-----BEGIN PRIVACY-ENHANCED MESSAGE-----
Proc-Type: 2001,MIC-CLEAR
Originator-Name: webmaster@www.sec.gov
Originator-Key-Asymmetric:
 MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen
 TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB
MIC-Info: RSA-MD5,RSA,
 HTbJSfRNQs4Bq0BgmgtzYSy59FH2wht9es7V9Xozbj+fyInBGMC2fjYE3K/4ktQm
 KrqCDBVJt1fmtOi1eoczqw==

<SEC-DOCUMENT>0000950124-06-005962.txt : 20061017
<SEC-HEADER>0000950124-06-005962.hdr.sgml : 20061017
<ACCEPTANCE-DATETIME>20061017172006
ACCESSION NUMBER:		0000950124-06-005962
CONFORMED SUBMISSION TYPE:	PREM14A
PUBLIC DOCUMENT COUNT:		3
FILED AS OF DATE:		20061017
DATE AS OF CHANGE:		20061017

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:		PREM14A
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-26460
		FILM NUMBER:		061149327

	BUSINESS ADDRESS:	
		STREET 1:		2025 GATEWAY PLACE
		STREET 2:		SUITE 365
		CITY:			SAN JOSE
		STATE:			CA
		ZIP:			95110
		BUSINESS PHONE:		3102273370

	MAIL ADDRESS:	
		STREET 1:		2625 TOWNSGATE ROAD
		STREET 2:		SUITE 330
		CITY:			WESTLAKE VILLAGE
		STATE:			CA
		ZIP:			91361
</SEC-HEADER>
<DOCUMENT>
<TYPE>PREM14A
<SEQUENCE>1
<FILENAME>v24256prprem14a.htm
<DESCRIPTION>FORM PREM14A
<TEXT>
<HTML>
<HEAD>
<TITLE>prem14a</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 10pt; margin-top: 3pt"><FONT style="font-size:18pt"><B>SCHEDULE 14A PRIVATE</B></FONT>
</DIV>

<DIV align="center" style="font-size: 10pt"><B>(Rule&nbsp;14A-101)</B></DIV>



<DIV align="center" style="font-size: 12pt; margin-top: 6pt"><B>INFORMATION REQUIRED IN PROXY STATEMENT<BR>
SCHEDULE 14 INFORMATION</B>
</DIV>


<DIV align="center" style="font-size: 12pt; margin-top: 6pt"><B>PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE<BR>
SECURITIES EXCHANGE ACT OF 1934</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Filed by the Registrant <FONT face="Wingdings">&#254;</FONT>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Filed by a Party other than the Registrant <FONT face="Wingdings">&#111;</FONT>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Check the appropriate box:

</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT face="Wingdings">&#254;</FONT> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Preliminary Proxy Statement<br>
<FONT face="Wingdings">&#111;</FONT> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Confidential, for Use of the Commission Only (as permitted by Rule&nbsp;14a-6(e)(2))<br>
<FONT face="Wingdings">&#111;</FONT> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Definitive Proxy Statement<br>
<FONT face="Wingdings">&#111;</FONT> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Definitive Additional Materials<br>
<FONT face="Wingdings">&#111;</FONT> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Soliciting Material Pursuant to Rule&nbsp;14a-11(c) or Rule&nbsp;14a-12
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><FONT style="font-size:14pt"><B>SPATIALIZER AUDIO LABORATORIES, INC.</B></FONT><BR>
<DIV style="width: 100%; border-bottom: 1px solid #000000; font-size: 1px">&nbsp;</DIV>
</DIV>

<DIV align="center" style="font-size: 10pt"><B>(Name of Registrant as Specified in Its Charter)</B></DIV>



<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><DIV style="width: 100%; border-bottom: 1px solid #000000; font-size: 1px">&nbsp;</DIV>
</DIV>

<DIV align="center" style="font-size: 10pt"><B>(Name of Person(s) Filing Proxy Statement, if other than the Registrant)</B></DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Payment of Filing Fee (Check the appropriate box):

</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR style="font-size: 6pt">
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="93%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><FONT face="Wingdings">&#111;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">No fee.</TD>
</TR>
<TR valign="bottom">
    <TD><FONT face="Wingdings">&#254;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">Fee computed on table below per Exchange Act Rules&nbsp;14a-6(i)(4) and 0-11.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(1)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Title of each class of securities to which transaction applies:</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Common Stock</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="1" align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(2)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Aggregate number of securities to which transaction applies:</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="1" align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(3)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined):</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$1,000,000.00 (cash purchase price of the assets)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="1" align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(4)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Proposed maximum aggregate value of transaction:</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$1,000,000.00</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="1" align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(5)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Total fee paid:</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$200.00</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="1" align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR>
<TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT face="Wingdings">&#111;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">Fee paid previously with preliminary materials.</TD>
</TR>
<TR valign="top">
    <TD><FONT face="Wingdings">&#111;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">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.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(1)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amount Previously Paid:</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="1" align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(2)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form, Schedule or Registration Statement No.:</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="1" align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(3)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Filing Party:</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="1" align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(4)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Date Filed:</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="1" align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

</DIV>

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

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="center" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <IMG src="v24256prv2425602.gif" alt="(LOGO)" >
</DIV>



<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: 'Times New Roman', Times; font-variant: SMALL-CAPS">2025
    Gateway Place, Suite&#160;365&#160;West Wing&#160;&#149;&#160;
    San&#160;Jose, CA 95110</FONT></B>
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>



<DIV align="right" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <FONT style="font-family: 'Times New Roman', Times">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;,
    2006
    </FONT>
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Dear Stockholder:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    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. (&#147;Spatializer&#148;) which will be held
    on&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;,
    2006 at&#160;&#160;:&#160;&#160;&#160;&#160;&#160;.m.
    at&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;.
    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.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    At the Annual Meeting, stockholders will be asked to consider
    and vote upon the following matters:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (1)&#160;The sale of all or substantially all of the assets of
    Spatializer and Desper Products, Inc., a wholly owned subsidiary
    of Spatializer, to DTS, Inc. and its wholly owned subsidiary DTS
    BVI, Limited pursuant to an Asset Purchase Agreement as
    described in the accompanying proxy materials;
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (2)&#160;Assuming approval of proposal&#160;1 above, approval of
    the dissolution of Spatializer;
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (3)&#160;The nomination and election of Henry R. Mandell to
    serve as a director of Spatializer until the Annual Meeting of
    Stockholders to be held in 2009;
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (4)&#160;To ratify the selection of Farber&#160;&#38; Hass LLP
    as independent auditors of Spatializer for its fiscal year
    ending December&#160;31, 2006;&#160;and
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (5)&#160;Such other matters as properly be presented at the
    Annual Meeting or any adjournment or postponement thereof.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    The Board has approved and recommends that the stockholders
    vote&#160;FOR each of the matters described in
    proposals&#160;1,&#160;2, and 4 above and FOR the director
    nominated by the Board.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    At the Annual Meeting, each holder of record of shares of common
    stock, par value $0.01&#160;per share (&#147;common stock&#148;)
    as
    of&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;,
    2006, the record date for the meeting will be entitled to one
    vote on each matter properly brought before the Annual Meeting.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Information regarding the proposed sale of assets and
    dissolution of Spatializer, the nominee for director of
    Spatializer and the independent auditors and other important
    information is set forth in the accompanying Notice and Proxy
    Statement and should be considered carefully by stockholders.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    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.
</DIV>

<DIV style="margin-top: 24pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 49%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Sincerely,
</DIV>

<DIV align="left" style="margin-left: 49%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    SPATIALIZER AUDIO LABORATORIES, INC.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 49%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <IMG src="v24256prv2425601.gif" alt="-s- Henry R. Mandell" >
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 49%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    HENRY R. MANDELL
</DIV>

<DIV align="left" style="margin-left: 49%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">

</DIV>

<DIV align="left" style="margin-left: 49%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Chairman of the Board
</DIV>

<P align="left" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">

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

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="center" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <IMG src="v24256prv2425602.gif" alt="(LOGO)" >
</DIV>



<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: 'Times New Roman', Times; font-variant: SMALL-CAPS">2025
    Gateway Place, Suite&#160;365&#160;West Wing&#160;&#149;&#160;
    San&#160;Jose, CA 95110</FONT></B>
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <B><FONT style="font-size: 12pt">NOTICE OF ANNUAL MEETING OF
    STOCKHOLDERS</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Notice is hereby given that Spatializer Audio Laboratories, Inc.
    (the &#147;Company&#148;) will hold a Annual Meeting of
    Stockholders
    on&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;,&#160;&#160;,
    2006 at&#160;&#160;&#160;&#160;&#160;.m.,
    at&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;,
    for the following purposes:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    1.&#160;To approve of the sale of all or substantially all of
    the assets of Spatializer and Desper Products, Inc., a wholly
    owned subsidiary of Spatializer, to DTS, Inc. and its wholly
    owned subsidiary DTS BVI, Limited pursuant to an Asset Purchase
    Agreement as described in the accompanying proxy materials.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    2.&#160;Assuming approval of proposal&#160;1 above, to approve
    of the dissolution of Spatializer.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    3.&#160;To elect Henry R. Mandell as a director of Spatializer
    to serve until the Annual Meeting of Stockholders to be held in
    2009.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    4.&#160;To ratify the selection of Farber&#160;&#38; Hass LLP as
    independent auditors of Spatializer for its fiscal year ending
    December&#160;31, 2006.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    5.&#160;To act upon other matters that may properly come before
    the Annual Meeting.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    The board of directors has
    fixed&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;,
    2006 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.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    At the Annual Meeting, each share of common stock represented
    will be entitled to one vote on each matter properly brought
    before the Annual Meeting.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    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.
</DIV>

<DIV style="margin-top: 24pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 49%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    BY ORDER OF THE BOARD OF DIRECTORS
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 49%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <IMG src="v24256prv2425601.gif" alt="-s- Henry R. Mandell" >
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 49%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    HENRY R. MANDELL
</DIV>

<DIV align="left" style="margin-left: 49%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">

</DIV>

<DIV align="left" style="margin-left: 49%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Chairman of the Board
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    DATED:&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;,
    2006
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    THE BOARD HAS APPROVED AND RECOMMENDS THAT THE STOCKHOLDERS VOTE
    <B>FOR </B>EACH OF THE PROPOSALS&#160;DESCRIBED IN THIS NOTICE
    AND <B>FOR </B>THE DIRECTOR NOMINATED BY THE BOARD.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    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.
</DIV>

