptcy Code in June of 1999). Senior Vice President
of Finance and Administration for Media Home Entertainment, Inc. from April 1985
to November 1990. Director of Finance and Accounting for Oak Media Corporation
from June 1982 to April 1985. Senior Corporate Auditor for Twentieth Century Fox
Film Corporation from June 1981 to June 1982. Mr.&nbsp;Mandell was a Senior Auditor
for Arthur Young and Company from August 1978 to June 1981, where he qualified
as a Certified Public Accountant.
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;JAMES D. PACE. Director since February 1995. Director of DPI since July
1992. For more than the last seventeen years, Mr.&nbsp;Pace has specialized in the
introduction and distribution of new technologies into the professional
recording and film industries. He has broad experience in various audio
industries, including audio for DVD.
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;GILBERT N. SEGEL. Director since May 1995. Mr.&nbsp;Segel has spent more than
thirty (30)&nbsp;years as an independent business manager representing musical
artists, film actors and entertainment industry entrepre-
</FONT>

<P align="center"><FONT size="2">4
</FONT>

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<P><FONT size="2">neurs. Since 1985, he has concentrated on his personal investments and serves as
a director of various private business and charitable enterprises.
</FONT>

<P align="left"><FONT size="2">RESIGNATIONS OF CERTAIN DIRECTORS</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None.
</FONT>

<P align="left"><FONT size="2">COMPENSATION OF DIRECTORS</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None of the Company&#146;s Directors received any cash compensation or other
arrangements for services provided in their capacity as Directors. However, the
Company has granted stock options to Directors in that capacity. Under the 1995
Stock Option Plan, each Director who is not an employee of the Company is
entitled to an automatic annual grant of an option to purchase 50,000 shares of
Common Stock which are granted as options and are available for grant under the
1995 Stock Option Plan (&#147;Plan&#148;). Employee Directors may receive such a grant at
the discretion of the Board of Directors. In accordance with the Plan, the
Company issued such options to its employee and non-employee directors on May
25, 2001 at an exercise price of $0.30. In January 2002, Gilbert Segel was
issued an additional 50,000 vested options exercisable at $0.11&nbsp;to correct a
continuing inequity which arose several years ago because of the timing of his
election to the Board of Directors.
</FONT>

<P align="left"><FONT size="2">ACTIVITIES OF THE BOARD OF DIRECTORS AND ITS COMMITTEES</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Members of the Board of Directors are elected by the holders of the Common
Stock of the Company and represent the interests of all stockholders. The Board
of Directors meets periodically to review significant developments affecting the
Company and to act on matters requiring Board approval. Although the Board of
Directors delegates many matters to others, it reserves certain powers and
functions to itself.
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During 2001, the Board of Directors of the Company, which consisted of
five (5)&nbsp;members, had four formal meetings and took various actions by written
consent. Except for Carlo Civelli (who missed one meeting), all incumbent
Directors of the Company were present, in person or by teleconference at, or
participated in taking actions for, one hundred percent (100%) of the meetings
of the Board of Directors of the Company and the Committees on which he served.
</FONT>

<P align="left"><FONT size="2">COMMITTEES OF THE BOARD OF DIRECTORS</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of May&nbsp;6,
2002, standing committees of the Board of Directors of the
Company included an Audit Committee and a Compensation and Stock Option
Committee.
</FONT>

<P align="left"><FONT size="2">AUDIT COMMITTEE</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Audit Committee of the Company&#146;s Board of Directors consisted of
Messrs.&nbsp;Segel, Civelli and Desper, all of whom are non-employee Directors. Mr.
Mandell also participates as an ex-officio member. Messrs.&nbsp;Segel and Civelli are
non-employee Directors of the Company. This committee is directed to review the
scope, cost and results of the independent audit of the Company&#146;s books and
records, the results of the annual audit with Management and the internal
auditors and the adequacy of the Company&#146;s accounting, financial, and operating
controls; to recommend annually to the Board of Directors the selection of the
independent auditors; to consider proposals made by the Company&#146;s independent
auditors for consulting work; and to report to the Board of Directors, when so
requested, on any accounting or financial matters. The Audit Committee of the
Board of Directors held one meeting during fiscal 2001.
</FONT>

<P align="left"><FONT size="2">COMPENSATION AND STOCK COMMITTEE</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Compensation and Stock Option Committee of the Company (the
&#147;Compensation Committee&#148;) currently consists of Messrs.&nbsp;Pace and Segel, each of
whom is a non-employee Director of the Company and a &#147;disinterested person&#148; with
respect to the plans administered by such committee, as such term is defined in
Rule&nbsp;16b-3 adopted under the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder (collectively, the &#147;Exchange Act&#148;). The
Compensation Committee reviews and approves annual salaries, bonuses and other
forms and items of compensation for senior officers and employees of the
Company. Except for plans that are, in accordance with their terms or as
required by law, administered by the Board of Directors or another particularly
designated group, the Compensation Committee also administers and implements all
of the Company&#146;s stock option and other stock-based and equity-based benefit
plans.
</FONT>

<P align="center"><FONT size="2">5
</FONT>

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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P><FONT size="2">(including performance-based plans), recommends changes or additions to those
plans, and reports to the Board of Directors on compensation matters. The
Compensation Committee held 2 meetings in 2001. To the extent required by law, a
separate committee of disinterested parties administers the 1996 Incentive Plan.
No Compensation Committee interlock relationships existed in 2001.
</FONT>

