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<SEC-DOCUMENT>0000950148-03-001079.txt : 20030430
<SEC-HEADER>0000950148-03-001079.hdr.sgml : 20030430
<ACCEPTANCE-DATETIME>20030430172258
ACCESSION NUMBER:		0000950148-03-001079
CONFORMED SUBMISSION TYPE:	DEF 14A
PUBLIC DOCUMENT COUNT:		3
CONFORMED PERIOD OF REPORT:	20030613
FILED AS OF DATE:		20030430
EFFECTIVENESS DATE:		20030430

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:		03674240

	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>v89680def14a.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="5"><B>SCHEDULE 14A PRIVATE</B>
</FONT>

<DIV align="center"><FONT size="2"><B>(Rule&nbsp;14A-101)</B>
</FONT>
</DIV>

<P align="center"><FONT size="3"><B>INFORMATION REQUIRED IN PROXY STATEMENT<BR>
SCHEDULE 14 INFORMATION</B>
</FONT>

<P align="center"><FONT size="3"><B>PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE<BR>
SECURITIES EXCHANGE ACT OF 1934</B>
</FONT>

<P align="left"><FONT size="2">Filed by the Registrant &#091;X&#093;
</FONT>
<P align="left"><FONT size="2">Filed by a Party other than the Registrant &#091;&nbsp;&nbsp;&nbsp;&#093;
</FONT>
<P align="left"><FONT size="2">Check the appropriate box:
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#091;&nbsp;&nbsp;&nbsp;&#093;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"> Preliminary Proxy Statement</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#091;&nbsp;&nbsp;&nbsp;&#093;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"> Confidential, for Use of the Commission Only (as permitted by Rule&nbsp;14a-6(e)(2))</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#091;X&#093;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"> Definitive Proxy Statement</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#091;&nbsp;&nbsp;&nbsp;&#093;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"> Definitive Additional Materials</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#091;&nbsp;&nbsp;&nbsp;&#093;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"> Soliciting Material Pursuant to Rule&nbsp;14a-11(c) or Rule&nbsp;14a-12</FONT></TD>
</TR>
</TABLE>

<P align="center"><FONT size="3">&nbsp;</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="100%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><FONT size="2"><B>SPATIALIZER AUDIO LABORATORIES, INC.</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><FONT size="2"><B>(Name of Registrant as Specified in Its Charter)</B></FONT></TD>
</TR>
</TABLE>
</CENTER>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="100%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><FONT size="1"><B>&nbsp;</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><FONT size="2"><B>(Name of Person(s) Filing Proxy Statement, if other than the Registrant)</B></FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">Payment of Filing Fee (Check the appropriate box):
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#091;X&#093;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"> No fee.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#091;&nbsp;&nbsp;&nbsp;&#093;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"> Fee computed on table below per Exchange Act Rules&nbsp;14a-6(i)(4) and 0-11.</FONT></TD>
</TR>
</TABLE>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="90%">
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="94%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><FONT size="2">(1)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Title of each class of securities to which transaction applies:</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>
</TR>
<TR>
    <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 size="1" noshade></FONT></TD>
</TR>
<TR valign="bottom">
    <TD 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:</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>
</TR>
<TR>
    <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 size="1" noshade></FONT></TD>
</TR>
<TR valign="bottom">
    <TD 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):</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>
</TR>
<TR>
    <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 size="1" noshade></FONT></TD>
</TR>
<TR valign="bottom">
    <TD 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:</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>
</TR>
<TR>
    <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 size="1" noshade></FONT></TD>
</TR>
<TR valign="bottom">
    <TD 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:</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>
</TR>
<TR>
    <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 size="1" noshade></FONT></TD>
</TR>
</TABLE>
</CENTER>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#091;&nbsp;&nbsp;&nbsp;&#093;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"> Fee paid previously with preliminary materials.</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#091;&nbsp;&nbsp;&nbsp;&#093;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><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>
</TABLE>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="90%">
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="94%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD 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:</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>
</TR>
<TR>
    <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 size="1" noshade></FONT></TD>
</TR>
<TR valign="bottom">
    <TD 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.:</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>
</TR>
<TR>
    <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 size="1" noshade></FONT></TD>
</TR>
<TR valign="bottom">
    <TD 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:</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>
</TR>
<TR>
    <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 size="1" noshade></FONT></TD>
</TR>
<TR valign="bottom">
    <TD 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:</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>
</TR>
<TR>
    <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 size="1" noshade></FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><HR align="center" size="3" width="100%" noshade>


<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>

<DIV align="left">
<IMG src="v89680v89680l1.gif" alt="(SPATIALIZER AUDIO LABORATORIES, INC. LOGO)">
</DIV>

<P align="right">
<FONT size="2">May&nbsp;8, 2003
</FONT>

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

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">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;13, 2003 at
2:30&nbsp;p.m. at the Hilton Woodland Hills, located at
6360&nbsp;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 align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">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>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(1)&nbsp;The nomination and election of Henry
    Mandell to serve as a Director of the Company until the Annual
    Meeting of Stockholders to be held in 2006; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(2)&nbsp;Such other matters as may properly be
    presented at the Annual Meeting or any adjournment or
    postponement thereof.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Board has approved and recommends that the
stockholders vote FOR the Director nominated by the Board.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">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, 2003, 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. In
accordance with Article&nbsp;II, Section&nbsp;3 of the Bylaws of
the Company, the Director being elected will need to receive a
majority of the votes cast.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">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 align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">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>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

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

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">SPATIALIZER AUDIO LABORATORIES, INC.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">HENRY R. MANDELL
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <I><FONT size="2">Chairman of the Board and</FONT></I></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <I><FONT size="2">Chief Executive Officer</FONT></I></TD>
</TR>