<P align="left" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">

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

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: 'Times New Roman', Times">Table of
    Contents</FONT></B>
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>
<DIV align="left">
<!-- TOC -->
</DIV>

<DIV align="left">
<A name="tocpage"></A>
</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="97%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=02 type=quadleft -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=02 type=maindata -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=02 type=quadright -->
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <A HREF='#101'><FONT style="font-size: 10pt">SUMMARY TERM
    SHEET</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">i
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <A HREF='#102'><FONT style="font-size: 10pt">PROXY
    STATEMENT</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">1
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <A HREF='#103'><FONT style="font-size: 10pt">VOTING RIGHTS AND
    SOLICITATION OF PROXIES</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">1
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 20pt">
    <A HREF='#104'><FONT style="font-size: 10pt">Quorum
    Required</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">1
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 20pt">
    <A HREF='#105'><FONT style="font-size: 10pt">Vote
    Required</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">1
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 20pt">
    <A HREF='#106'><FONT style="font-size: 10pt">Revocability of
    Proxies</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">3
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 20pt">
    <A HREF='#107'><FONT style="font-size: 10pt">Proxy
    Solicitation</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">3
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <A HREF='#108'><FONT style="font-size: 10pt">QUESTIONS AND
    ANSWERS</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">4
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <A HREF='#109'><FONT style="font-size: 10pt">CAUTIONARY
    STATEMENT CONCERNING FORWARD LOOKING INFORMATION</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">8
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <A HREF='#110'><FONT style="font-size: 10pt">SALE OF ALL OR
    SUBSTANTIALLY ALL OF THE ASSETS</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">8
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 20pt">
    <A HREF='#111'><FONT style="font-size: 10pt">General</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">8
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 20pt">
    <A HREF='#112'><FONT style="font-size: 10pt">Background of the
    Sale of Assets and Dissolution</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">9
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 20pt">
    <A HREF='#113'><FONT style="font-size: 10pt">Recommendation of
    our Board of Directors and Reasons for the Sale of Assets and
    Dissolution</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">12
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 20pt">
    <A HREF='#114'><FONT style="font-size: 10pt">Effective Time of
    the Sale of Assets</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">13
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 20pt">
    <A HREF='#115'><FONT style="font-size: 10pt">Material Federal
    Income Tax Consequences</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">13
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <A HREF='#116'><FONT style="font-size: 10pt">MARKET PRICE AND
    DIVIDEND DATA</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">15
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
    <A HREF='#117'><FONT style="font-size: 10pt">PROPOSAL&#160;1<BR>
    APPROVAL OF SALE OF ALL OR SUBSTANTIALLY ALL OF THE ASSETS OF
    SPATIALIZER AND DESPER PRODUCTS</FONT></A>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">16
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 20pt">
    <A HREF='#118'><FONT style="font-size: 10pt">Parties to
    Agreement</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">16
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 20pt">
    <A HREF='#119'><FONT style="font-size: 10pt">Assets to be
    Acquired; Liabilities</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">16
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 20pt">
    <A HREF='#120'><FONT style="font-size: 10pt">Consideration</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">16
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 20pt">
    <A HREF='#121'><FONT style="font-size: 10pt">Representations and
    Warranties</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">16
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 20pt">
    <A HREF='#122'><FONT style="font-size: 10pt">Covenants of
    Spatializer and Desper Products</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">17
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 20pt">
    <A HREF='#123'><FONT style="font-size: 10pt">No
    Solicitation</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">18
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 20pt">
    <A HREF='#124'><FONT style="font-size: 10pt">Conditions to
    Closing</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">19
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 20pt">
    <A HREF='#125'><FONT style="font-size: 10pt">Termination of
    Agreement</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">19
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 20pt">
    <A HREF='#126'><FONT style="font-size: 10pt">Indemnification</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">20
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 20pt">
    <A HREF='#127'><FONT style="font-size: 10pt">Brokers</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">20
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 20pt">
    <A HREF='#128'><FONT style="font-size: 10pt">Transfer
    Taxes</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">20
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
    <A HREF='#129'><FONT style="font-size: 10pt">PROPOSAL&#160;2<BR>
    APPROVAL OF DISSOLUTION OF SPATIALIZER</FONT></A>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">20
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
    <A HREF='#130'><FONT style="font-size: 10pt">PROPOSAL&#160;3<BR>
    NOMINATION AND ELECTION OF DIRECTOR</FONT></A>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">22
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
    <A HREF='#131'><FONT style="font-size: 10pt">PROPOSAL&#160;4<BR>
    RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS</FONT></A>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">22
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <A HREF='#132'><FONT style="font-size: 10pt">DIRECTORS AND
    EXECUTIVE OFFICERS</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">23
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 20pt">
    <A HREF='#133'><FONT style="font-size: 10pt">General</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">23
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 20pt">
    <A HREF='#134'><FONT style="font-size: 10pt">Compensation Of
    Directors</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">24
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 20pt">
    <A HREF='#135'><FONT style="font-size: 10pt">Activities of the
    Board of Directors and its Committees</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">24
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 20pt">
    <A HREF='#136'><FONT style="font-size: 10pt">Code of
    Ethics</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">26
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 20pt">
    <A HREF='#137'><FONT style="font-size: 10pt">Stockholder
    Communications with the Board of Directors</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">26
    </FONT>
</TD>
<TD>
</TD>
</TR>
</TABLE>

<P align="left" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">

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

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="97%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=02 type=quadleft -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=02 type=maindata -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=02 type=quadright -->
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <A HREF='#138'><FONT style="font-size: 10pt">SECURITY OWNERSHIP
    OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">26
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <A HREF='#139'><FONT style="font-size: 10pt">EXECUTIVE
    COMPENSATION</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">27
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 20pt">
    <A HREF='#140'><FONT style="font-size: 10pt">Named Executive
    Officer</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">27
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 20pt">
    <A HREF='#141'><FONT style="font-size: 10pt">Compensation of
    Directors</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">28
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 20pt">
    <A HREF='#142'><FONT style="font-size: 10pt">Employment
    Agreement</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">28
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 20pt">
    <A HREF='#143'><FONT style="font-size: 10pt">Certain
    Relationships and Related Transactions</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">29
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 20pt">
    <A HREF='#144'><FONT style="font-size: 10pt">Compliance with
    Section&#160;16(a) of the Exchange Act</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">29
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 20pt">
    <A HREF='#145'><FONT style="font-size: 10pt">Indemnification of
    Directors and Executive Officers</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">29
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <A HREF='#146'><FONT style="font-size: 10pt">ANNUAL
    REPORT</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">29
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <A HREF='#147'><FONT style="font-size: 10pt">STOCKHOLDER
    PROPOSALS</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">30
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <A HREF='#148'><FONT style="font-size: 10pt">OTHER
    BUSINESS</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">30
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <A HREF='#149'><FONT style="font-size: 10pt">ANNEX A</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">31
    </FONT>
</TD>
<TD>
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">

</DIV>

<DIV align="left">
<!-- /TOC -->
</DIV>

<P align="left" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">

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

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->
<A name='101'>
<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: 'Times New Roman', Times">SUMMARY
    TERM SHEET</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    The following summary briefly describes the material terms of
    the proposed sale of assets by Spatializer Audio Laboratories,
    Inc. (&#147;Spatializer&#148; or &#147;we,&#148; &#147;our&#148;
    or similar words) and its wholly owned subsidiary, Desper
    Products, Inc. (&#147;Desper Products&#148;). While this summary
    describes the material terms that you should consider when
    evaluating the asset sale, this proxy statement contains a more
    detailed description of these terms. A copy of the Asset
    Purchase Agreement is attached and we encourage you to read it
    and this proxy statement carefully before voting your shares of
    Spatializer&#146;s common stock. We have included section and
    page references to the proxy statement to direct you to a more
    complete description of the topics described in this summary.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

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

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

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    <I>Spatializer</I>, a Delaware corporation, is a developer,
    licensor and marketer of next generation technologies for the
    consumer electronics, personal computing, entertainment and
    cellular telephone markets.
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    <I>Desper Products </I>is a California corporation and a wholly
    owned subsidiary of Spatializer. It owns certain of the key
    intellectual property to be sold to DTS, Inc. pursuant to the
    Asset Purchase Agreement.
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    <I>DTS, Inc.</I> (&#147;DTS&#148;) is a Delaware corporation and
    a leading provider of entertainment technology, products and
    services to the audio and image entertainment markets worldwide.
    DTS desires to acquire all or substantially all of the assets of
    Spatializer and Desper Products pursuant to the terms of the
    Asset Purchase Agreement.
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    <I>DTS BVI, Limited </I>(&#147;DTS BVI&#148;) is a British
    Virgin Island corporation and a wholly owned subsidiary of DTS.
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    <I>Asset Purchase Agreement</I>&#160;&#151; Spatializer and
    Desper Products have entered into an Asset Purchase Agreement,
    dated as of September&#160;18, 2006, with DTS and DTS BVI
    pursuant to which DTS and DTS BVI will acquire substantially all
    of the assets of both Spatializer and Desper for an aggregate
    cash payment of $1,000,000, provided that, among other things,
    the sale is approved by the stockholders of Spatializer.
    Spatializer, as the sole shareholder of Desper Products, has
    already approved of the sale of the assets of Desper Products to
    DTS. See &#147;Proposal&#160;1&#160;&#151; Approval of Sale of
    All or Substantially All of the Assets of Spatializer and Desper
    Products&#148; commencing on page&#160;&#160;&#160;.
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    <I>After the Sale of the Assets</I>&#160;&#151; It is
    contemplated that, assuming the approval and consummation of the
    sale of the assets of Spatializer and Desper Products as
    described in this proxy statement, each of Spatializer and
    Desper Products will dissolve and wind up. We are seeking your
    approval of the sale of the assets of Spatializer and Desper
    Products and the dissolution of Spatializer. See
    &#147;Proposal&#160;2&#160;&#151; Approval of Dissolution of
    Spatializer&#148; commencing on page&#160;&#160;&#160;.
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    <I>Reasons for the Sale of Assets</I>&#160;&#151; The board of
    directors of Spatializer considered a number of factors in
    deciding to sell its assets and dissolve. Those reasons
    included, among others, the consideration to be received by
    Spatializer; the poor business outlook for Spatializer; the
    current and future uncompetitive landscape for Spatializer in
    our industry; the weak financial viability of Spatializer; lack
    of full-time management; the status and history of discussions
    with other potential bidders and our auction process; and the
    terms of the Asset Purchase Agreement. See &#147;Sale of All or
    Substantially All of the Assets&#160;&#151; Recommendation of
    the Board of Directors and Reasons for the Sale of Assets and
    Dissolution&#148; commencing on page&#160;&#160;&#160;.
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    <I>Recommendation of the Board of Spatializer</I>&#160;&#151;
    The board of directors of Spatializer has unanimously deemed the
    sale of substantially all of Spatializer&#146;s and Desper
    Products&#146; assets to be in the best interests of
    Spatializer. Our board of directors has unanimously approved the
    Asset Purchase Agreement and the sale of assets contemplated by
    that agreement, recommends its advisability and recommends that
    you vote at the annual meeting &#147;FOR&#148; the approval of
    the Asset Purchase Agreement and the sale of assets contemplated
    by that agreement. See &#147;Sale of All or Substantially All of
    the Assets of Spatializer and Desper Products&#160;&#151;
    Recommendation of the Board of Directors and Reasons for the
    Sale of Assets and Dissolution&#148; on page&#160;&#160;&#160;.
    The board of directors has also unanimously deemed it advisable,
    assuming approval and consummation of the sale of substantially
    all of our assets and the assets of Desper Products, that
    Spatializer be dissolved. See &#147;Proposal&#160;2&#160;&#151;
    Approval of Dissolution of Spatializer&#148; commencing on
    page&#160;&#160;&#160;.
</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <BR>
    i
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