<!-- link1 "REPORT OF COMPENSATION COMMITTEE" -->
<DIV align="left"><A NAME="001"></A></DIV>
<P align="center"><FONT size="2">REPORT OF COMPENSATION COMMITTEE</FONT>

<P align="left"><FONT size="2">GENERAL</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s Compensation Committee is responsible for formulating and
overseeing the general executive and employee compensation policies for the
Company. Its responsibilities include determination of the compensation of
senior executive officers and administration of the annual and long-term
incentive plans and stock option plans of the Company unless such plans, in
accordance with their terms, are administered by the Board of Directors or
another particularly designated group. Specific decisions relating to
compensation earned by or awarded to the senior officers of the Company,
including the Chief Executive Officer and the other four highest paid executive
officers (collectively, the &#147;Named Executive Officers&#148;), are governed by the
Compensation Committee. The Compensation Committee was formed in June 1995.
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Compensation Committee has adopted the following policy framework on
which it intends to base the Company&#146;s compensation program and its decisions:
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
   <TD width="1%" align="left"><FONT size="2">&#149;</FONT></TD>
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;</FONT></TD>
   <TD width="97%"><FONT size="2">Efforts should be made to achieve base salaries for the senior executives
which are competitive with compensation at the Company&#146;s peer group of
companies, not withstanding the significantly larger revenues at many of
the entities in the peer group.</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
   <TD width="1%" align="left"><FONT size="2">&#149;</FONT></TD>
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;</FONT></TD>
   <TD width="97%"><FONT size="2">Annual incentives should consider Company performance and individual
contribution. Efforts should be made to establish parity among
individuals with similar responsibilities and performance.</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
   <TD width="1%" align="left"><FONT size="2">&#149;</FONT></TD>
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;</FONT></TD>
   <TD width="97%"><FONT size="2">The long-term incentive program should be performance-based and emphasize
stock options to ensure that long-term compensation primarily depends on
increases in stock price. Other awards, including restricted stock,
performance units or a combination, may be utilized to provide incentives
that might otherwise be reflected in stock option grants.</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
   <TD width="1%" align="left"><FONT size="2">&#149;</FONT></TD>
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;</FONT></TD>
   <TD width="97%"><FONT size="2">Stock option grants (or other performance-based long-term incentives that
may be awarded in the future) should be competitive with peer practices
to allow the Company to attract and retain senior personnel and to
reflect the Company&#146;s operating growth and performance.</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
   <TD width="1%" align="left"><FONT size="2">&#149;</FONT></TD>
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;</FONT></TD>
   <TD width="97%"><FONT size="2">The relative mix of annual and long-term incentives should reflect levels
within the organization, so that senior executives receive a greater
proportion of long-term incentives and others receive compensation that
emphasizes annual compensation and incentives.</FONT></TD>
</TR>
</TABLE>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To implement these policies, the Compensation Committee will take into
account current market data and compensation trends for similar enterprises,
compare corporate performance of the Company to the performance of a selected
peer group, gauge achievement of corporate and individual objectives and
consider the overall effectiveness of the Company&#146;s compensation programs.
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December 1995, to assist in formulating its operating framework, the
Compensation Committee engaged an independent executive compensation consultant
to assess the current competitive position of the Company&#146;s executive
compensation program and to assist the Company in implementing an ongoing long-
term incentive program. Given the Company&#146;s reduced operations and financial
constraints, no independent adviser was engaged during 2001 or 2000. However,
the Compensation Committee has continued to consider comparisons of current
compensation levels at the Company with other small capital publicly traded
companies. In addition, broader published compensation surveys of compensation
levels for executives holding similar positions at comparable industrial
entities or organizations were used to establish competitive norms. These
assessments indicated that actual cash compensation (salary plus annual
incentives) of the Named Executive Officers were below total cash compensation
levels of the peer group.
</FONT>

<P align="center"><FONT size="2">6
</FONT>

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<P align="left"><FONT size="2">ANNUAL COMPENSATION</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Compensation Committee annually reviews base salary levels of
executives and employees annually, subject to any provisions or limitations
included in their Employment Agreements and in the context of the above
policies. The Omnibus Budget Reconciliation Act of 1993 added Section&nbsp;162(m) to
the Code. Section&nbsp;162(m) creates a new limit on the deductibility of
compensation paid to certain officers. With respect to the Company, the covered
officers are the Chief Executive Officer and the next four most highly
compensated persons in office at the end of the year. Compensation paid to these
officers in excess of $1,000,000 per person, that is not performance-based,
cannot be claimed by the Company as a tax deduction. It is the Compensation
Committee&#146;s intention to continue to utilize performance-based compensation and
to conform such compensation to these limits.
</FONT>