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

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

<P align="center">
<B>NOTICE OF ANNUAL MEETING OF STOCKHOLDERS</B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Notice is hereby given that Spatializer Audio
Laboratories, Inc. (the &#147;Company&#148;) will hold its
Annual Meeting of Stockholders on Friday, June&nbsp;13, 2003 at
2:30&nbsp;p.m., at the Hilton Woodland Hills, located at
6360&nbsp;Canoga Avenue in Woodland Hills, California 91367, for
the following purposes:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">To elect one Director of the Company to serve
    until the Annual Meeting of Stockholders to be held in 2006; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">To act upon other matters that may properly come
    before the Annual Meeting.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Board of Directors has fixed May&nbsp;6, 2003
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 align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">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 that he receive a majority of the votes cast.
</FONT>

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

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">By Order of the Board of Directors
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">HENRY R. MANDELL
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <I><FONT size="2">Chairman of the Board and</FONT></I></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <I><FONT size="2">Chief Executive Officer</FONT></I></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">DATED: May&nbsp;8, 2003
</FONT>

<P align="left">
<B><FONT size="2">The Board has approved and recommends that the
stockholders vote for the director nominated by the
Board.</FONT></B>

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

<!-- 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"><FONT size="2">NOTICE OF ANNUAL MEETING OF STOCKHOLDERS</FONT></A></TD></TR>
<TR><TD colspan="9"><A HREF="#001"><FONT size="2">REPORT OF COMPENSATION COMMITTEE</FONT></A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#002"><FONT size="2">Performance Graph of Company Stock</FONT></A></TD></TR>
<TR><TD colspan="9"><A HREF="#003"><FONT size="2">Option/Stock Appreciation Right (&#147;SAR&#148;) Grants During the Most Recently Completed Financial Year</FONT></A></TD></TR>
<TR><TD colspan="9"><A HREF="#004"><FONT size="2">Aggregated Options/SAR Exercises in Last Financial Year and Financial Year-End Option/SAR Values</FONT></A></TD></TR>
<TR><TD colspan="9"><A HREF="#005"><FONT size="2">TEN-YEAR OPTION/SAR REPRICINGS</FONT></A></TD></TR>
<TR><TD colspan="9"><A HREF="#006"><FONT size="2">REPORT OF THE AUDIT COMMITTEE</FONT></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>

<P align="center">
<B>PROXY STATEMENT</B>

<P align="center">
<HR size="1" width="18%" align="center" noshade>

<P align="center">
<B>ANNUAL MEETING OF STOCKHOLDERS</B>

<DIV align="center">
<B>June 13, 2003</B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">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;13,
2003 at 2:30&nbsp;p.m., at the Hilton Woodland Hills, located at
6360&nbsp;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;9, 2003, to give holders of record of the
Company&#146;s Common Stock on May&nbsp;6, 2003, the Record
Date, an opportunity to vote at the Annual Meeting.
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">To elect Henry Mandell as a Director of the
    Company to serve until the Annual Meeting of Stockholders to be
    held in 2006; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">To act upon other matters that may properly come
    before the meeting.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<B><FONT size="2">Voting</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">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 and 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 nominated 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 align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">The Board of Directors recommends voting
&#147;FOR&#148; the election of the person nominated as a
Director of the Company.</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">A stockholder has the right to appoint a
person (who need not be a stockholder) to attend and act on his
behalf at the meeting. Such person need not be 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 name
or may submit another proxy.</FONT></B>

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

<P align="left">
<B><FONT size="2">Revocability of Proxies</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">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&nbsp;Lafayette Street,
Suite&nbsp;710, Santa Clara, California 95050, or at
Computershare Investor Services, 2&nbsp;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">
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="left">
<B><FONT size="2">Outstanding Stock</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Holders of record of Common Stock at the close of
business on May&nbsp;6, 2003, 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&nbsp;shares of Common
Stock and 1,000,000&nbsp;shares of Preferred Stock, par value of
$.01 US per share (&#147;Preferred Stock&#148;). On the Record
Date, there were 47,406,939&nbsp;shares of Common Stock and
102,762&nbsp;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">
<B><FONT size="2">Security Ownership of Certain Beneficial
Owners and Management</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table sets forth information
(except as otherwise indicated by footnote) as to shares of
Common Stock owned as of April&nbsp;10, 2003 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, 2003
there were 47,406,939&nbsp;shares of Common Stock outstanding.
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="62%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Amount and Nature of</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Percent of</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Name and Address of Beneficial Owner(1)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Beneficial Ownership</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Class</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Directors and Officers</FONT></B></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>
    <TD align="left" valign="top">
    <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" valign="bottom" nowrap><FONT size="2">3,820,958</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="bottom" nowrap><FONT size="2">8.1</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <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" valign="bottom" nowrap><FONT size="2">525,599</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="bottom" nowrap><FONT size="2">1.1</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <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" valign="bottom" nowrap><FONT size="2">2,106,572</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="bottom" nowrap><FONT size="2">4.4</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <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" valign="bottom" nowrap><FONT size="2">346,997</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="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <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" valign="bottom" nowrap><FONT size="2">338,000</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" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Michael L. Wood(5)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0</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="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">All directors and executive officers as a group
    (6&nbsp;persons)(3)(5)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,138,126</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="bottom" nowrap><FONT size="2">13.6</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="1%"></TD>
    <TD width="4%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">*</FONT></TD>
    <TD align="left">
    <FONT size="2">Indicates that the percentage of shares
    beneficially owned does not exceed one percent (1%) of the class.
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Each of the Directors and officers named can be
    reached at the Company&#146;s corporate offices located at
    900&nbsp;Lafayette Street, Suite&nbsp;710, Santa Clara,
    California 95050, except for Carlo Civelli, whose address is
    Gerberstrasse&nbsp;5, 8023&nbsp;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>&nbsp;</TD>
</TR>