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

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

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    <I>Appraisal Rights</I>&#160;&#151; The stockholders of
    Spatializer will not have any appraisal rights in connection
    with the asset sale transaction.
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    <I>Required Vote</I>&#160;&#151; For us to complete the sale of
    substantially all of the assets of Spatializer and Desper
    Products and to enable us to dissolve, stockholders holding at
    least a majority of the shares of Spatializer&#146;s common
    stock outstanding at the close of business on the record date
    of&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;,
    2006 must vote &#147;FOR&#148; the sale of assets as provided in
    the Asset Purchase Agreement and &#147;FOR&#148; the dissolution
    of Spatializer. See &#147;Voting Rights and Solicitations of
    Proxies&#160;&#151; Vote Required&#148; commencing on
    page&#160;&#160;&#160;.
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    <I>Conditions to the Completion of the Sale of the
    Assets</I>&#160;&#151; The obligations of DTS and DTS BVI to buy
    the assets of Spatializer and Desper Products as provided in the
    Asset Purchase Agreement is subject to various conditions,
    including approval of the sale of assets by the stockholders of
    Spatializer and obtaining the consent of the parties to the
    various agreements to be assigned to DTS
    <FONT style="white-space: nowrap">and/or</FONT> DTS
    BVI in connection with the acquisition of the assets. See
    &#147;Approval of Sale of All or Substantially All of the Assets
    of Spatializer and Desper Products&#160;&#151; Conditions to
    Closing&#148; commencing on page&#160;&#160;&#160;.
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    <I>Termination of Agreement</I>&#160;&#151; The Asset Purchase
    Agreement and the sale of assets may be terminated under certain
    circumstances, including the failure of the transaction to close
    by June&#160;30, 2007. See &#147;Approval of Sale of All or
    Substantially All of the Assets of Spatializer and Desper
    Products&#160;&#151; Termination of Agreement&#148; commencing
    on page&#160;&#160;&#160;.
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    <I>Material Federal Tax Consequences</I>&#160;&#151; The sale of
    all or substantially all of the assets of Spatializer and Desper
    Products to DTS likely will not result in any federal corporate
    income tax liability (including any alternative minimum tax
    liability) because we anticipate that any taxable gain from the
    sale of a particular asset to DTS
    <FONT style="white-space: nowrap">and/or</FONT> DTS
    BVI will be offset for income tax purposes by losses that
    Spatializer or Desper Products will recognize from the sale of
    other assets to DTS and DTS BVI, as well as by
    Spatializer&#146;s current and prior years&#146; net operating
    losses on a consolidated basis. Until Spatializer and Desper
    Products are dissolved, the entities, on a consolidated basis,
    will continue to be subject to federal income taxation on
    taxable income, if any. See &#147;Sale of All or Substantially
    All of the Assets of Spatializer and Desper Products and
    Dissolution of Spatializer&#160;&#151; Material Federal Income
    Tax Consequenses&#148; commencing on page&#160;&#160;&#160;.
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    <I>Annual Meeting</I>&#160;&#151; The annual meeting of
    stockholders of Spatializer will be held
    on&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;,&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;,
    2006 at&#160;&#160;:&#160;&#160;&#160;&#160;&#160;.m.
    at&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;
    or at any adjournment or postponement of the annual meeting. The
    annual meeting will be held to consider and vote upon the
    proposal to sell all or substantially all of the assets of
    Spatializer and Desper Products and, if the asset sale is
    approved, to dissolve Spatializer; to elect a director; to
    ratify the accountants for Spatializer for the fiscal year
    ending December&#160;31, 2006; and such other business as may
    properly come before the meeting.
</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <BR>
    ii
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="center" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <IMG src="v24256prv2425602.gif" alt="(LOGO)" >
</DIV>



<DIV align="center" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <B><FONT style="font-variant: SMALL-CAPS">2025 Gateway Place,
    Suite&#160;365&#160;West Wing&#160;&#149;&#160; San&#160;Jose,
    CA 95110</FONT></B>
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <A name='102'><B><FONT style="font-size: 12pt">PROXY
    STATEMENT</FONT></B>
</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <B><FONT style="font-size: 12pt">FOR THE ANNUAL MEETING OF
    STOCKHOLDERS</FONT></B>
</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    </A><B><FONT style="font-size: 12pt">To be held
    on&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;,
    2006</FONT></B>
</DIV>

<DIV style="margin-top: 14pt; font-size: 1pt">&nbsp;</DIV>

<CENTER style="font-size: 1pt; width: 18%; border-bottom: 1pt solid #000000"></CENTER><!-- callerid=999 iwidth=455 length=84 -->

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>



<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    The enclosed proxy is being solicited by the board of directors
    of Spatializer Audio Laboratories, Inc. (&#147;we&#148;,
    &#147;us&#148;, &#147;our&#148;, &#147;Spatializer&#148; or
    similar words in this proxy statement) for use at the Annual
    Meeting of Stockholders of Spatializer to be held
    on&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;,&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;,
    2006 at&#160;&#160;&#160;&#160;&#160;.m.,
    at&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;,
    and at any adjournments or postponements of the Annual Meeting.
    This proxy statement and accompanying proxy will be mailed
    beginning on or
    about&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;,
    2006, to give holders of record of Spatializer&#146;s common
    stock
    on&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;,
    2006, the Record Date, an opportunity to vote at the Annual
    Meeting.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    The purpose of the meeting will be to vote on each of the
    following matters:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    1.&#160;To approve of the sale of all or substantially all of
    the assets of Spatializer and Desper Products, Inc., a wholly
    owned subsidiary of Spatializer (&#147;Desper Products&#148;),
    to DTS, Inc. (&#147;DTS&#148;) and its wholly owned subsidiary
    DTS BVI, Limited (&#147;DTS BVI&#148;) pursuant to the terms of
    the Asset Purchase Agreement.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    2.&#160;Assuming approval of proposal&#160;1 above, to approve
    of the dissolution of Spatializer.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    3.&#160;To elect Henry R. Mandell as a director of Spatializer
    to serve until the Annual Meeting of Stockholders to be held in
    2009.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    4.&#160;To ratify the selection of Farber&#160;&#38; Hass LLP as
    independent auditors of Spatializer for its fiscal year ending
    December&#160;31, 2006.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    5.&#160;To act upon other matters that may properly come before
    the Annual Meeting.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    This proxy statement and the accompanying form of proxy are
    first being sent to stockholders of Spatializer on or
    about&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;,
    2006.
</DIV>
<A name='103'>
<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: 'Times New Roman', Times">VOTING
    RIGHTS AND SOLICITATION OF PROXIES</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Spatializer&#146;s common stock is the only security entitled to
    vote at the annual meeting.
    On&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;,
    2006, the record date for determination of stockholders entitled
    to vote at the annual meeting, there
    were&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;shares
    of common stock outstanding and no shares of preferred stock
    outstanding. Each stockholder of record as of the close of
    business
    on&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;,
    2006 is entitled to one vote for each share of common stock held
    by such stockholder on such date. All votes will be tabulated by
    the inspector of elections appointed for the meeting, who will
    separately tabulate affirmative and negative votes, withheld
    votes, abstentions and broker non-votes.
</DIV>
<A name='104'>
<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: 'Times New Roman', Times">Quorum
    Required</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Delaware law and our charter documents provide that the holders
    of a majority of Spatializer&#146;s common stock issued and
    outstanding and entitled to vote at the annual meeting, present
    in person or represented by proxy, will constitute a quorum for
    the transaction of business at the annual meeting. Abstentions,
    broker non-votes and votes withheld in a proxy otherwise signed
    and returned will be counted as present for the purpose of
    determining the presence of a quorum.
</DIV>
<A name='105'>
<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: 'Times New Roman', Times">Vote
    Required</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Proposal&#160;1, the proposal to approve the sale of all or
    substantially all of the assets of Spatializer and Desper
    Products to DTS and DTS BVI pursuant to the terms of the Asset
    Purchase Agreement, requires approval by holders
</DIV>