<P align="left"><FONT size="2">CEO COMPENSATION</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The 2001 compensation for Henry R. Mandell, as CEO of the Company, was
determined in accordance with his employment contract entered into in November
1999 and the guidelines discussed above. Based on the performance of the Company
and the compensation of the CEOs at several peer companies, he was paid a base
salary of $210,000 in 2001. In December 2000, Mr.&nbsp;Mandell renounced his interest
in the 168,628 performance shares released from escrow in June 2000 and, in lieu
thereof, in January 2001 he was granted options to acquire 250,000 shares
exercisable at $0.22 per share. In 2001, Mr.&nbsp;Mandell renounced
all interest in the
252,944 performance shares distributed out of escrow in June 2001 and declined
the options granted in January 2001. The options were returned to the Plan and
the performance shares were retained in escrow, available for later grant or
retirement. In partial consideration for a one year extension to his employment
agreement, negotiated in December 2001 and effective April&nbsp;12, 2002, and the
earlier return of the performance shares and the January 2001 options, Mr.
Mandell was reallocated on the effective date of the amendment to his employment
agreement, 425,000 fully vested performance shares, all of which are treated as
released from escrow. In November 2001, Mr.&nbsp;Mandell was eligible for a salary
increase under the terms of his employment agreement.
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As noted above, the Compensation Committee and Board of Directors, in
view of Mr.&nbsp;Mandell&#146;s contributions to the Company, negotiated a one year
extension to his employment agreement, a cost of living increase in his base
salary to $214,200, a grant of an option to acquire 500,000 shares of Common
Stock at the exercise price in effect at the 2002 Annual Meeting of Stockholders
(granted to replace options to acquire 500,000 shares declined by Mr.&nbsp;Mandell)
and an extension from six months to one year of the severance payments payable
under the employment agreement in the event of a change of control transaction .
See &#147;Executive Compensation&#148;.
</FONT>

<P align="left"><FONT size="2">CONCLUSION</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Compensation Committee believes that the policies and concepts
discussed above will be an effective strategy since a significant portion of
compensation to the Named Executive Officers will be based on the operating
results of the Company, the commensurate results for its stockholders, and the
need to attract and retain senior management, technical and operating personnel
as the Company matures and technology and market conditions change and evolve.
At the same time, it is intended that the policies will encourage responsible
management for both long-term and short-term results and will further the
interests of the Company&#146;s stockholders. In implementing its policies, the
Compensation Committee intends to base its review on the experience of its
members, on Company and management information, and on discussions with and
information compiled by various independent compensation consultants and other
appropriate sources.
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
        <TD width="50%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="50%"><FONT size="2">Submitted by the Compensation Committee<BR>
of the Company&#146;s Board of Directors,</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
        <TD width="50%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="50%"><FONT size="2">James D. Pace<BR>
Gilbert N. Segel</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">7
</FONT>

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<!-- link1 "PERFORMANCE GRAPH OF COMPANY STOCK" -->
<DIV align="left"><A NAME="002"></A></DIV>

<P align="left"><FONT size="2">PERFORMANCE GRAPH OF COMPANY STOCK</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following Performance Graph reflects a comparison of the performance of
the Company&#146;s Common Stock to the common stock of other peer group companies and
to the NASDAQ Market Index:
</FONT>

<P align="center"><FONT size="2">COMPARE CUMULATIVE TOTAL RETURN<BR>
AMONG SPATIALIZER AUDIO LABORATORIES, INC.,<BR>
NASDAQ MARKET INDEX AND PEER GROUP INDEX</FONT>


<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="90%">
<TR valign="bottom">
        <TD width="34%">&nbsp;</TD>
        <TD width="3%">&nbsp;&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="23"><FONT size="1">FISCAL YEAR ENDED</FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="23"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
        <TD nowrap align="left"><FONT size="1">COMPANY/INDEX/MARKET</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">12/31/96</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">12/31/97</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">12/31/98</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">12/31/99</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">12/31/00</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">12/29/01</FONT></TD>
</TR>
<TR valign="bottom">
        <TD nowrap align="center"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Spatializer Audio
Laboratories</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">100.00</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">41.38</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">3.44</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">2.82</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">0.70</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">0.35</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Customer Selected
Stock List</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">100.00</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">108.18</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">93.07</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">101.55</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">124.63</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">138.53</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">NASDAQ Market Index</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">100.00</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">122.32</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">172.52</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">304.29</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">191.25</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">152.46</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The peer group, for purposes of the above graph, consists of other
comparable technology companies. The peer group was expanded in 1996 to include
a competitor in the advanced audio technology industry that went public during
1996.
</FONT>

<!-- link1 "INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS" -->
<DIV align="left"><A NAME="003"></A></DIV>
<P align="left"><FONT size="2">INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s Certificate of Incorporation and its Amended and Restated
Bylaws provide that the Company will indemnify any officer or Director of the
Company who is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, against expenses (including, but not limited to, attorneys&#146; fees)
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding to the fullest extent
and in the manner set forth in and permitted by Delaware law and any other
applicable law as from time to time in effect.
</FONT>

<P align="center"><FONT size="2">8
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<!-- link1 "EXECUTIVE COMPENSATION" -->
<DIV align="left"><A NAME="004"></A></DIV>

<P align="left"><FONT size="2">EXECUTIVE COMPENSATION</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth separately, for the last three complete
fiscal years, each component of compensation paid or awarded to, or earned by,
Henry R. Mandell as the Chief Executive Officer of the Company. There were no
other executive officers who were serving as executive officers at December&nbsp;31,
2001 who had annual income of at least $100,000.
</FONT>