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

<TR valign="top">
    <TD><FONT size="2">(3)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes 50,000 vested options granted to each
    Director on June&nbsp;14, 2002, and exercisable at $0.12 per
    share and vesting in one year. It also includes for Gilbert N.
    Segel, 50,000 vested options exercisable at $0.11 per share and
    granted to Mr.&nbsp;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>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(4)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes 1,250,000 options held by
    Mr.&nbsp;Mandell, all of which are vested and are exercisable at
    various prices from $0.12 to $0.55. Excludes 100,000 options
    which expired in March 2003 without exercise. The options have
    varying expiration dates of which the final such expiration date
    will be June&nbsp;13, 2007.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(5)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Options to acquire 500,000&nbsp;shares of Common
    Stock were granted to Michael L. Wood, Executive Vice President,
    Business Development and Chief Operating Officer, in 2002. The
    options vest over 3&nbsp;years and are exercisable at $.09 per
    share, the market price on the date of the grant. The initial
    vesting date will be September&nbsp;24, 2003 and, therefore, no
    underlying shares are reflected.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">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 align="left">
<B><FONT size="2">Solicitation</FONT></B>

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

<P align="left">
<B><FONT size="2">Nomination and Election of Director</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">At this Annual Meeting, management intends to
nominate Mr.&nbsp;Mandell for a three&nbsp;year term expiring in
2006. The current Bylaws of the Company provide for a Board of
Directors of no less than three to be categorized into three
classes, with the Directors in each class being elected to serve
for three&nbsp;years and requiring that the classes be allocated
in as equal a number as possible. The Company currently has
five&nbsp;Directors, with the terms of Steven Desper and Henry
Mandell expiring in 2003. Mr.&nbsp;Desper has advised the Board
that he does not wish to continue on the Board because of his
other business and personal commitments. Assuming
Mr.&nbsp;Mandell is re-elected, the Board will consist of
four&nbsp;directors with the terms of two directors expiring in
2004 and the term of one&nbsp;director expiring in each of 2005
and 2006.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The elected Director will continue in office
until his successor is elected and has been qualified, or until
his 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="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">The Board of Directors recommends a vote
&#147;FOR&#148; Mr. Mandell.</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table sets forth certain
information with respect to the Directors and executive officers
of the Company as of May&nbsp;6, 2003. As described above, Henry
Mandell, whose term ends in 2003, is to be considered for
election to the Board of Directors with a term expiring in 2006
and Mr.&nbsp;Desper has declined nomination for another term.
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="43%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="47%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Name</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Age</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Position</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Directors with Terms Ending 2003:</FONT></B></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>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Henry R. Mandell (nominee for re- election)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">46</FONT></TD>
    <TD><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&nbsp;&#151; 2/00 to date, Secretary&nbsp;&#151; 9/98 to
    date. Chief Financial Officer&nbsp;&#151; 3/98 to date.
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Stephen W. Desper (not being considered for
    re-election)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">60</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Director&nbsp;&#151; 7/92 to date. Chairman of
    the Board&nbsp;&#151; 7/92 to 12/95. Vice Chairman of the
    Board&nbsp;&#151; 12/95 to date. Member of Audit Committee.
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Directors with Terms Ending in 2004:</FONT></B></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>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">James D. Pace
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">47</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Director&nbsp;&#151; 2/95 to date. Member of
    Compensation Committee&nbsp;&#151; 2/95 to date.
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Gilbert N. Segel
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">70</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Director&nbsp;&#151; 5/95 to date. Member of
    Audit and Compensation Committee&nbsp;&#151; 5/95 to date.
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

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

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<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="43%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="47%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Name</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Age</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Position</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Director with Term Ending in 2005:</FONT></B></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>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Carlo Civelli
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">54</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Director&nbsp;&#151; 3/93 to date. Vice President
    Finance, Europe&nbsp;&#151; 8/91 to 3/95. Member of Audit
    Committee.
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Other Executive Officer:</FONT></B></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>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Michael L. Wood
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">46</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Executive Vice President, Business Development
    and Chief Operating Officer&nbsp;&#151; 8/02 to date.
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Henry R. Mandell.</FONT></I><FONT size="2">
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 align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Stephen W. Desper.</FONT></I><FONT size="2">
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&nbsp;(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 align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">James D. Pace.</FONT></I><FONT size="2">
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 align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Gilbert N. Segel.</FONT></I><FONT size="2">
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 entrepreneurs. 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">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Carlo Civelli.</FONT></I><FONT size="2">
Director since March 1993. VP Finance &#151; Europe from August
1991 to March 1995. Has extensive experience in financing
emerging public companies and has been instrumental in funding
approximately 50 new ventures of the past 20&nbsp;years which
include Breakwater Resources, Callinan Mines, Granges
Exploration, Namibian Minerals, Napier International Tech, Norst
Interactive, DRC Resources, DMX Digital Music. 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 align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Michael L. Wood.</FONT></I><FONT size="2">
Executive Vice President, Business Development and Chief
Operating Officer since August 2002. Prior to joining the
Company, Mr.&nbsp;Wood was the Vice President and General
Manager of the Home Entertainment Division of Zoran Corporation
(from 2000 to 2002). Before joining Zoran, he was Senior
Director of C-Cube Microsystems (from 1995 to 2000). Before
that, he held a variety of marketing and applications positions
at Intel (from 1984 to 1995) and is considered an expert on
introductions of semiconductor and related technologies in the
U.S. and China markets.
</FONT>