<P align="left" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">

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

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    of a majority of the shares of common stock of Spatializer
    outstanding at the close of business on the record date for the
    annual meeting. Abstentions and non-votes are not affirmative
    votes and, therefore, will have the same effect as a vote
    against Proposal&#160;1.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Proposal&#160;2, the proposal to dissolve Spatializer, will be
    voted on only if proposal&#160;1 is approved. Proposal&#160;2
    also requires approval by holders of a majority of the shares of
    stock of Spatializer outstanding at the close of business on the
    record date for the annual meeting. Abstentions and non-votes
    are not affirmative votes and, therefore, will have the same
    effect as a vote against Proposal&#160;2.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    With respect to proposal&#160;3, the election of Henry R.
    Mandell as a director of Spatializer, our bylaws provide that
    the nominee receiving a plurality of the votes cast for director
    will be deemed to be elected. Abstentions and non-votes, while
    not affirmative votes, will not affect the vote on
    proposal&#160;3.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Proposal&#160;4, ratification of Farber&#160;&#38; Hass as the
    independent auditors for Spatializer, requires the affirmative
    vote of a majority of the shares present at the meeting.
    Abstentions and non-votes are not affirmative votes and,
    therefore, will have the same effect as a vote against
    Proposal&#160;4.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    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 FOR the sale of the assets, the
    proposed dissolution, and ratification of the independent
    auditors, FOR the nominee for director and, at their discretion,
    on any other matters that may properly come before the Annual
    Meeting.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    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. A broker non-vote generally occurs when a broker, bank
    or other nominee holding shares on your behalf returns a signed
    proxy card voting on one or more matters but does not vote on a
    proposal because that nominee has not received your voting
    instructions and lacks discretionary power to vote the shares.
    Generally, brokers and other similar nominees have the
    discretion to vote for directors or other routine matters,
    unless you instruct otherwise. Broker non-votes will count for
    the purpose of determining whether a quorum is present. Broker
    non-votes will have the same effect as a vote&#160;AGAINST the
    proposals regarding the asset sale transaction, the dissolution
    and ratification of Farber&#160;&#38; Hass LLP. Broker non-votes
    will not directly affect the outcome of the vote on the election
    of directors.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    The failure by a stockholder to return a proxy and indicate the
    stockholder&#146;s vote concerning the sale of the assets, the
    dissolution or the ratification of the auditors will, in effect,
    be treated as a vote against such matter, as shares cannot be
    counted as a FOR vote if a proxy is not returned. The failure by
    a stockholder to return a proxy and indicate the
    stockholder&#146;s vote concerning the election of the nominee
    for director will have the effect of a non-vote.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    THE BOARD OF DIRECTORS RECOMMENDS YOU VOTE &#147;FOR&#148; THE
    SALE OF THE ASSETS OF SPATIALIZER AND DESPER PRODUCTS.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    THE BOARD OF DIRECTORS RECOMMENDS YOU VOTE &#147;FOR&#148; THE
    DISSOLUTION OF SPATIALIZER.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    THE BOARD OF DIRECTORS RECOMMENDS YOU VOTE &#147;FOR&#148; THE
    ELECTION OF HENRY R. MANDELL, NOMINATED AS DIRECTOR OF
    SPATIALIZER.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    THE BOARD OF DIRECTORS RECOMMENDS YOU VOTE &#147;FOR&#148; THE
    RATIFICATION OF FARBER&#160;&#38; HASS LLP TO SERVE AS
    INDEPENDENT AUDITORS.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    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&#160;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.
</DIV>

<P align="center" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <BR>
    2
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    THE SHARES&#160;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.
</DIV>
<A name='106'>
<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: 'Times New Roman', Times">Revocability
    of Proxies</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    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, you can deliver to the Secretary
    of Spatializer a written notice bearing a date later than the
    proxy stating that you would like to revoke your proxy. You can
    also complete, execute and deliver to the Secretary of
    Spatializer a new, later-dated proxy card for the same shares,
    provided the new proxy is received before voting has closed.
    Additionally, you can attend the annual meeting and vote in
    person but please note that your attendance alone will not
    revoke your proxy. Any written notice of revocation or
    subsequent proxy should be delivered to Spatializer at 2060 East
    Avenida de Los Arboles, #&#160;D190, Thousand Oaks,
    <FONT style="white-space: nowrap">California&#160;91362-1376,</FONT>
    or to Computershare Investor Services, 2 North LaSalle Street,
    Chicago, Illinois
    <FONT style="white-space: nowrap">60690-1689</FONT>
    (the &#147;Transfer Agent&#148;) by the last business day
    preceding the date of the meeting, or any adjournments thereof,
    or to the chairman of the annual meeting at or before the taking
    of the vote at the annual meeting.
</DIV>
<A name='107'>
<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: 'Times New Roman', Times">Proxy
    Solicitation</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Spatializer 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 or
    officers of Spatializer personally or by mail, telephone or
    telegraph, but such persons will not be specially compensated
    for such services. In addition, we have retained the services of
    Georgeson Shareholder Services, a proxy solicitation firm, to
    solicit proxies in connection with the meeting, who will be paid
    approximately $35,000 for its 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.
    Spatializer may reimburse persons representing beneficial owners
    for their costs of forwarding the solicitation material to such
    owners.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    YOUR VOTE IS IMPORTANT. PLEASE RETURN YOUR MARKED PROXY PROMPTLY
    SO YOUR SHARES&#160;CAN BE REPRESENTED, EVEN IF YOU PLAN TO
    ATTEND THE ANNUAL MEETING IN PERSON.
</DIV>

<P align="center" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <BR>
    3
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->
<A name='108'>
<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: 'Times New Roman', Times">QUESTIONS
    AND ANSWERS</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    The following discussion is intended to address briefly some
    commonly asked questions regarding the annual meeting and, in
    particular, the proposals to sell all or substantially all of
    the assets of Spatializer and Desper Products and to dissolve
    Spatializer following that sale. These questions and answers may
    not address all questions that may be important to you as a
    stockholder of Spatializer. Please refer to the more detailed
    information contained elsewhere in this proxy statement, the
    annex to this proxy statement, and the documents referred to in
    this proxy statement.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">

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

<TR>
    <TD valign="top">
    Q: </TD>
    <TD></TD>
    <TD valign="bottom">
    What matters am I being asked to vote on at the annual meeting?</TD>
</TR>

<TR style="line-height: 3pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">
    A: </TD>
    <TD></TD>
    <TD valign="bottom">
    You are being asked to vote on the following proposals:</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">
</TD>
    <TD></TD>
    <TD valign="bottom">
<DIV style="text-indent: -9pt; margin-left: 9pt">
    &#149;&#160;To approve the sale of all or substantially all of
    the assets of Spatializer and Desper Products to DTS and DTS BVI
    pursuant to the Asset Purchase Agreement;</DIV>
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">
</TD>
    <TD></TD>
    <TD valign="bottom">
    &#149;&#160;Assuming the sale of assets is approved, to approve
    the dissolution of Spatializer;</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">
</TD>
    <TD></TD>
    <TD valign="bottom">
    &#149;&#160;To elect Henry R. Mandell as a director of
    Spatializer;&#160;and</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">
</TD>
    <TD></TD>
    <TD valign="bottom">
    &#149;&#160;To ratify Farber&#160;&#38; Hass as the independent
    auditors for Spatializer;</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">
</TD>
    <TD></TD>
    <TD valign="bottom">
    Finally, you may be asked to vote on such other business as may
    properly come before the annual meeting or any adjournment or
    postponement thereof. If there are not sufficient votes at the
    time of the meeting to approve the asset sale or dissolution,
    the board of directors may postpone the meeting to allow time to
    solicit additional proxies.</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">
    Q: </TD>
    <TD></TD>
    <TD valign="bottom">
    How does Spatializer&#146;s board of directors recommend that
    you vote on the proposals?</TD>
</TR>

<TR style="line-height: 3pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">
    A: </TD>
    <TD></TD>
    <TD valign="bottom">
    Our board of directors recommends that you vote:</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">
</TD>
    <TD></TD>
    <TD valign="bottom">
    &#147;FOR&#148; the proposal to approve the sale of all or
    substantially all of the assets of Spatializer and Desper
    Products to DTS and DTS BVI pursuant to the Asset Purchase
    Agreement;</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">
</TD>
    <TD></TD>
    <TD valign="bottom">
    &#147;FOR&#148; the dissolution of Spatializer;</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">
</TD>
    <TD></TD>
    <TD valign="bottom">
    &#147;FOR&#148; the election of Henry R. Mandell as a director
    of Spatializer; and</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">
</TD>
    <TD></TD>
    <TD valign="bottom">
    &#147;FOR&#148; the ratification of Farber&#160;&#38; Hass as
    the independent auditors for Spatializer.</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">
    Q: </TD>
    <TD></TD>
    <TD valign="bottom">
    What vote of stockholders is required for each proposal at the
    annual meeting?</TD>
</TR>

<TR style="line-height: 3pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">
    A: </TD>
    <TD></TD>
    <TD valign="bottom">
    The proposals regarding the sale of assets and the dissolution
    of Spatializer both require the affirmative vote of stockholders
    holding at least a majority of the shares of our common stock
    outstanding at the close of business on the record date. The
    proposal to ratify the selection of independent auditors
    requires the affirmative vote of at least a majority of the
    shares present, in person or by proxy, at the annual meeting and
    entitled to vote on the subject matter thereof. The nominee for
    director obtaining the most votes will be deemed elected as a
    director of Spatializer. See &#147;Voting Rights and
    Solicitation of Proxies&#160;&#151; Required Vote.&#148;</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">
    Q: </TD>
    <TD></TD>
    <TD valign="bottom">
    Who is entitled to vote at the annual meeting?</TD>
</TR>

<TR style="line-height: 3pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">
    A: </TD>
    <TD></TD>
    <TD valign="bottom">
    Only stockholders of record as of the close of business
    on&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;,
    2006, the record date for the annual meeting, are entitled to
    receive notice of the meeting and to vote the shares of our
    common stock that they held at that time at the meeting, or at
    any adjournments or postponements of the meeting. On the record
    date,
    approximately&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;shares
    of our common stock, held by
    approximately&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;
    stockholders of record, were outstanding and entitled to vote.
    No preferred stock is currently issued or outstanding. You may
    vote all shares you owned as of the record date. You are
    entitled to one vote per share.</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">
    Q: </TD>
    <TD></TD>
    <TD valign="bottom">
    How do I cast a vote?</TD>
</TR>

<TR style="line-height: 3pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">
    A: </TD>
    <TD></TD>
    <TD valign="bottom">
    If your shares are registered in your name, you may vote by
    returning a signed proxy card or voting in person at the annual
    meeting. Proxies submitted by mail must be received prior to the
    opening of the polls. To vote by mail, mark, sign and date the
    proxy card and return it in the postage-paid envelope provided.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <BR>
    4
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">

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

<TR>
    <TD valign="top">
</TD>
    <TD></TD>
    <TD valign="bottom">
    If your shares are held in &#147;street name&#148; through a
    broker or bank, you may vote by completing and returning the
    voting form provided by your broker or bank, or by telephone
    through your broker or bank if such a service is provided. To
    vote by telephone through your broker or bank, you should follow
    the instructions on the voting form provided by your broker or
    bank.</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">
    Q: </TD>
    <TD></TD>
    <TD valign="bottom">
    May I vote in person?</TD>
</TR>

<TR style="line-height: 3pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">
    A: </TD>
    <TD></TD>
    <TD valign="bottom">
    Yes. If your shares are not held in &#147;street name&#148;
    through a broker or bank you may attend the annual meeting and
    vote your shares in person at the annual meeting by giving us a
    signed proxy card or ballot before voting is closed, rather than
    signing and returning your proxy card via mail. If you choose to
    vote in person, please bring proof of identification with you to
    the annual meeting. Even if you plan to attend the annual
    meeting, we recommend that you vote your shares in advance as
    described above, so that your vote will be counted if you later
    decide not to attend. If your shares are held in &#147;street
    name,&#148; you must get a proxy from your broker or bank in
    order to attend the annual meeting and vote. In order to do
    this, you should contact your broker or bank.</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">
    Q: </TD>
    <TD></TD>
    <TD valign="bottom">
    What happens if I do not return my proxy card or attend the
    annual meeting and vote in person?</TD>
</TR>