<P align="center"><FONT size="2">SUMMARY COMPENSATION TABLE</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="95%">
<TR valign="bottom">
        <TD width="31%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="2%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="4%">&nbsp;&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="7%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="7%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
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        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="11"><FONT size="1">LONG TERM COMPENSATION</FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
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        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="11"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="7"><FONT size="1">AWARDS</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">PAYOUTS</FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
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        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="7"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
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        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">SECURITIES</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
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        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">UNDER</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="11"><FONT size="1">ANNUAL COMPENSATION</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">OPTIONS/</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">RESTRICTED</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="11"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">SARS</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">STOCK AWARDS</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">LTIP</FONT></TD>
</TR>
<TR valign="bottom">
        <TD nowrap align="center"><FONT size="1">NAME AND PRINCIPAL POSITION</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">YEAR</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">SALARY</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">BONUS</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">OTHER</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">GRANTED(#)</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">($)</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">PAYOUTS</FONT></TD>
</TR>
<TR valign="bottom">
        <TD nowrap align="center"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="1">Henry R. Mandell(1)</FONT></DIV></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="1">12/01</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="1">$</FONT></TD>
        <TD align="right"><FONT size="1">210,000</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="1">$</FONT></TD>
        <TD align="right"><FONT size="1">&#151;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="1">$</FONT></TD>
        <TD align="right"><FONT size="1">&#151;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="1">Chief Executive Officer</FONT></DIV></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="1">12/00</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="1">$</FONT></TD>
        <TD align="right"><FONT size="1">200,000</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="1">$</FONT></TD>
        <TD align="right"><FONT size="1">20,000</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="1">$</FONT></TD>
        <TD align="right"><FONT size="1">9,000</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="top">
        <TD>&nbsp;</TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="1">12/99</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="1">$</FONT></TD>
        <TD align="right"><FONT size="1">175,000</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="1">$</FONT></TD>
        <TD align="right"><FONT size="1">&#151;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="1">$</FONT></TD>
        <TD align="right"><FONT size="1">34,000</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="1">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="1">1,300,000</FONT></TD>
        <TD nowrap><FONT size="1">(1)</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="1">N/A</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="1">N/A</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>

<P>
<HR size="1" width="18%" align="left" noshade>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
      <TD width="1%" align="left" nowrap><FONT size="2">(1)</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="96%"><FONT size="2">Mr.&nbsp;Mandell became an employee of the Company in March 1998. He became
Interim Chief Executive Officer of the Company on September&nbsp;25, 1998,
concurrent with the effective date of Mr.&nbsp;Gershick&#146;s resignation as
President and Chief Executive Officer. He became Chairman and Chief
Executive Officer in February 2000, with his base salary in 2000 set at
$200,000 and an entitlement to a bonus, as granted by the Compensation
Committee equal to 5% of the Company&#146;s income after taxes (not to exceed
$100,000). Of the 1,300,000 options shown above: 50,000 were granted in
2001 to Mr.&nbsp;Mandell in his capacity as a director; 500,000 granted prior
to the date of his employment contract were treated as having been fully
vested at November&nbsp;12, 1999 and at that time he was granted options to
acquire 750,000 additional shares (250,000 shares exercisable at $.50 and
immediately vested; 250,000 shares exercisable at $.55 to vest on
November&nbsp;12, 2000; and 250,000 shares exercisable at $.75 to vest on
November&nbsp;12, 2001). In addition, the 168,628 performance shares held by
Mr.&nbsp;Gershick directly and the 674,516 performance shares were reallocated
to Mr.&nbsp;Mandell in 1999. During 2000 he renounced ownership in 168,628 performance
shares which were released on 2000 and in lieu thereof in January 2001 he
was granted vested options to acquire 250,000 shares at an exercise price
of $0.22 per share. In connection with the negotiation of the one year extension to
his employment agreement which became effective on April&nbsp;12, 2002, he
declined the January 2001 options as well as the 252,944 performance
shares released from escrow in 2001, the 250,000 options exercisable at
$0.75 a share and the 250,000 options exercisable at $1.00 (granted prior
to the date on which he became CEO). In lieu thereof, he was reallocated
425,000 previously released performance shares and was granted 500,000
options to be priced at the market price on the date of the 2002 Annual
Meeting and premised on him being an employee on that date.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">OPTION/STOCK APPRECIATION RIGHT (&#147;SAR&#148;) GRANTS DURING THE<BR>
MOST RECENTLY COMPLETED FINANCIAL YEAR</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table presented in accordance with the Securities Exchange
Act of 1934, as amended (&#147;the Exchange Act&#148;) and the Regulations thereunder sets
forth stock options granted under the Company&#146;s Stock Option Plan (&#147;the Stock
Option Plan&#148;) during the most recently completed financial year to each of the
Named Executive Officers:
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="90%">
<TR valign="bottom">
        <TD width="31%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="2%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="2%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="2%">&nbsp;&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="2%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
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        <TD width="3%">&nbsp;</TD>
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        <TD width="3%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
</TR>
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        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
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        <TD><FONT size="1">&nbsp;</FONT></TD>
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        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">ALTERNATIVE</FONT></TD>
</TR>
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        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
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        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">TO</FONT></TD>
</TR>
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        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
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        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">REALIZABLE</FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">VALUE</FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">GRANT</FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">VALUE</FONT></TD>
</TR>
<TR valign="bottom">
        <TD nowrap align="center" colspan="21"><FONT size="1">INDIVIDUAL GRANTS</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">DATE</FONT></TD>
</TR>
<TR valign="bottom">
        <TD colspan="21"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">MARKET VALUE</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="7"><FONT size="1">POTENTIAL REALIZABLE</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">OF</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="7"><FONT size="1">VALUE AT ASSUMED</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">% OF TOTAL</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">SECURITIES</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="7"><FONT size="1">ANNUAL RATES OF</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">SECURITIES</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">OPTIONS/</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">UNDERLYING</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="7"><FONT size="1">STOCK PRICE</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">UNDER</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">SARS</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">OPTIONS/</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="7"><FONT size="1">APPRECIATION FOR</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">GRANT</FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">OPTIONS/</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">GRANTED TO</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">EXERCISE OR</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">SARS ON DATE</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="7"><FONT size="1">OPTION TERM</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">DATE</FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">SARS</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">EMPLOYEES IN</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">BASE PRICE</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">OF GRANT</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">EXPIRATION</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="7"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">PRESENT</FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">GRANTED</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">FISCAL YEAR</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">($/SECURITY)</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">($/SECURITY)</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">DATE</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">5%($)</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">10%($)</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">VALUE $</FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="1">Henry Mandell</FONT></DIV></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="1">50,000</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="1">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="1">100.0</FONT></TD>
        <TD nowrap><FONT size="1">%</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="1">$</FONT></TD>
        <TD align="right"><FONT size="1">0.30</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="1">$</FONT></TD>
        <TD align="right"><FONT size="1">0.30</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3" align="center"><FONT size="1">May 2006</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="1">N/A</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="1">N/A</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="1">N/A</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="1">All Other Directors</FONT></DIV></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="1">200,000</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="1">N/A</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="1">$</FONT></TD>
        <TD align="right"><FONT size="1">0.30</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="1">$</FONT></TD>
        <TD align="right"><FONT size="1">0.30</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3" align="center"><FONT size="1">May 2006</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="1">N/A</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="1">N/A</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="1">N/A</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>