<P align="left">
<B><FONT size="2">Resignations of Certain Directors</FONT></B>

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

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

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<P align="left">
<B><FONT size="2">Compensation of Directors</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">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 June&nbsp;14, 2002 at an exercise
price of $0.12. In January 2002, Gilbert&nbsp;N. Segel was
issued an additional 50,000 vested options exercisable at $0.11
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">
<B><FONT size="2">Activities of the Board of Directors and its
Committees</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">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 align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During 2002, the Board of Directors of the
Company, which consisted of five (5)&nbsp;members, had three
formal meetings and took various actions by written consent.
Except for Carlo Civelli (who missed the meetings because of
time and travel conflicts but was advised and consented
telephonically to the actions and discussions at each meeting)
and Stephen&nbsp;W. Desper (who missed two meetings), 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">
<B><FONT size="2">Committees of the Board of Directors</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As of May&nbsp;6, 2003, 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">
<B><FONT size="2">Audit Committee</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In 2002, the Audit Committee of the
Company&#146;s Board of Directors consisted of
Messrs.&nbsp;Segel and Desper, both of whom are non-employee
Directors. Mr.&nbsp;Mandell also participates as an ex-officio
member. Messrs.&nbsp;Segel and Desper 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 and quarterly
reviews of the Company&#146;s financial statements 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 two formal meetings during fiscal 2002
and had either telephonic meetings or discussions in connection
with each of the quarterly interim filings.
</FONT>

<P align="left">
<B><FONT size="2">Compensation and Stock Committee</FONT></B>

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

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

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<DIV align="left">
<FONT size="2">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. (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 two
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>
</DIV>

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

<P align="center">
<B><FONT size="2">REPORT OF COMPENSATION COMMITTEE</FONT></B>

<P align="left">
<B><FONT size="2">General</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">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 align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">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>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <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>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <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>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <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>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <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>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <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 align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">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 align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">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 2002, 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.
</FONT>

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

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<DIV align="left">
<FONT size="2">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>
</DIV>

<P align="left">
<B><FONT size="2">Annual Compensation</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">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">
<B><FONT size="2">CEO Compensation</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The 2002 compensation for Henry R. Mandell, as
Chief Executive Officer of the Company, was determined
principally in accordance with an amendment to his employment
contract effective April&nbsp;12, 2002 (the
&#147;Amendment&#148;) which extended his employment for another
year and the guidelines discussed above. Based on the
performance of the Company and the compensation of the Chief
Executive Officers at several peer companies, he was paid a base
salary of $214,200 in 2002. 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 eligible for release 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 Chief Executive Officer). He was allocated 425,000
Performance Shares, which were placed in escrow and eligible for
release effective June&nbsp;22, 2002 and was entitled to a grant
of 500,000 options at the 2002 Annual Meeting (June&nbsp;14) if
he was still employed. The options were granted June&nbsp;14,
2002, exercisable at $0.12 per share. In addition to the
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, which in 2002, would be
$214,200 plus any bonus granted to him and a continuation of
employee benefits.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In summary, 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 . In
March 2003, options to acquire 100,000 shares at an exercise
price of $0.125 expired without exercise. As of the date hereof,
Mr.&nbsp;Mandell therefore holds options to acquire 1,250,000
shares.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In December 2002, the Compensation Committee took
further action under the employment agreement to grant
Mr.&nbsp;Mandell a bonus of $20,000 (payable in the first pay
period of 2003) in recognition of his efforts and contributions
in 2002. In accordance with the twelve month renewal and
termination notice provisions of the employment agreement and
Amendment, the term currently extends to November 2004.
</FONT>

<P align="left">
<B><FONT size="2">Conclusion</FONT></B>

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

<P align="center"><FONT size="2">7
</FONT>

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

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Submitted by the Compensation Committee
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">of the Company&#146;s Board of Directors,
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">James D. Pace
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Gilbert N. Segel
    </FONT></TD>
</TR>

</TABLE>

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

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<!-- link2 "<FONT size="2">Performance Graph of Company Stock</FONT>" -->
<DIV align="left"><A NAME="002"></A></DIV>

<P align="left">
<B><FONT size="2">Performance Graph of Company Stock</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">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">
<B><FONT size="2">COMPARE CUMULATIVE TOTAL RETURN</FONT></B>

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

<DIV align="center">
<B><FONT size="2">NASDAQ MARKET INDEX AND PEER GROUP
INDEX</FONT></B>
</DIV>

<P align="center">
<IMG src="v89680v8968001.gif" alt="(PERFORMANCE GRAPH)">

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="28%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="23"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap><FONT size="1">FISCAL YEAR ENDED</FONT></TD>
</TR>

<TR>
    <TD colspan="25"></TD>
</TR>

<TR>
    <TD colspan="25" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="center" nowrap><FONT size="1">&nbsp;COMPANY/INDEX/MARKET</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">12/31/97</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">12/31/98</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">12/31/99</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">12/31/00</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">12/29/01</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">12/31/02</FONT></B></TD>
</TR>

<TR>
    <TD colspan="25"></TD>
</TR>

<TR>
    <TD colspan="25" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;Spatializer Audio Laboratories
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><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" valign="bottom" nowrap><FONT size="2">8.31</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="bottom" nowrap><FONT size="2">6.81</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="bottom" nowrap><FONT size="2">1.69</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="bottom" nowrap><FONT size="2">0.85</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="bottom" nowrap><FONT size="2">0.47</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;Customer Selected Stock List
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><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" valign="bottom" nowrap><FONT size="2">5.91</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="bottom" nowrap><FONT size="2">92.38</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" valign="bottom" nowrap><FONT size="2">113.32</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" valign="bottom" nowrap><FONT size="2">125.07</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" valign="bottom" nowrap><FONT size="2">170.14</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;NASDAQ Market Index
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><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" valign="bottom" nowrap><FONT size="2">141.04</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="bottom" nowrap><FONT size="2">248.76</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="bottom" nowrap><FONT size="2">156.35</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="bottom" nowrap><FONT size="2">124.64</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="bottom" nowrap><FONT size="2">86.94</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