<TR style="line-height: 3pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">
    A: </TD>
    <TD></TD>
    <TD valign="bottom">
    Approval of the asset sale transaction and the approval of the
    dissolution of Spatializer requires the affirmative vote of the
    holders of a majority of the shares of our common stock
    outstanding at the close of business on the record date.
    Therefore, if you do not return your proxy card or attend the
    annual meeting and vote in person, it will have the same effect
    as if you voted against adoption of the Asset Purchase
    Agreement. See &#147;Voting Rights and Solicitation of
    Proxies&#160;&#151; Votes Required&#148; above for a description
    of the vote required for each proposal included in this proxy
    statement.</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">
    Q: </TD>
    <TD></TD>
    <TD valign="bottom">
    If my broker holds my shares in &#147;street name,&#148; will my
    broker vote my shares for me?</TD>
</TR>

<TR style="line-height: 3pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">
    A: </TD>
    <TD></TD>
    <TD valign="bottom">
    Your broker will not be able to vote your shares without
    instructions from you. You should instruct your broker to vote
    your shares following the procedure provided by your broker.
    Without instructions, your shares will not be voted on the
    proposal regarding the sale of assets or the dissolution, which
    will have the same effect as if you voted against those
    proposals. See &#147;Voting Rights and Solicitation of
    Proxies&#160;&#151; Vote Required&#148; above for a description
    of the effect of broker non-votes on the other proposals
    included in this proxy statement.</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">
    Q: </TD>
    <TD></TD>
    <TD valign="bottom">
    May I change my vote after I have mailed my signed proxy card?</TD>
</TR>

<TR style="line-height: 3pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">
    A: </TD>
    <TD></TD>
    <TD valign="bottom">
    Yes. You may change your vote at any time before your proxy card
    is voted at the annual meeting. You can do this in one of three
    ways:</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">
</TD>
    <TD></TD>
    <TD valign="bottom">
    First, you can deliver to the Secretary of Spatializer a written
    notice bearing a date later than the proxy stating that you
    would like to revoke your proxy.</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">
</TD>
    <TD></TD>
    <TD valign="bottom">
    Second, you can complete, execute and deliver to the Secretary
    of Spatializer a new, later-dated proxy card for the same
    shares, provided the new proxy is received before voting has
    closed.</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">
</TD>
    <TD></TD>
    <TD valign="bottom">
    Third, you can attend the annual meeting and vote in person.
    Your attendance alone will not revoke your proxy. Any written
    notice of revocation or subsequent proxy should be delivered to
    Spatializer at 2060 East Avenida de Los Arboles, # D190,
    Thousand Oaks, California
    <FONT style="white-space: nowrap">91362-1376,</FONT>
    or to the Transfer Agreement at 2 North LaSalle Street, Chicago,
    Illinois
    <FONT style="white-space: nowrap">60690-1689</FONT>
    by the last business day preceding the date of the meeting, or
    any adjournments thereof, or to the chairman of the meeting to
    our Chairman of the Board at or before the taking of the vote at
    the annual meeting.</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">
</TD>
    <TD></TD>
    <TD valign="bottom">
    If you have instructed a broker to vote your shares, you must
    follow directions received from your broker to change those
    instructions. Your last vote before voting is closed at the
    annual meeting is the vote that will be counted.</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">
    Q: </TD>
    <TD></TD>
    <TD valign="bottom">
    What is a quorum?</TD>
</TR>

<TR style="line-height: 3pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">
    A: </TD>
    <TD></TD>
    <TD valign="bottom">
    A quorum of the holders of the outstanding shares of our common
    stock must be present for the annual meeting to be held. A
    quorum is present if the holders of a majority of the issued and
    outstanding shares of our common stock entitled to be voted at
    the annual meeting are present at the annual meeting, either in
    person or by proxy. Abstentions, broker non-votes, and votes
    withheld in a proxy otherwise signed and returned will be
    counted as present for the purpose of determining the presence
    of a quorum.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <BR>
    5
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">

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

<TR>
    <TD valign="top">
    Q: </TD>
    <TD></TD>
    <TD valign="bottom">
    How are votes counted?</TD>
</TR>

<TR style="line-height: 3pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">
    A: </TD>
    <TD></TD>
    <TD valign="bottom">
    For the proposal relating to the approval of the sale of assets,
    the dissolution of Spatializer or the ratification of
    Farber&#160;&#38; Hass LLP, you may vote &#147;FOR,&#148;
    &#147;AGAINST&#148; or &#147;ABSTAIN.&#148; If you ABSTAIN, it
    has the same effect as if you voted against that proposal.
    Approval of each of the proposal to sell all or substantially
    all of the assets of Spatializer and Desper Products and the
    proposal to approve the dissolution of Spatializer requires the
    affirmative vote of holders of our common stock holding at least
    a majority of the shares of our common stock outstanding at the
    close of business on the record date. Approval of the
    ratification of Farber&#160;&#38; Haas LLP requires the
    affirmative vote of the holders of a majority of votes present
    and entitled to vote at the annual meeting. With respect to the
    proposal relating to the election of Henry R. Mandell as a
    director of Spatializer, you may vote &#147;FOR&#148;
    Mr.&#160;Mandell or &#147;WITHHOLD&#148; your vote.</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">
</TD>
    <TD></TD>
    <TD valign="bottom">
    If you sign your proxy card without indicating your vote, your
    shares will be voted &#147;FOR&#148; the sale of the assets of
    Spatializer and Desper Products, &#147;FOR&#148; the dissolution
    of Spatializer, &#147;FOR&#148; the ratification of
    Farber&#160;&#38; Hass LLP as independent auditors of
    Spatializer, &#147;FOR&#148; the election of Mr.&#160;Mandell as
    a director of Spatializer and in accordance with the
    recommendations of Spatializer&#146;s board of directors on any
    other matters properly brought before the annual meeting for a
    vote.</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">
</TD>
    <TD></TD>
    <TD valign="bottom">
    A broker non-vote generally occurs when a broker, bank or other
    nominee holding shares on your behalf returns a signed proxy
    card voting on one or more matters but does not vote on a
    proposal because such nominee has not received your voting
    instructions and lacks discretionary power to vote the shares.
    Generally, brokers and other similar nominees have the
    discretion to vote for directors or other routine matters,
    unless you instruct otherwise. Broker non-votes will count for
    the purpose of determining whether a quorum is present. Broker
    non-votes will have the same effect as a vote&#160;AGAINST the
    proposals regarding the asset sale transaction, the dissolution
    and ratification of Farber&#160;&#38; Hass LLP. Broker non-votes
    will not directly affect the outcome of the vote on the election
    of directors.</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">
    Q: </TD>
    <TD></TD>
    <TD valign="bottom">
    Who will bear the cost of this solicitation?</TD>
</TR>

<TR style="line-height: 3pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">
    A: </TD>
    <TD></TD>
    <TD valign="bottom">
    Spatializer shall 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 or
    officers of Spatializer personally or by mail, telephone or
    telegraph, but such persons will not be specially compensated
    for such services. In addition, we have retained the services of
    Georgeson Shareholder Services, a proxy solicitation firm, to
    solicit proxies in connection with the meeting, who will be paid
    approximately $35,000 for its 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.
    Spatializer may reimburse persons representing beneficial owners
    for their costs of forwarding the solicitation material to such
    owners.</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">
    Q: </TD>
    <TD></TD>
    <TD valign="bottom">
    What is the proposed asset sale transaction?</TD>
</TR>

<TR style="line-height: 3pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">
    A: </TD>
    <TD></TD>
    <TD valign="bottom">
    Spatializer is proposing to sell all or substantially all of
    assets and those of its wholly owned subsidiary, Desper
    Products, to DTS and DTS BVI for cash in the amount of
    $1,000,000 pursuant to an Asset Purchase Agreement, a copy of
    which is attached to this proxy statement as Annex&#160;A.</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">
    Q: </TD>
    <TD></TD>
    <TD valign="bottom">
    What will happen if the sale of assets is approved?</TD>
</TR>

<TR style="line-height: 3pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">
    A: </TD>
    <TD></TD>
    <TD valign="bottom">
    If the sale of assets of Spatializer is approved and is
    consummated, it is anticipated that Spatializer will cease
    ongoing operations. Our board of directors has deemed it
    advisable in its judgment that, if the sale of assets is
    approved and consummated, Spatializer should be dissolved and
    thus has directed that the stockholders vote on the dissolution
    of Spatializer. Assuming approval of the dissolution of
    Spatializer by our stockholders and consummation of the asset
    sale transaction, our board of directors will then commence an
    orderly process to wind up Spatializer. To the extent that any
    assets of Spatializer remain after the payment of all
    liabilities and obligations of Spatializer, such assets will be
    distributed to our stockholders pro rata based on their
    ownership of Spatializer as of the record date for said
    distribution. Spatializer does not know if any assets will be
    available for distribution to its stockholders or, if so, the
    amount thereof.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <BR>
    6
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">

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

<TR>
    <TD valign="top">
    Q: </TD>
    <TD></TD>
    <TD valign="bottom">
    If, after the sale of assets and winding up of Spatializer,
    there are assets available for distribution, when would such
    distribution take place?</TD>
</TR>

<TR style="line-height: 3pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">
    A: </TD>
    <TD></TD>
    <TD valign="bottom">
    The Asset Purchase Agreement contains certain representations
    and warranties made by Spatializer and Desper Products to DTS
    and DTS BVI which will survive for a period of six months
    following the closing of the asset sale transaction and certain
    covenants that will last for 275&#160;days following the closing
    of the asset sale transaction. The Asset Purchase Agreement
    requires indemnification by Spatializer and Desper Products of
    DTS, DTS BVI and certain of their affiliates for the breach of
    these representations and the covenants thereunder and certain
    other matters as provided in the Asset Purchase Agreement. In
    order to ensure that there are funds available to satisfy
    Spatializer&#146;s and Desper Products&#146; indemnification
    obligations under the Asset Purchase Agreement, we do not intend
    to make any distribution of assets until at least six months
    following the closing (or thereafter if any claims are pending
    as of the end of such six month period) and then only after all
    other assets have been marshaled, if any, and liabilities and
    obligations paid or otherwise provided for as required by
    Delaware law. Spatializer will distribute remaining funds, if
    any, thereafter but does not know when that date might be or how
    much would be available for distribution, if any.</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">
    Q: </TD>
    <TD></TD>
    <TD valign="bottom">
    Am I entitled to appraisal rights?</TD>
</TR>