<P align="center"><FONT size="2">9
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="center"><FONT size="2">AGGREGATED OPTIONS/SAR EXERCISES IN LAST FINANCIAL YEAR<BR>
AND FINANCIAL YEAR-END OPTION/SAR VALUES</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table (presented in accordance with the Exchange Act and the
Regulations) sets forth details of all exercises of stock options/SARs granted
during the year ended December&nbsp;31,2001 by each of the Named Executive Officers
and the financial year-end value of unexercised options/SARs on an aggregated
basis:
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="85%">
<TR valign="bottom">
        <TD width="61%">&nbsp;</TD>
        <TD width="5%">&nbsp;&nbsp;&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="5%">&nbsp;&nbsp;&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="5%">&nbsp;&nbsp;&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="5%">&nbsp;&nbsp;&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="2%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">SECURITIES</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">UNEXERCISED</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">VALUE OF UNEXERCISED IN-THE-MONEY</FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">ACQUIRED ON</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">AGGREGATE</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">OPTIONS/SARS AT</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">OPTIONS/SARS AT FISCAL YEAR-END($)</FONT></TD>
</TR>
<TR valign="bottom">
        <TD nowrap align="center"><FONT size="1">NAME</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">EXERCISE</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">VALUE REALIZED</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">FISCAL YEAR-END</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">EXERCISABLE/UNEXERCISABLE</FONT></TD>
</TR>
<TR valign="bottom">
        <TD nowrap align="center"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
        <TD nowrap align="left"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Henry R. Mandell</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">N/A</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">N/A</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">800,000</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right" nowrap><FONT size="2">10,500/$10,500</FONT></TD>
        <TD nowrap><FONT size="2">(1)</FONT></TD>
</TR>
</TABLE>
</CENTER>

<P>
<HR size="1" width="18%" align="left" noshade>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
      <TD width="1%" align="left" nowrap><FONT size="2">(1)</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="96%"><FONT size="2">Does not include 500,000 options to be priced on the date of the 2002 Annual
Stockholders meeting.</FONT></TD>
</TR>
</TABLE>

<!-- link1 "TEN-YEAR OPTION/SAR REPRICINGS" -->
<DIV align="left"><A NAME="005"></A></DIV>
<P align="center"><FONT size="2">TEN-YEAR OPTION/SAR REPRICINGS</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the year ended December&nbsp;31, 2001 there were no repricings of stock
options/SARs held by Henry R. Mandell, the only named executive officer.
</FONT>

<P align="left"><FONT size="2">EMPLOYMENT AGREEMENTS</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective April&nbsp;12, 2002, the Company and Mr.&nbsp;Mandell agreed to a one
year extension of his three year employment agreement originally entered into in
November 1999. In 2001, Mr.&nbsp;Mandell&#146;s salary was set at $210,000 and he declined
any bonus. Under his employment agreement, Mr.&nbsp;Mandell is entitled to an annual
bonus, as set by the Compensation Committee, equal to 5% of the Company&#146;s income
after taxes. He is also entitled to reasonable travel and housing expenses while
away from the Westlake Village, CA offices on company business. In connection
with the 1999 employment agreement, 500,000 options previously granted to Mr.&nbsp;Mandell
were treated as having been fully vested at November&nbsp;12, 1999 and at that time
he was granted options to acquire 750,000 additional shares (250,000 shares
exercisable at $.50 and immediately vested; 250,000 shares exercisable at $.55
which vested on November&nbsp;12, 2000; and 250,000 shares exercisable at $.75 which
vested on November&nbsp;12, 2001). In addition, 168,628 performance shares held by
Mr.&nbsp;Gershick, the former Chairman directly and the 674,516 performance shares,
then in escrow, were reallocated to Mr.&nbsp;Mandell. During 2000, Mr.&nbsp;Mandell
renounced ownership in the 168,628 performance shares released in 2000. In lieu
thereof, in January 2001, Mr.&nbsp;Mandell was granted an additional 250,000 options
immediately exercisable at $.22 per share. In connection with the negotiation of
the one year extension to his employment agreement, he declined the January 2001
options as well as the 252,944 performance shares released from escrow in 2001,
the 250,000 options exercisable at $0.75 a share and the 250,000 options
exercisable at $1.00 (granted prior to the date on which he became CEO). In lieu
thereof, he was reallocated 425,000 previously released performance shares and
was granted 500,000 options to be priced at the market price on the date of the
2002 Annual Meeting and premised on him being an employee on that date. Mr.
Mandell&#146;s base salary for 2002 was set at $214,200 and in addition to the
re-allocation of options and performance shares, his severance payments, in the
event of a change of control transaction, were extended from 6&nbsp;months to one
year.
</FONT>