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

<P align="left">
<B><FONT size="2">Indemnification of Directors and Executive
Officers</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">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">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="left">
<B><FONT size="2">Executive Compensation</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">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 and for Michael
Wood during a portion of 2002. There were no other executive
officers who were serving as executive officers at
December&nbsp;31, 2002 who had annual income of at least
$100,000 in 2002.
</FONT>

<P align="center">
<B><FONT size="2">Summary Compensation Table</FONT></B>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="30%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Long Term Compensation</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Awards(8)(9)(10)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Securities</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Under</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Payouts</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Options/SARs</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Restricted</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Annual Compensation</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Granted(#)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Stock</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(Declined)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Awards</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">LTIP</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Name and Principal Position</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Year</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Salary</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Bonus</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Other</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(#)(5)(7)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">($)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Payouts</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Henry R. Mandell(1)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">12/02</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">214,200</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">N/A</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">(2)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">43,189</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">(2)(8)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">550,000</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" valign="top" nowrap><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" valign="top" nowrap><FONT size="2">N/A</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Chief Executive Officer
    </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>
    <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 align="left" valign="top" nowrap><FONT size="2">(9)(10)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">(250,000</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">)(3)(6)</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>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <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" nowrap><FONT size="2">12/01</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">210,000</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" valign="top" nowrap><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" valign="top" nowrap><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" valign="top" nowrap><FONT size="2">300,000</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" valign="top" nowrap><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" valign="top" nowrap><FONT size="2">N/A</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <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>
    <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>
    <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" nowrap><FONT size="2">(500,000</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">)(3)</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>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <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" nowrap><FONT size="2">12/00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">200,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">20,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">9,000</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" valign="top" nowrap><FONT size="2">&#151;</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" nowrap><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" valign="top" nowrap><FONT size="2">N/A</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <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" nowrap><FONT size="2">12/99</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">175,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">N/A</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">34,000</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">(8)(9)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">750,000</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">(4)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><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" valign="top" nowrap><FONT size="2">N/A</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Michael L. Wood
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">12/02</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">55,000</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">(11)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">N/A</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">(11)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><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" valign="top" nowrap><FONT size="2">500,000</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">(11)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><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" valign="top" nowrap><FONT size="2">N/A</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Executive Vice President, Business Development
    and Chief Operating Officer
    </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>
    <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>
    <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>
    <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>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="1%"></TD>
    <TD width="4%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <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).
    Mr.&nbsp;Mandell does not receive any other cash compensation
    but did receive reimbursement for expenses and benefits on the
    same terms as other employees.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(2)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Reflects annual base salary and option and equity
    transactions to date. Does not reflect the $20,000 bonus granted
    on December&nbsp;29, 2002 to Mr.&nbsp;Mandell, but paid in 2003
    in recognition of his contributions in 2002.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(3)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Amounts in parenthesis reflect options that were
    declined in the specified year.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(4)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Excludes options to acquire 500,000 shares of
    Common Stock of the Company granted prior to 1999 of which
    150,000 options are exercisable at $0.5000 per share, 100,000
    options were exercisable at $0.125 per share and expired in
    March 2003 without exercise and 250,000 options were exercisable
    at $1.00 per share but were declined in 2001. See Note&nbsp;7.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(5)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Of the options shown: 50,000 were granted in 2002
    and 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 $0.50 and immediately vested; 250,000 shares exercisable at
    $0.55 to vest on November&nbsp;12, 2000; and 250,000 shares
    exercisable at $0.75 to vest on November&nbsp;12, 2001). See
    note&nbsp;7 below.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(6)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">In January 2001, Mr.&nbsp;Mandell was granted
    vested options to acquire 250,000&nbsp;shares at an exercise
    price of $0.22 per share (the &#147;January 2001 Options&#148;).
    As set forth in note&nbsp;7 below, in January 2002, he declined
    these options in connection with the one year extension of his
    employment agreement to November 2002.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(7)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">In connection with the negotiation of the one
    year extension to his employment agreement to November 2002,
    Mr.&nbsp;Mandell declined the January 2001 Options as well as
    500,000 options (250,000 options
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">10
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="1%"></TD>
    <TD width="3%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD></TD>
    <TD align="left">
    <FONT size="2">exercisable at $0.75 a share and 250,000
    exercisable at $1.00, both effective as of November&nbsp;12,
    2001). He also was entitled to a grant of 500,000 options at the
    June 2002 Annual Meeting if he was still employed. Those options
    were granted on June&nbsp;14, 2002 exercisable at $0.12. Options
    to acquire 100,000 shares expired in March 2003 and, as a
    result, as of the date hereof, Mr.&nbsp;Mandell holds options to
    acquire 1,250,000 shares.
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="1%"></TD>
    <TD width="4%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(8)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">For 1999 and 2002, the Summary Compensation Table
    reflects the value of compensation in connection with
    Performance Shares as &#147;Other&#148; compensation valued in
    1999 on the date of the delivery of the shares released from
    escrow to Mr.&nbsp;Mandell. It does not reflect compensation in
    connection with Performance Shares in 2000 and 2001 because the
    Performance Shares were declined.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(9)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Mr.&nbsp;Mandell was allocated 843,144
    Performance Shares in 1999 (including 168,628 Performance Shares
    transferred from Steven Gershick, the former Chief Executive
    Officer of the Company, to Mr.&nbsp;Mandell), and $34,000
    compensation was recorded in 1999 for the 168,628 Performance
    Shares transferred to him in that year. During 2000 and 2001,
    168,628 and 252,944 Performance Shares, respectively, were
    released from escrow and he declined ownership in these shares.
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(10)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">In connection with the extension of the
    employment agreement described in note&nbsp;7 above,
    Mr.&nbsp;Mandell declined 252,944 Performance Shares released
    from escrow in 2001 (but transfer to treasury has not been
    completed). He was subsequently allocated 425,000 Performance
    Shares and the 252,944 Performance Shares eligible for release
    from escrow on June&nbsp;22, 2002. As a result, as of the date
    hereof, Mr.&nbsp;Mandell holds 846,572 Performance Shares
    consisting of 168,628 Performance Shares transferred directly
    from Mr.&nbsp;Gershick; 425,000 Performance Shares allocated on
    January&nbsp;2, 2002 and 252,944 Performance Shares released
    from escrow in June 2002. He is not entitled to either the
    reissuance of the 2001 Performance Shares, or any other
    Performance Shares which remain unallocated. The Board of
    Directors, in its sole discretion, could elect to grant
    additional Performance Shares to him, but has not presently
    indicated any intention to do so. Mr.&nbsp;Mandell holds an
    additional 10,000 shares of Common Stock purchased in the open
    market.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(11)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Michael L. Wood joined the Company as an officer
    in August 2002 and the compensation reflects amounts received in
    2002. His agreement with the Company is on an &#147;at
    will&#148; basis and entitles him to a base annual salary of
    $165,000, a bonus based on new business generated through his
    efforts and measured by additional net revenues, reimbursement
    for normal expenses and benefits on the same terms as other
    employees. He was also granted options to acquire
    500,000&nbsp;shares of Common Stock vesting over 3&nbsp;years
    and exercisable at $0.09 per share. The grants are intended to
    be incentive stock options under the Company&#146;s 1995 Plan.
    </FONT></TD>
</TR>