<TR style="line-height: 3pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">
    A: </TD>
    <TD></TD>
    <TD valign="bottom">
    No.&#160;Delaware does not provide for appraisal rights in asset
    sales transactions unless a corporation&#146;s certificate of
    incorporation expressly provides for those rights. Our
    certificate of incorporation does not provide for appraisal
    rights under these circumstances.</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">
    Q: </TD>
    <TD></TD>
    <TD valign="bottom">
    How does the board of directors of Spatializer recommend I vote
    on the assets sale transaction and dissolution proposals?</TD>
</TR>

<TR style="line-height: 3pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">
    A: </TD>
    <TD></TD>
    <TD valign="bottom">
    Spatializer&#146;s board of directors unanimously approved the
    sale of substantially all of the assets of Spatializer and
    Desper Products pursuant to the Asset Purchase Agreement and
    deemed that transaction to be advisable and in the best
    interests of Spatializer. Our board of directors recommends that
    you vote &#147;FOR&#148; approval of the sale of substantially
    all of the assets of Spatializer and &#147;FOR&#148; approval of
    the dissolution of Spatializer.</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">
    Q: </TD>
    <TD></TD>
    <TD valign="bottom">
    What factors did our board of directors consider in making its
    recommendation?</TD>
</TR>

<TR style="line-height: 3pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">
    A: </TD>
    <TD></TD>
    <TD valign="bottom">
    In making its recommendation, our board of directors took into
    account, among other things: Those reasons included, among
    others, the consideration to be received by Spatializer; the
    poor business outlook for Spatializer; the current and future
    competitive landscape in our industry; the weak financial
    viability of Spatializer; lack of full-time management; the
    status and history of discussions with other potential bidders
    and our auction process; and the terms of the Asset Purchase
    Agreement. See &#147;Sale of All or Substantially All of the
    Assets of Spatializer and Desper Products&#160;&#151;
    Recommendation of our Board of Directors and Reasons for the
    Sale of Assets and Dissolution&#148; commencing on
    page&#160;&#160;&#160;.</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">
    Q: </TD>
    <TD></TD>
    <TD valign="bottom">
    What will happen after the sale of assets if the dissolution is
    not approved?</TD>
</TR>

<TR style="line-height: 3pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">
    A: </TD>
    <TD></TD>
    <TD valign="bottom">
    After the sale of assets to DTS and DTS BVI, we will have no
    assets with which to generate revenue. If the dissolution is not
    approved, we will use our cash to pay on-going operating
    expenses instead of making a distribution to the stockholders.
    We would have no business, employees (other than Henry Mandell)
    or operations following the transfer of our assets to DTS and
    DTS BVI. We do not intend to invest in another operating
    business.</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">
    Q: </TD>
    <TD></TD>
    <TD valign="bottom">
    Should I send in my stock certificates?</TD>
</TR>

<TR style="line-height: 3pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">
    A: </TD>
    <TD></TD>
    <TD valign="bottom">
    No.&#160;Unlike a merger transaction, you will not need to, and
    you should not, surrender your stock certificates in connection
    with the asset sales transaction or dissolution,</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">
    Q: </TD>
    <TD></TD>
    <TD valign="bottom">
    What do I need to do now?</TD>
</TR>

<TR style="line-height: 3pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">
    A: </TD>
    <TD></TD>
    <TD valign="bottom">
    We urge you to read this proxy statement carefully and to
    consider how the sale of assets of Spatializer and Desper
    Products and the dissolution of Spatializer affects you. Then
    mark your proxy and mail your completed, dated and signed proxy
    card in the enclosed return envelope as soon as possible so that
    your shares can be voted at the annual meeting of our
    stockholders.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <BR>
    7
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">

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

<TR>
    <TD valign="top">
    Q: </TD>
    <TD></TD>
    <TD valign="bottom">
    Who can help answer my questions?</TD>
</TR>

<TR style="line-height: 3pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">
    A: </TD>
    <TD></TD>
    <TD valign="bottom">
    If you would like additional copies, without charge, of this
    proxy statement or if you have questions about the proposed sale
    of assets or dissolution, including the procedures for voting
    your shares, you should contact:</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 1%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Henry R. Mandell
</DIV>

<DIV align="left" style="margin-left: 1%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Spatializer Audio Laboratories, Inc.
</DIV>

<DIV align="left" style="margin-left: 1%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    henry@spatializer.com
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Georgeson Shareholder Services
</DIV>

<DIV style="margin-top: 8pt; font-size: 1pt">&nbsp;</DIV>

<DIV style="font-size: 8pt; margin-left: 0%; width: 39%; align: left; border-bottom: 1pt solid #000000"></DIV><!-- callerid=999 iwidth=455 length=180 -->

<DIV style="margin-top: 8pt; font-size: 1pt">&nbsp;</DIV>

<DIV style="font-size: 8pt; margin-left: 0%; width: 39%; align: left; border-bottom: 1pt solid #000000"></DIV><!-- callerid=999 iwidth=455 length=180 -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;)&#160;&#160;-&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <B>NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
    SECURITIES REGULATORY AGENCY HAS APPROVED OR DISAPPROVED THE
    SALE OF ASSETS TRANSACTION, PASSED UPON THE MERITS OR FAIRNESS
    OF THE SALE OF ASSETS TRANSACTION, OR PASSED UPON THE ADEQUACY
    OR ACCURACY OF THE DISCLOSURES IN THIS PROXY STATEMENT. ANY
    REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.</B>
</DIV>
<A name='109'>
<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: 'Times New Roman', Times">CAUTIONARY
    STATEMENT CONCERNING FORWARD LOOKING INFORMATION</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    This proxy statement contains forward-looking statements within
    the meaning of Section&#160;21E of the Securities Exchange Act
    of 1934, as amended, and Section&#160;27A of the Securities Act
    of 1933, as amended, reflecting management&#146;s current
    expectations. Examples of such forward-looking statements
    include our expectations with respect to our strategy. Although
    we believe that our expectations are based upon reasonable
    assumptions, there can be no assurances that our financial goals
    or any transactions described herein will be realized. Such
    forward-looking statements involve known and unknown risks,
    uncertainties and other factors that may cause our actual
    results, performance or achievements, or industry results, to be
    materially different from any future results, performance or
    achievements expressed or implied by such forward-looking
    statements. Numerous factors may affect our actual results and
    may cause results to differ materially from those expressed in
    forward-looking statements made by or on behalf of our company.
    For this purpose, any statements contained herein that are not
    statements of historical fact may be deemed to be
    forward-looking statements. Without limiting the foregoing, the
    words, &#147;believes,&#148; &#147;anticipates,&#148;
    &#147;plans,&#148; &#147;expects&#148; and similar expressions
    are intended to identify forward-looking statements. We assume
    no obligation to update the forward-looking information to
    reflect actual results or changes in the factors affecting such
    forward-looking information.
</DIV>
<A name='110'>
<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: 'Times New Roman', Times">SALE OF
    ALL OR SUBSTANTIALLY ALL OF THE ASSETS<BR>
    OF SPATIALIZER AND DESPER PRODUCTS AND DISSOLUTION OF
    SPATIALIZER</FONT></B>
</DIV>
</A>
<A name='111'>
<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: 'Times New Roman', Times">General</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Spatializer has been a developer, licensor and marketer of next
    generation technologies for the consumer electronics, personal
    computing, entertainment and cellular telephone markets. Our
    technology is incorporated into products offered by our
    licensees and customers on various economic and business terms.
    We were incorporated in the State of Delaware in February 1994
    and are the successor company in a Plan of Arrangement pursuant
    to which the outstanding shares of Spatializer Audio
    Laboratories, Inc., a publicly held Yukon, Canada corporation,
    were exchanged for an equal number of shares of our common
    stock. Our corporate office is located at
    <FONT style="font-variant: SMALL-CAPS">2025 </FONT>Gateway
    Place, Suite&#160;365&#160;West
    Wing<FONT style="font-variant: SMALL-CAPS">,
    </FONT>San&#160;Jose, California
    <FONT style="font-variant: SMALL-CAPS">95110</FONT>.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Desper Products, a wholly owned subsidiary of Spatializer,
    developed a suite of proprietary advanced audio signal
    processing technologies for the entire spectrum of applications
    falling under the general category of virtual audio and is the
    owner of certain technology which DTS desires to acquire. Desper
    Products is a California corporation incorporated in June 1986.
</DIV>