<P align="left"><FONT size="2">TRANSACTIONS WITH MANAGEMENT AND OTHERS</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During 2001, the Company was not a party to any transaction in which the
amount involved exceeded $60,000 and in which any Director, executive officer,
nominee for Director, security holder of more than 5% of the Company&#146;s voting
securities, or any member of the immediate family of any of the foregoing
persons had or will have a direct or indirect material interest.
</FONT>

<!-- link1 "REPORT OF THE AUDIT COMMITTEE" -->
<DIV align="left"><A NAME="006"></A></DIV>
<P align="center"><FONT size="2">REPORT OF THE AUDIT COMMITTEE</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Neither the following report of the Audit Committee nor any other
information included in this proxy statement pursuant to item 7(d)(3) of
Schedule&nbsp;14A promulgated under the Securities Exchange Act of 1934 or pursuant
to Rule&nbsp;306 of Regulation&nbsp;S-K constitutes &#147;soliciting material&#148; and none of such
information should be deemed to be &#147;filed&#148; with the Securities and Exchange
Commission or incorporated by reference into any other filing of the Company
under the Securities Act of 1933 or the Securities Exchange Act of 1934, except
to the extent that the Company specifically incorporates such information by
reference in any of those filings.
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Audit Committee has a written charter, a copy of which is reproduced as
Appendix&nbsp;A to this proxy statement.
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Audit Committee has reviewed and discussed the audited financial
statements of the Company for the fiscal year ended December&nbsp;31, 2001 with the
Company&#146;s management.
</FONT>

<P align="center"><FONT size="2">10
</FONT>

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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Audit Committee has discussed with Farber &#038; Hass (&#147;F&#038;H&#148;) the matters
required to be discussed pursuant to Statement on Auditing Standards No.&nbsp;61
(Codification of Statements on Auditing Standards, AU sec. 380). Additionally,
the Audit Committee has received from F&#038;H the written disclosures and the letter
required by Independence Standards Board Standard No.&nbsp;1 (Independence Standards
Board Standard No.&nbsp;1, Independence Discussions with Audit Committees). The Audit
Committee also has discussed with F&#038;H matters relating to their independence.
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Based on the review and discussions described above, the Audit Committee
recommended to the Board of Directors of the Company that the audited financial
statements of the Company be included in its Annual Report on Form&nbsp;10-K for the
fiscal year ended December&nbsp;31, 2001.
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
        <TD width="50%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="50%"><FONT size="2">Members of the Audit Committee:</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
        <TD width="50%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="50%"><FONT size="2">Carlo Civelli<BR>
Stephen W. Desper<BR>
Gilbert N. Segel</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">AUDIT FEES</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The aggregate fees billed by F&#038;H for professional services rendered for the
audit of the Company&#146;s financial statements for the fiscal year ended December
31, 2001 and for advice and for the reviews of the financial statements included
in the Company&#146;s Form&nbsp;10-Qs for that fiscal year were $20,000.
</FONT>

<P align="left"><FONT size="2">FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company was not billed any fees for professional services described in
Paragraph (c)(4)(ii) of Rule&nbsp;2-01 of Regulation&nbsp;S-X rendered by F&#038;H for the
fiscal year ended December&nbsp;31, 2001.
</FONT>

<P align="left"><FONT size="2">ALL OTHER FEES</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;F&#038;H did not bill for any services (other than for the services described
above under the headings &#147;Audit Fees&#148; and &#147;Financial Information Systems Design
and Implementation Fees&#148; above) for the fiscal year ended
December&nbsp;31, 2001.
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Audit Committee has not yet considered whether the provision of
services other than those described above under the heading &#147;Audit Fees&#148; are
compatible with maintaining the independence of F&#038;H.
</FONT>

<P align="left"><FONT size="2">COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the Exchange Act, the Company&#146;s directors, certain executive and
other officers, and any person holding more than ten percent (10%) of the
Company&#146;s Common Stock are required to report their ownership and any changes in
that ownership to the Securities and Exchange Commission (the &#147;Commission&#148;) and
any exchange or quotation system on which the Common Stock is listed or quoted.
Specific due dates for these reports have been established and the Company is
required to report in this proxy statement any failure to file by directors and
officers and ten percent (10%) holders. Based solely on a review of the copies
of reports furnished to the Company as filed with the Commission, the Company is
informed that Mr.&nbsp;Desper was late in reporting transactions which occurred in
April, June, September, October and November of 2001 because of changes in his
financial service provider. The Company believes that its remaining executive
officers and directors have complied with the filing requirements applicable to
them for the year ended December&nbsp;31, 2001.
</FONT>

<P align="left"><FONT size="2">ANNUAL REPORT</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has previously forwarded to each stockholder who so requested
in writing a copy of the Company&#146;s Annual Report on Form&nbsp;10-K for the fiscal
year ended December&nbsp;31, 2001 as filed with the Securities and Exchange
Commission and the quarterly reports for the interim periods in 2002. Requests
for
</FONT>