</TABLE>

<!-- link1 "<FONT size="2">Option/Stock Appreciation Right (&#147;SAR&#148;) Grants During the Most Recently Completed Financial Year</FONT>" -->
<DIV align="left"><A NAME="003"></A></DIV>

<P align="center">
<B><FONT size="2">Option/Stock Appreciation Right
(&#147;SAR&#148;) Grants During the</FONT></B>

<DIV align="center">
<B><FONT size="2">Most Recently Completed Financial
Year</FONT></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">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 width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="24%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><B><FONT size="1">Individual Grants</FONT></B></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Potential</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Alternative to</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Realizable</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Realizable</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Market</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Value at</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Value Grant</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Value of</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Assumed</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Value Date</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Securities</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Annual Rates of</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">% of Total</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Underlying</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Stock Price</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Securities</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Options/SARs</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Options/SARs</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Appreciation for</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Under</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Granted to</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exercise or</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">on Date of</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Option Term</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Grant Date</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Options/SARs</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Employees in</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Base Price</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Grant</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Expiration</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Present</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Granted</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Fiscal Year</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">($/Security)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">($/Security)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Date</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">5%($)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">10%($)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Value($)</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Henry R. Mandell
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">550,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">(1)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">42.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">%</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">0.12</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">(2)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">0.12</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">(2)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">May 2007</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">(1)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><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" valign="bottom" nowrap><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" valign="bottom" nowrap><FONT size="1">N/A</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Michael L. Wood
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">500,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">(1)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">38.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">%</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">0.09</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">0.09</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="left" valign="bottom" nowrap><FONT size="1">Sept. 2008</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" valign="bottom" nowrap><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" valign="bottom" nowrap><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" valign="bottom" nowrap><FONT size="1">N/A</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <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" valign="bottom" nowrap><FONT size="1">250,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">(1)(3)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">N/A</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">0.12</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">(2)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">0.12</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">(2)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">May 2007</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">(1)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><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" valign="bottom" nowrap><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" valign="bottom" nowrap><FONT size="1">N/A</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">11
</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="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">All options will be exercisable in June 2003
    except the options granted to Mr.&nbsp;Wood which vest equally
    over 3&nbsp;years with September&nbsp;24, 2003 as the first
    vesting date.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(2)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Market Price on the date of the Annual Meeting of
    Stockholders, the date of grant.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(3)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Reflects 50,000 Directors option granted annually
    at the Annual Meeting of Stockholders to each director and an
    additional 50,000 vested options exercisable $0.11 issued to
    Gilbert N. Segel in January 2002 to correct a continuing
    inequity which arose several years ago because of the timing of
    his election to the Board.
    </FONT></TD>
</TR>

</TABLE>

<!-- link1 "<FONT size="2">Aggregated Options/SAR Exercises in Last Financial Year and Financial Year-End Option/SAR Values</FONT>" -->
<DIV align="left"><A NAME="004"></A></DIV>

<P align="center">
<B><FONT size="2">Aggregated Options/SAR Exercises in Last
Financial Year</FONT></B>

<DIV align="center">
<B><FONT size="2">and Financial Year-End Option/SAR
Values</FONT></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">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, 2002 by each of the Named Executive Officers
and the financial year-end value of unexercised options/ SARs on
an aggregated basis:
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="25%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="14%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="14%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Value of Unexercised</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Securities</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Unexercised</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">In-the-Money Options/SARs</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Acquired on</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Aggregate</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Options/SARs at</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">at Fiscal Year-End($)</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Name</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exercise</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Value Realized</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Fiscal Year-End</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exercisable/Unexercisable</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <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" valign="bottom" nowrap><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" valign="bottom" nowrap><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" valign="bottom" nowrap><FONT size="2">1,350,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(1)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0(3)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Michael L. Wood
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><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" valign="bottom" nowrap><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" valign="bottom" nowrap><FONT size="2">500,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(2)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0(2)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes 100,000 options which expired in March
    2003 without exercise.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(2)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Reflects 500,000 options granted at an exercise
    price of $0.09 and vesting over 3&nbsp;years.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(2)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Weighted average exercise price is $0.24
    </FONT></TD>
</TR>