<P align="center" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <BR>
    8
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    DTS, Inc. is a Delaware corporation and a leading provider of
    entertainment technology, products and services to the audio and
    image entertainment markets worldwide. DTS BVI is a British
    Virgin Island corporation and a wholly owned subsidiary of DTS.
</DIV>
<A name='112'>
<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: 'Times New Roman', Times">Background
    of the Sale of Assets and Dissolution</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Spatializer has been under acute market pressure since 2002. In
    2002, a personal computer account began migrating to a totally
    new operating system, which did not include any audio
    enhancements. The migration was completed in 2003 and the former
    licensee chose not to include any audio software enhancements,
    including those from Spatializer. This account had accounted for
    approximately 40% of Spatializer&#146;s annual revenues.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    In 2003, Spatializer experienced declining revenue from three
    major customers, primarily from the curtailment or cessation of
    use of its products by these customers. Two of these cases were
    in the DVD player market, where Spatializer historically had
    been strong. During 2003, the DVD player market became largely
    commoditized, resulting in intense pricing pressure and a steep
    decline in price and margins. Manufacturers were forced to strip
    out features, such as those offered by Spatializer, in order to
    compete. One of Spatializer&#146;s accounts switched to outside
    sourcing and Spatializer was able to expand its relationship
    with their supplier to recapture most of that revenue. However,
    a major new design win Spatializer was projecting for the DVD
    market was cancelled due to these cost constraints.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    In 2004, the revenue mix by licensee platform was significantly
    different compared to the prior year. The decrease in revenue on
    the DVD and personal computer accounts previously discussed
    generated approximately 56% of total fiscal 2003 revenue, which
    was lost in 2004. These losses were partially offset by three
    new revenue sources in cellular phones, mobile audio
    semiconductors and personal computers and the expansion of an
    existing license relating to recordable DVD. Cellular phone,
    mobile audio and the personal computer markets had been targeted
    by Spatializer for replacing the losses in the DVD player
    category. Nevertheless, market pressures mounted and Spatializer
    was forced to substantially reduce overhead in order to remain
    liquid.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    In response to increased market competitiveness and
    Spatializer&#146;s difficulty competing in this environment, in
    November 2002, the board of directors created a Special
    Committee to review certain strategic opportunities as they
    arise and to obtain additional information regarding such
    opportunities for consideration and evaluation by the board of
    directors. Through December&#160;19, 2005, the Special Committee
    consisted of Messrs.&#160;Mandell, Pace and Segel. Spatializer
    hired an entity in late 2002 to provide investment banking
    services, paying such entity a $75,000 retainer fee. Over one
    hundred companies were contacted on Spatializer&#146;s behalf
    but, after examining the potential opportunities that resulted
    therefrom, Spatializer decided that no such opportunities were
    viable. Spatializer ended its relationship with such investment
    banking entity in the second half of 2003 as a result of the
    unsuccessful effort, with no future financial obligation to such
    entity.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    In August 2005, Spatializer and Strategic Equity Group, Inc.
    (collectively, with its broker/dealer subsidiary,
    &#147;SEG&#148;) entered into a confidentiality agreement in
    connection with a possible investment banking services
    relationship.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    In October 2005, Spatializer and SEG entered into an agreement
    for investment banking services. Under the terms of that
    agreement, Spatializer engaged SEG for a one year period, on an
    exclusive basis, to provide Spatializer with services, including
    the identification of possible strategic, financial and foreign
    partners or purchasers. Per the terms of such agreement, SEG
    received an upfront payment of a non-refundable retainer in the
    amount of $25,000 and is entitled to payment of a &#147;success
    fee&#148; payable upon consummation of a sale transaction in an
    amount equal to the greater of (a)&#160;$250,000 or (b)&#160;the
    sum of 5% of the first $2,000,000 of consideration, 4% of the
    second $2,000,000, 3% of the third $2,000,000 and 2% of any
    amount in excess of $6,000,000. SEG is also entitled to
    reimbursement for reasonable actual
    <FONT style="white-space: nowrap">out-of-pocket</FONT>
    expenses for travel and other incidentals in an amount not to
    exceed $25,000. Spatializer is required to indemnify SEG for
    liabilities that SEG may suffer which arise from any breach of
    any representations or warranties in the investment banking
    services agreement, the breach of any covenant of Spatializer in
    that agreement or any instrument contemplated by that agreement,
    any misrepresentations in any statement or certificate furnished
    by Spatializer pursuant to that agreement or in connection with
    any sale transaction contemplated by that agreement, any claims
    against, or liabilities or obligations of, Spatializer and any
    good faith acts of SEG undertaken in good faith and in
    furtherance of SEG&#146;s performance under the agreement.
</DIV>

<P align="center" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <BR>
    9
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    On December&#160;19, 2005, at a regularly scheduled board of
    directors meeting, the board of directors of Spatializer
    discussed Spatializer&#146;s current financial outlook.
    Management indicated to the board of directors that two
    customers, the revenues from which accounted for approximately
    70% of Spatializer&#146;s income during 2005, would not be
    sustainable in 2006. Based on management&#146;s estimates,
    without new licensing revenue sources, management believed
    Spatializer would exhaust its available cash by the fourth
    quarter of 2006. The board of directors also discussed various
    strategic options for Spatializer, including potential suitors
    and the distribution by SEG of interest books to approximately
    55 potential purchasers, competition in its niche, and other
    business matters. Following the presentation, Gilbert Segel and
    James Pace, two of the three independent directors of
    Spatializer, decided to resign from the board of directors in
    order to allow for other individuals more qualified and
    experienced in matters relating to the sale of Spatializer and
    other strategic alternatives for Spatializer, including
    liquidation, to fill the vacancies created. The board was
    reduced from four members to three authorized directors leaving
    one vacancy thereon, which has not been filled to date. Henry R.
    Mandell then indicated his desire to resign as an officer of
    Spatializer, for personal reasons, effective January&#160;6,
    2006, which vacancy would result in a significant reduction in
    payroll expense, but would stay as a director and Chairman of
    the Board and Secretary of Spatializer. Mr.&#160;Mandell offered
    to become a consultant to Spatializer on terms to be negotiated
    with Carlo Civelli, the remaining member of the Board. The board
    of directors then discussed plans for the future of Spatializer
    and measures for scaling back operations, while continuing to
    pursue a potential buyer through SEG, with a view to maximizing
    stockholder value.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    On January&#160;6, 2006, Henry R. Mandell&#146;s resignation as
    the Chief Executive Officer and Chief Financial Officer became
    effective. Effective as of that date, Spatializer and
    Mr.&#160;Mandell entered into an agreement to continue his
    employment with Spatializer as Chairman and Secretary. In that
    agreement, Mr.&#160;Mandell agreed to continue to provide
    certain specified services to Spatializer, including supervising
    the preparation of Spatializer&#146;s financial statements and
    records, reviewing and authorizing day to day disbursements,
    supervising all of Spatializer&#146;s licensing and business
    activities, handling stockholder communications and serving as
    the contact person with SEG. He was permitted to accept other
    employment during the term of that agreement. As an incentive
    for Mr.&#160;Mandell to continue in Spatializer&#146;s employ
    during the term of that agreement, and in consideration for the
    foregoing of certain severance pay to which he otherwise may
    have been entitled, Spatializer paid him a lump sum payment of
    $35,733.33, which amount was paid concurrently with the
    execution of that agreement. That agreement also provided for a
    monthly salary of $5,000, a bonus of $10,000 for
    Mr.&#160;Mandell&#146;s assistance in the preparation of
    Spatializer&#146;s
    <FONT style="white-space: nowrap">Form&#160;10-K</FONT>
    for the fiscal year ended December&#160;31, 2005 and a separate
    bonus of $5,000 each for his assistance on each
    <FONT style="white-space: nowrap">Form&#160;10-Q</FONT>
    upon which he assists for any quarterly period ending after
    December&#160;31, 2005 and each proxy. Additionally, if
    Spatializer is sold or enters into certain specified
    extraordinary transactions during the term of that agreement,
    Mr.&#160;Mandell may be entitled to an additional bonus in an
    amount equal to 3.5% of the total consideration, not to exceed
    $150,000. During the term of that agreement, he is entitled to
    employee benefits and reimbursement of reasonable, actual and
    necessary business expenses. That agreement contains certain
    non-competition, non-solicitation and confidentiality
    provisions. That agreement terminated certain provisions of
    Mr.&#160;Mandell&#146;s then existing employment agreement
    (including without limitation the compensation and severance pay
    obligations thereunder) but continued certain other provisions
    thereof (such as the proprietary information, confidentiality
    and other similar provisions thereunder). While that agreement
    was to expire on the earlier of (a)&#160;the consummation of
    certain extraordinary transactions, (b)&#160;the expiration,
    termination or non-renewal of the directors&#146; and
    officers&#146; insurance policy of Spatializer under which
    Mr.&#160;Mandell is covered as a director and officer of
    Spatializer and (c)&#160;June&#160;30, 2006, that agreement was
    extended for a period ending on the earlier of June&#160;30,
    2007 or the date of dissolution of Spatializer. Spatializer may
    terminate Mr.&#160;Mandell&#146;s employment at any time during
    the term and Mr.&#160;Mandell may voluntarily resign his
    employment at any time during such term.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    On January&#160;10, 2006, Spatializer issued a press release
    regarding a potential auction, open to pre-qualified buyers, of
    the assets of Spatializer or the sale of an unlimited number of
    perpetual licenses of certain technology of Spatializer, all of
    which transactions would be subject to stockholder approval.
    Under the contemplated open auction process, potential buyers
    were invited to bid for the assets of Spatializer at a minimum
    bid of $2,000,000, such assets to be sold on an
    &#147;as-is/where is&#148; basis. Simultaneously, Spatializer
    offered all interested parties the opportunity to acquire
    non-exclusive, royalty-free, irrevocable, perpetual licenses for
    a one-time fee of $750,000 each, which licenses would be absent
    of any representations, warranties, or ongoing support by
    Spatializer. Bids were due by 11:59&#160;P.M. Pacific Standard
    Time on February&#160;15, 2006.
</DIV>

<P align="center" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <BR>
    10
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    During a period commencing on or about January&#160;12, 2006
    through February&#160;15, 2006, SEG sent out to more than 160
    potential buyers materials relating to the announced auction.
    SEG followed up, or attempted to follow up, with such potential
    buyers through the close of the auction period.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    At a meeting held on February&#160;16, 2006, the board of
    directors of Spatializer discussed a proposed term sheet for the
    acquisition of Spatializer&#146;s assets that had been delivered
    by DTS and feedback that SEG had received from certain of the
    potential buyers that had been contacted during the auction
    period. As DTS&#146;s offer did not specify a precise purchase
    price, such offer was deemed non-conforming to the guidelines
    established for the initial auction. Certain of the potential
    buyers had requested an extension of the auction period to
    perform additional due diligence. The board of directors again
    discussed what alternatives were available to Spatializer. The
    board of directors elected to extend the auction period until
    11:59&#160;P.M., Pacific Standard Time, on March&#160;15, 2006
    to provide bidders and other interested parties additional time
    to clarify their offers and perform further due diligence, as
    well as to permit Spatializer time to solicit additional offers.
    The board of directors, based on feedback received in the
    auction process, determined to simplify the auction process and
    eliminated the minimum bid requirements but reserved the right
    to reject any offers or bids in their discretion.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    During the period from February&#160;15, 2006 through
    March&#160;15, 2006, SEG continued to follow up, or attempted to
    follow up, with the potential buyers to whom auction materials
    had been provided.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    At the close of the extended auction period, Spatializer
    received a bid from DTS for the purchase of substantially all of
    the assets of Spatializer and Desper Products and bids from
    three other parties interested in buying a perpetual license.
    Management of Spatializer determined that the bids for the
    perpetual licenses were not sufficient in amount and decided
    that the bid for the assets of Spatializer received from DTS was
    the most attractive offer to pursue.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    From March&#160;16, 2006 through approximately April&#160;10,
    2006, Spatializer and DTS negotiated the terms of a non-binding
    letter of intent. Although Spatializer, in the course of such
    negotiations, requested that the transaction be structured as a
    stock sale or merger transaction, DTS was not willing to so
    structure the transaction. The letter of intent, requiring the
    transaction to be structured as an asset sale, was executed on
    April&#160;10, 2006. In connection with the execution of the
    letter of intent and as required by the terms thereof, DTS
    deposited $250,000 towards the purchase price of the assets,
    which deposit amount is being held in a trust account and will
    be disbursed to Spatializer contingent upon, among other things,
    approval of the transaction by the stockholders of Spatializer
    and satisfaction of the conditions to closing.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    From January&#160;25, 2006 through May&#160;5, 2006, DTS
    performed various due diligence examinations relating to
    Spatializer. Preliminary discussions were held over the phone
    between DTS and SEG on January&#160;25, 2006 and
    February&#160;6, 2006. A technology demonstration was held at
    SEG&#146;s office on February&#160;10, 2006. A due diligence
    conference call including Spatializer was held on
    February&#160;13, 2006. Counsel to DTS spent February&#160;23,
    2006, at SEG&#146;s office analyzing contracts and various other
    due diligence items. Four due diligence conference calls were
    held in March 2006, three additional conference calls in April
    2006, and one in May 2006.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    During the period from May&#160;1, 2006 through mid-September
    2006, legal counsel for DTS and for Spatializer prepared, and
    representatives of DTS and Spatializer negotiated, the Asset
    Purchase Agreement.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    In July 2006, the board of directors of Spatializer was
    presented with and carefully considered a draft of the Asset
    Purchase Agreement. After due consideration of such draft, the
    board of directors of Spatializer approved, by unanimous written
    consent dated July&#160;10, 2006, a form of the Asset Purchase
    Agreement. However, subsequent to that date, numerous changes
    and refinements were made to that draft based on the
    negotiations of the parties.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    In July 2006, the board of directors of Desper Products was
    presented with and carefully considered a draft of the Asset
    Purchase Agreement. After due consideration of such draft, the
    board of directors of Desper Products approved, by a written
    consent of sole director dated July&#160;10, 2006, a form of the
    Asset Purchase Agreement. However, subsequent to that date,
    numerous changes and refinements were made to that draft based
    on the negotiations of the parties.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    In August 2006, the board of directors of Spatializer was
    presented with and carefully considered a draft of the Asset
    Purchase Agreement substantially in the form attached hereto as
    Annex&#160;A and other ancillary documents
</DIV>