<P align="center"><FONT size="2">11
</FONT>

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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P><FONT size="2">additional copies of these reports should be sent to the Company at
900 Lafayette Street, Suite 710, Santa Clara, California 95050, Attention:
Investor Relations.
</FONT>

<P align="left"><FONT size="2">OTHER BUSINESS</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;F&#038;H was selected as the Company&#146;s independent accountants for the fiscal
year ended December&nbsp;31, 2001 and has been selected as the Company&#146;s auditors for
the current fiscal year. Representatives for F&#038;H are expected to be present at
the Annual Meeting with the opportunity to make a statement, if they desire to
do so, and are expected to be available to respond to the appropriate questions
from shareholders.
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Board of Directors does not know of any business to be presented at the
Annual Meeting other than the matters set forth above, but if other matters came
before the Annual Meeting, it is the intention of the proxies to vote in
accordance with their best judgment on such matters.
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
        <TD width="32%">&nbsp;</TD>
        <TD width="18%">&nbsp;</TD>
        <TD width="50%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">DATED: May&nbsp;8, 2002</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
BY ORDER OF THE BOARD</FONT></TD>
</TR>
<TR><TD>&nbsp;</TD></TR>

<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
Henry R. Mandell<br>
Chairman and Chief Executive Officer</FONT></TD>
</TR>
</TABLE>
</CENTER>

<P align="center"><FONT size="2">12
</FONT>

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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="right"><FONT size="2">APPENDIX A</FONT>

<P align="center"><FONT size="2">SPATIALIZER AUDIO LABORATORIES, INC.</FONT>

<P align="center"><FONT size="2">CHARTER OF THE AUDIT COMMITTEE<BR>
OF THE BOARD OF DIRECTORS</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Board of Directors (the &#147;Board&#148;) of Spatializer Audio Laboratories,
Inc. (the &#147;Company&#148;) has oversight responsibilities to, among other things,
promote an environment in which the Company maintains adequate systems of
internal control, presents reliable financial information and complies with
applicable laws, regulations and Company policies. To assist the Board in
fulfilling certain of those oversight responsibilities, the Board has
established an Audit Committee. The following sets forth certain guidelines and
requirements with respect to the Audit Committee and its responsibilities.
</FONT>

<P align="center"><FONT size="2">I.&nbsp;&nbsp;AUTHORITY OF THE AUDIT COMMITTEE
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Audit Committee shall have the authority to retain special legal,
accounting or other consultants to advise the Committee. The Audit Committee may
request any officer or employee of the Company or the Company&#146;s outside counsel
or independent accountants to attend meetings of the Audit Committee or to meet
with any members of, or consultants to, the Audit Committee. The Audit Committee
shall be given unrestricted access to Company personnel and documents and to the
Company&#146;s independent accountants.
</FONT>

<P align="center"><FONT size="2">II.&nbsp;&nbsp;MEMBERSHIP</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Audit Committee shall consist of at least two Directors or such
additional number as the Board or the Audit Committee may determine. The Audit
Committee shall not have less than two directors without prior approval of the
Board. In the event that the Audit Committee has less than two Directors thereon
due to the resignation, death or removal of a Director or other similar event,
the Board shall appoint promptly another member thereto.
</FONT>

<P align="center"><FONT size="2">III.&nbsp;&nbsp;GENERAL RESPONSIBILITIES</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A.&nbsp;Matters relating to Annual Audit and Quarterly Financial Reports. The
Audit Committee shall recommend to the Board the appointment of the independent
accountants, which firm shall be accountable to the Audit Committee and the
Board, and the fees to be paid to the accountants. The Audit Committee shall
meet with the Company&#146;s independent accountants prior to the audit to review the
planning and staffing of the audit. In connection with the audit, the Audit
Committee will review with management and the independent accountants any
material financial reporting issues and judgments made in connection with the
preparation of the Company&#146;s financial statements. Following the completion of
the audit, the Audit Committee shall meet with the independent accountants to
review with the independent accountants any problems or difficulties the
accountants may have encountered in connection with the audit, the adequacy of
the internal accounting controls, the financial and accounting personnel and any
management letter provided by the independent accountants and the Company&#146;s
response to that letter. The Audit Committee shall discuss with the independent
accountants any matters that are required to be discussed under applicable
rules, including without limitation those matters required to be discussed by
Statement on Auditing Standards No.&nbsp;61 relating to the conduct of the audit.
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Audit Committee shall also provide to the Company&#146;s independent
accountants copies of the quarterly financial statements for review in
accordance with the rules of the Securities and Exchange Commission.
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B.&nbsp;Matters Relating to Internal Controls. The Audit Committee shall review
with management the adequacy of internal controls that could materially affect
the Company&#146;s financial statements. Additionally,
</FONT>

<P align="center"><FONT size="2">A-1
</FONT>

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<P><FONT size="2">the Audit Committee shall inquire of management and the independent accountants
about material financial risk exposures and review the steps management has
taken to monitor and control such exposures.
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;C.&nbsp;Matters relating to Auditor Independence. The Audit Committee shall
review periodic written reports from the independent accountants regarding the
independent accountants&#146; independence, discuss such reports with the independent
accountants, and, if so determined by the Audit Committee, recommend that the
Board take appropriate action to satisfy itself as to the independence of the
independent accountants.
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;D.&nbsp;Miscellaneous Matters. The Audit Committee shall review major changes to
the Company&#146;s auditing and accounting principles and practices as suggested by
the independent accountants or management and evaluate together with the Board
the performance of the independent accountants. If so determined by the Audit
Committee, it shall recommend that the Board replace the independent
accountants. The Audit Committee shall prepare such reports as may be required
by the rules of the Securities and Exchange Commission to be included in the
Company&#146;s Annual Proxy Statement.
</FONT>