</TABLE>

<P align="center">
<B><FONT size="2">Equity Compensation Plan Information</FONT></B>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="31%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number of securities</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">remaining available for</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number of securities to</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Weighted-average</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">future issuance under</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">be issued upon exercise</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">exercise price of</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">equity compensation plans</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">of outstanding options,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">outstanding options,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(excluding securities</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2" align="center" nowrap><B><FONT size="1">Plan Category</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">warrants and rights</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">warrants and rights</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">reflected in column&nbsp;(a))</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(a)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(b)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(c)</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Equity compensation plans approved by security
    holders
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,671,500</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(1)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.24</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(1)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Equity compensation plans not approved by
    security holders
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0</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="bottom" nowrap><FONT size="2">0</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="bottom" nowrap><FONT size="2">0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </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>
    <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>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Represents options to acquire the Company&#146;s
    Common Stock under the Company&#146;s 1995 Stock Option Plan and
    1996 Incentive Plan approved by the Company&#146;s stockholders
    in 1995 and 1996, respectively. The 1995 Plan authorizes grants
    of options to purchase authorized but unissued common stock in
    an amount of up to 10% of total common shares outstanding at
    each calendar quarter or, 4,740,694 as of December&nbsp;31,
    2002. Stock options are granted with an exercise price equal to
    the stock&#146;s fair market value at the date of grant. Stock
    options have five-year terms and vest and become fully
    exercisable as determined by the committee on date of grant. The
    1996 Plan supplements the 1995 Plan by allowing for stock
    appreciation, incentive shares and similar accruals aggregating
    not more than the equivalent of 500,000 shares and the regrant
    of any Performance Shares that become available for regrant. See
    Note 2.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(2)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">In December 1996, the Company accepted the terms
    outlined by the British Columbia Securities Commissions for the
    release of the Company&#146;s 5,776,700 escrowed
    &#147;Performance Shares&#148; from Canadian Escrow into a new
    escrow arrangement with the Company. The overall modification
    was approved by the
    </FONT></TD>
</TR>

</TABLE>

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

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<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD align="left">
    <FONT size="2">Company&#146;s stockholders in August 1996. Under
    the revised arrangements, the final release date was
    June&nbsp;22, 2002. Since all the Performance Shares were
    included in the issued and outstanding shares as of 1996 and
    thereafter, the Performance Shares have no dilutive effect on
    the Company&#146;s equity.
    </FONT></TD>
</TR>

</TABLE>

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

<P align="center">
<B><FONT size="2">TEN-YEAR OPTION/ SAR REPRICINGS</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During the year ended December&nbsp;31, 2002
there were no repricings of stock options/ SARs held by Henry R.
Mandell, the only named executive officer.
</FONT>

<P align="left">
<B><FONT size="2">Employment Agreements</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Effective April&nbsp;12, 2002, the Company and
Mr.&nbsp;Mandell agreed to a one year extension of his three
(3)&nbsp;year employment agreement originally entered into in
November 1999. In accordance with the termination and renewal
provisions of his employment agreement, unless sooner
terminated, the term now extends to November 2004. 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 five percent (5%) of the
Company&#146;s income after taxes. He is also entitled to
reimbursement for reasonable travel and housing expenses while
away from the Westlake Village, CA executive offices on company
business and is now entitled to one year severance in the event
of a change of control transaction.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">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&nbsp;additional shares (250,000&nbsp;shares exercisable
at $0.50 and immediately vested; 250,000&nbsp;shares exercisable
at $0.55 which vested on November&nbsp;12, 2000; and
250,000&nbsp;shares exercisable at $0.75 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&nbsp;Performance Shares, then in escrow, were
reallocated to Mr.&nbsp;Mandell. During 2000, Mr.&nbsp;Mandell
declined ownership in the 168,628&nbsp;Performance Shares
released in 2000.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In connection with the negotiation of the
extension to his employment agreement, he declined the January
2001 options as well as the 252,944 Performance Shares eligible
for release 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). He was
allocated 425,000 Performance Shares, which were placed in
escrow and eligible for release effective June&nbsp;22, 2002 and
was entitled to a grant of 500,000 options if he was still
employed at the date of the 2002 Annual Meeting. The options
were granted on June&nbsp;14, 2002, the date of the Annual
Meeting and exercisable at $0.12, the market price on that date.
In addition to the allocation of options and Performance Shares,
his severance payments in the event of a change of control
transaction, were extended from six (6)&nbsp;months to one
(1)&nbsp;year, which in 2002, would be $214,200 plus any bonus
granted to him and a continuation of employee benefits.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In December 2002, Mr.&nbsp;Mandell was granted a
bonus of $20,000 on account of his contribution in 2002. The
bonus was paid in 2003.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Michael L. Wood became Executive Vice President,
Business Development and Chief Operating Officer in August 2002.
His agreement with the Company is on an &#147;at will&#148;
basis and entitles him to a base annual salary of $165,000, a
bonus calculated based on incremental additional net revenues
from new business for the Company, customary expense
reimbursements and benefits on the same terms as other
employees. He was also granted options to acquire 500,000 shares
of Common Stock vesting over 3&nbsp;years and exercisable at
$0.09.
</FONT>

<P align="left">
<B><FONT size="2">Transactions with Management and
Others</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During 2002, 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 five percent (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>

<P align="center"><FONT size="2">13
</FONT>

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

<P align="center">
<B><FONT size="2">REPORT OF THE AUDIT COMMITTEE</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Neither the following report of the Audit
Committee nor any other information included in this proxy
statement pursuant to item&nbsp;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 align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Audit Committee has a written charter, a copy
of which is reproduced as Appendix&nbsp;A to this proxy
statement.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Audit Committee has reviewed and discussed
with the Company&#146;s management the audited financial
statements of the Company for the fiscal year ended
December&nbsp;31, 2002 and the quarterly financial statements of
the Company (which were subject to review in accordance with the
rules promulgated under the Securities Exchange Act of 1934).
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Audit Committee has discussed with Farber
&#38; Hass (&#147;F&#38;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.&nbsp;380). Additionally, the Audit Committee has
received from F&#38;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&#38;H matters relating to their independence.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">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, 2002.
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Members of the Audit Committee:
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

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

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Gilbert N. Segel
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<B><FONT size="2">Audit Fees</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The aggregate fees billed by F&#38;H for
professional services rendered for the audit of the
Company&#146;s financial statements for the fiscal year ended
December&nbsp;31, 2002 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 $23,600.
</FONT>

<P align="left">
<B><FONT size="2">Financial Information Systems Design and
Implementation Fees</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company was not billed any fees for
professional services described in Paragraph&nbsp;(c)(4)(ii) of
Rule&nbsp;2-01 of Regulation&nbsp;S-X rendered by F&#38;H for
the fiscal year ended December&nbsp;31, 2002.
</FONT>

<P align="left">
<B><FONT size="2">All Other Fees</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">F&#38;H billed an aggregate of $19,812 for
professional services rendered preparing the Company&#146;s
financial statements in connection with the filing of the
Company&#146;s Form&nbsp;S-1 Registration Statement in 2002. In
addition, F&#38;H billed an aggregate of $6,250 for professional
services in preparing the Company&#146;s tax returns and other
related tax services.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">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&#38;H.
</FONT>

<P align="center"><FONT size="2">14
</FONT>

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<P align="left">
<B><FONT size="2">Compliance with Section 16(a) of the Exchange
Act</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Under the Exchange Act, the Company&#146;s
directors, certain executive and other officers, and any person
holding more than ten percent&nbsp;(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&nbsp;(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 February and
March of 2002 because he was not aware that his new financial
service provider did not provide assistance in preparing the
filings. 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, 2002.
</FONT>

<P align="left">
<B><FONT size="2">Annual Report</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">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, 2002 as filed with the Securities
and Exchange Commission and the quarterly reports for the
interim periods in 2002. Requests for additional copies of these
reports should be sent to the Company at 900&nbsp;Lafayette
Street, Suite&nbsp;710, Santa Clara, California 95050,
Attention: Investor Relations.
</FONT>

<P align="left">
<B><FONT size="2">Other Business</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">F&#38;H was selected as the Company&#146;s
independent accountants for the fiscal year ended
December&nbsp;31, 2002 and has been selected as the
Company&#146;s auditors for the current fiscal year.
Representatives for F&#38;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 align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">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>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">By Order of the Board
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">HENRY R. MANDELL
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <I><FONT size="2">Chairman and Chief Executive Officer</FONT></I></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">DATED: May&nbsp;8, 2003
</FONT>

<P align="center"><FONT size="2">15
</FONT>

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

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

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

<DIV align="center">
<B><FONT size="2">OF THE BOARD OF DIRECTORS</FONT></B>
</DIV>

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

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

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">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;&nbsp;&nbsp;&nbsp;GENERAL
RESPONSIBILITIES
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Matters
relating to Annual Audit and Quarterly Financial Reports.</I>
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 align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">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 align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">B.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Matters
Relating to Internal Controls.</I> 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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<DIV align="left">
<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>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">C.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Matters
Relating to Auditor Independence.</I> 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 align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">D.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Miscellaneous
Matters.</I> 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;&nbsp;&nbsp;&nbsp;MEETINGS OF THE
AUDIT COMMITTEE
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">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 align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">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>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="30%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="30%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="30%">&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="left" valign="top"><FONT size="2">
&nbsp;
</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 13, 2003<BR>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The undersigned hereby appoints Gilbert N. Segel 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;13, 2003 at 2:30 p.m., and at any
adjournments thereof.
</FONT>
<P align="center"><FONT size="2">(Continued on reverse side)
</FONT>

<P align="center"><HR align="center" size="1" width="100%" noshade>

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

<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>










<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="23%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><FONT size="2"><B>For planning purposes, please indicate if<BR>
you plan to attend the Annual Meeting:</B></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom"><FONT size="2">
<B>YES</B>
</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="bottom"><FONT size="2"><B>NO</B></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>
</TR>
<TR>
    <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"><HR size="1" noshade>
</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"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>


<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 align="left"><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="85%">
<TR valign="bottom">
    <TD width="67%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="left"><FONT size="2"><B>PROPOSAL 1:</B></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="center"><FONT size="2"><B>FOR</B></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="center"><FONT size="2"><B>WITHHOLD</B></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;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">To elect Henry Mandell as a Director of the Company to
serve until the Annual Meeting of Stockholders to be
held in 2006.</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 align="center"><HR align="center" size="1" width="100%" noshade>

<P align="left"><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 align="left"><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>
<P align="center"><HR align="center" size="1" width="100%" noshade>

<DIV align="center"><FONT size="2">Signature
</FONT>
</DIV>

<P align="center"><HR align="center" size="1" width="100%" 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="5%">&nbsp;</TD>
    <TD width="20%">&nbsp;</TD>
    <TD width="20%">&nbsp;</TD>
    <TD width="20%">&nbsp;</TD>
    <TD width="20%">&nbsp;</TD>
    <TD width="11%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><FONT size="2">Dated:</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 nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">,2001</FONT></TD>
</TR>
<TR>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top" colspan="5"><FONT size="2">
<HR size="1" noshade></FONT></TD>
    <TD 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>

<P align="center"><HR align="center" size="1" width="100%" noshade>

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

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




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`
end

</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