<P align="center"><FONT size="2">IV.&nbsp;&nbsp;MEETINGS OF THE AUDIT COMMITTEE</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Audit Committee shall meet such number of times in each fiscal year of
the Company as the Audit Committee believes are reasonable or necessary. The
Audit Committee shall maintain minutes or other records of those meetings and
its activities.
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This Charter is intended to be flexible so that the Audit Committee is able
to meet changing conditions. The Audit Committee is authorized to take such
further actions as are consistent with the above-described responsibilities and
to perform such other actions as applicable law, the Company&#146;s charter documents
and/or the Board may require. To that end, the Audit Committee shall review and
reassess the adequacy of this Charter annually. Any proposed changes shall be
put before the Board for its approval.
</FONT>

<P align="center"><FONT size="2">A-2
</FONT>

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<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
        <TD width="50%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="45%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD valign="top" align="left"><FONT size="2">PROXY</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right" valign="top"><FONT size="2">PROXY</FONT></TD>
</TR>
</TABLE>
</CENTER>

<P align="center"><FONT size="2">SPATIALIZER AUDIO LABORATORIES, INC.</FONT>

<P align="center"><FONT size="2">ANNUAL MEETING OF STOCKHOLDERS TO BE HELD JUNE 14, 2002<BR>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The undersigned hereby appoints Henry R. Mandell as proxy and attorney-in-fact
of the undersigned, with full power of substitution, to represent and vote, as
designated below, all shares of Common Stock of Spatializer Audio Laboratories,
Inc. (the &#147;Company&#148;) which the undersigned is entitled to vote at the Annual
Meeting of Stockholders of the Company to be held at the Hilton Woodland Hills,
located at 6360 Canoga Avenue in Woodland Hills, California 91367 on Friday,
June&nbsp;14, 2002 at 2:30 p.m., and at any adjournments thereof.
</FONT>

<P align="center"><FONT size="2">(Continued on reverse side)</FONT>

<DIV>&nbsp;</DIV>

<HR size="1" noshade>

<P align="center"><FONT size="2">FOLD AND DETACH HERE</FONT>

<P align="center"><FONT size="2">&nbsp;
</FONT>

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<P align="center"><FONT size="2">SPATIALIZER AUDIO LABORATORIES, INC.<BR>
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.</FONT>

<P><FONT size="2">The Board of Directors recommends a vote FOR the nominee listed in Proposal 1.
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
        <TD width="79%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="8%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">PROPOSAL 1:</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><FONT size="2">FOR</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><FONT size="2">WITHHOLD</FONT></TD>
</TR>
<TR><TD>&nbsp;</TD></TR>

<TR valign="bottom">
        <TD valign="top"><FONT size="2">To elect Carlo Civelli as a Director of the Company to serve
until the Annual Meeting of Stockholders to be held in 2005.</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><FONT size="2">&#091;&nbsp;&nbsp;&nbsp;&#093;
</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><FONT size="2">&#091;&nbsp;&nbsp;&nbsp;&#093;</FONT></TD>
</TR>
</TABLE>
</CENTER>

<P><FONT size="2">(INSTRUCTION: To withhold authority to vote for
the nominee, indicate in place shown above that you
are withholding authority)
</FONT>
<DIV>&nbsp;</DIV>
<DIV>&nbsp;</DIV>


<HR size="1" noshade>


<P><FONT size="2">THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR THE NOMINEE LISTED IN PROPOSAL 1, AND IN THE DISCRETION OF THE PROXY HOLDER
WITH RESPECT TO ANY OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
</FONT>

<P><FONT size="2">NOTE: Please sign exactly as your name appears herein. Joint owners should each
sign personally. A corporation should sign full corporate name by duly
authorized officers and affix corporate seal. When signing as attorney,
executor, administrator, trustee or guardian, give full title as such.
</FONT>
<DIV>&nbsp;</DIV>
<DIV>&nbsp;</DIV>

<HR size="1" noshade>
<DIV align="center"><FONT size="2">Signature</FONT></DIV>
<DIV>&nbsp;</DIV>
<DIV>&nbsp;</DIV>

<HR size="1" noshade>
<DIV align="center"><FONT size="2">(Stockholder(s) sign above)</FONT></DIV>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
        <TD width="1%">&nbsp;</TD>
        <TD width="2%">&nbsp;</TD>
        <TD width="94%">&nbsp;</TD>
        <TD width="2%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">Dated:</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right" valign="top"><FONT size="2">,2001</FONT></TD>
</TR>

<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2"><hr noshade size="1"></FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>

<P align="center"><FONT size="2">PLEASE RETURN PROMPTLY IN ENCLOSED ENVELOPE WHICH<BR>
REQUIRES NO POSTAGE IF MAILED IN THE U.S.
</FONT>
<HR size="1" noshade>
<DIV align="center"><FONT size="2">X&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;FOLD AND DETACH HERE&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;X</FONT></DIV>


<P align="center"><FONT size="2">&nbsp;</FONT>

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