<P align="center" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <BR>
    11
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    proposed to be attached as exhibits and schedules to the Asset
    Purchase Agreement. After due consideration of all of the
    foregoing, the board of directors of Spatializer, by a unanimous
    written consent of directors dated August&#160;28, 2006,
    authorized the execution and delivery on behalf of Spatializer
    of the Asset Purchase Agreement providing for the sale to DTS
    and DTS BVI of all or substantially all of the assets of each of
    Spatializer and Desper Products, deemed the sale of all or
    substantially all of the assets of Spatializer and Desper
    Products for $1,000,000 in aggregate cash consideration to be
    expedient and for the best interests of Spatializer, and deemed
    the sale of all or substantially all of the assets of
    Spatializer and Desper Products to be advisable and in the best
    interests of Spatializer. Furthermore, the board of directors of
    Spatializer deemed it advisable that, following the sale of the
    assets, Spatializer be dissolved. The board of directors also
    recommended that the stockholders of Spatializer vote in favor
    of both the sale of assets transaction and the dissolution of
    Spatializer. The board of directors called a meeting of the
    stockholders of Spatializer to consider the proposed sale of
    assets pursuant to the Asset Purchase Agreement and to take
    action upon the resolution of the board of directors to dissolve
    Spatializer. The board of directors also recommended that the
    stockholders of Spatializer vote in favor of both the sale of
    assets transaction and the dissolution of Spatializer.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    In August 2006, the board of directors of Desper Products was
    presented with and carefully considered a draft of the Asset
    Purchase Agreement substantially in the form attached hereto as
    Annex&#160;A and other ancillary documents proposed to be
    attached as exhibits and schedules to the Asset Purchase
    Agreement. After due consideration of all of the foregoing, the
    board of directors of Desper Products, by a written consent of
    sole director dated August&#160;28, 2006, authorized the
    execution and delivery on behalf of Desper Products of the Asset
    Purchase Agreement providing for the sale to DTS and DTS BVI of
    all or substantially all of the assets of Desper Products.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Effective August&#160;28, 2006, Spatializer, as the sole
    shareholder of Desper Products, executed a written consent of
    sole shareholder approving the principal terms of the sale of
    the assets of Desper Products.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    On September&#160;18, 2006, the parties executed and delivered
    the Asset Purchase Agreement in the form attached hereto as
    Annex&#160;A.
</DIV>
<A name='113'>
<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: 'Times New Roman', Times">Recommendation
    of our Board of Directors and Reasons for the Sale of Assets and
    Dissolution</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Our board of directors unanimously recommends that you vote
    &#147;FOR&#148; the sale of all or substantially all of the
    assets of Spatializer and Desper Products to DTS and DTS BVI and
    &#147;FOR&#148; the dissolution of Spatializer. In approving the
    Asset Purchase Agreement and advising the dissolution of
    Spatializer, our board of directors considered a number of
    factors, including the following:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

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

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

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    the anticipated inability for Spatializer to remain liquid in
    the near term or to continue operations;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    the business, competitive position, strategy and prospects of
    Spatializer, the fact that we have not been successful in
    creating a strategy or value proposition that resonates with
    potential licensees, the competitive position of current and
    likely competitors in the industry in which we compete, and
    current industry, economic, and market conditions;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    the conclusion that continuing further licensing efforts as a
    going concern would not result in greater stockholder value;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    the resignation of the two directors in December 2005, all
    full-time Spatializer employees, including the former CEO and
    Principal Engineer, having successfully found other employment
    during 2006 and the inability to attract new management under
    the aforementioned circumstances;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    the fact that our open auction for the sale of assets or
    perpetual licenses and discussions with other potential
    acquirers of Spatializer in both 2003 and 2006 both generated
    limited interest and, in 2006, DTS&#146;s proposal was the
    superior offer to acquire us;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    the value of the consideration to be received by our
    stockholders and the fact that the consideration would be paid
    in cash, which provides certainty and immediate value to
    Spatializer;&#160;and
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    this is the best offer received by Spatializer through the
    efforts of SEG.
</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <BR>
    12
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Our board of directors also considered a variety of risks and
    other potentially negative factors applicable to either or both
    of the sale of assets and the dissolution of Spatializer,
    including the following:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

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

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

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    the fact that, following sale of our assets, we will be unable
    to operate as a going business and our stockholders will forego
    any future increase in our value that might result from our
    possible growth;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    the risks and contingencies related to the announcement and
    pendency of the sale of assets, including the impact of the
    asset sale on our customers and our relationships with other
    third parties, including the potential negative reaction of
    these parties to the fact that we would be selling our assets to
    DTS;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    the conditions to DTS&#146;s and DTS BVI&#146;s obligation to
    complete the asset sale transaction and the right of DTS to
    terminate the Asset Purchase Agreement under certain
    circumstances, including for breaches by us of our
    representations, warranties, covenants and agreements in the
    Asset Purchase Agreement;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    the risk that the asset sale and dissolution might not receive
    necessary stockholder approval;&#160;and
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    the fact that DTS was not willing to structure the sale
    transaction as a merger or stock acquisition.
</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Our board of directors did not assign any particular weight or
    rank to any of the positive or potentially negative factors or
    risks discussed in this section, and our board of directors
    carefully considered all of these factors as a whole in reaching
    its determination and recommendation.
</DIV>
<A name='114'>
<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: 'Times New Roman', Times">Effective
    Time of the Sale of Assets</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    It is anticipated that, assuming approval of the asset sale
    transaction by the stockholders of Spatializer, the transaction
    will close as soon thereafter as all conditions to closing have
    occurred. If the closing does not occur on or before
    June&#160;30, 2007, the asset sale transaction may be terminated
    provided the party electing to terminate is not in breach of any
    representation, warranty or covenant of that party under the
    Asset Purchase Agreement. Following the consummation of the
    asset sale transaction and assuming approval of the dissolution
    of Spatializer by our stockholders, Spatializer anticipates that
    it will commence an orderly process to wind up Spatializer.
</DIV>
<A name='115'>
<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: 'Times New Roman', Times">Material
    Federal Income Tax Consequences</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    The following discussion summarizes the material
    U.S.&#160;federal income tax consequences (i)&#160;to
    Spatializer as a result of the sale of assets to DTS and DTS BVI
    pursuant to the Asset Purchase Agreement, and (ii)&#160;to the
    holders of Spatializer&#146;s common stock as a result of the
    receipt of one or more distributions pursuant to the dissolution
    of Spatializer. For purposes of this tax discussion, all
    references to Spatializer means Spatializer and Desper Products
    on a consolidated basis. This discussion is based on the
    Internal Revenue Code of 1986, as amended, Treasury regulations
    promulgated under the Internal Revenue Code, Internal Revenue
    Service rulings, judicial decisions and administrative rulings
    as of the date of this proxy statement, all of which are subject
    to change or differing interpretations, including changes and
    interpretations with retroactive effect. Distributions pursuant
    to the dissolution of Spatializer may occur at various times and
    in more than one tax year. No assurance can be given that the
    tax treatment described in this proxy statement will remain
    unchanged at the time of such distributions.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    This discussion is for general information only and may not
    address all tax considerations that may be significant to a
    holder of our common stock. It does not address all
    U.S.&#160;federal income tax consequences or any state, local or
    foreign tax consequences of Spatializer&#146;s sale of assets to
    DTS and DTS BVI and any distribution made to stockholders in
    dissolution of Spatializer. Stockholders subject to special
    treatment under certain federal income tax laws, including
    dealers in securities or foreign currency, tax-exempt entities,
    <FONT style="white-space: nowrap">non-U.S.&#160;stockholders,</FONT>
    banks, thrifts, insurance companies, mutual funds, persons that
    hold shares of our stock as part of a &#147;straddle,&#148; a
    &#147;hedge,&#148; a &#147;constructive sale&#148; transaction
    or a &#147;conversion transaction,&#148; persons that have
    &#147;functional currency&#148; other than the U.S.&#160;dollar,
    investors in pass-through entities, and persons who acquired
    their shares of our stock upon exercise of stock options or in
    other compensatory transactions may be subject to special rules
    not discussed below. This discussion also does not address the
    U.S.&#160;federal income tax consequences to stockholders who do
    not hold their shares of our stock as a capital asset.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    This discussion has no binding effect on the Internal Revenue
    Service or the courts and assumes that the sale of assets will
    be consummated in accordance with the Asset Purchase Agreement,
    and that the dissolution of
</DIV>

<P align="center" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <BR>
    13
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Spatializer will proceed as described in this proxy statement.
    No ruling has been requested from the Internal Revenue Service,
    nor will we seek an opinion of counsel, with respect to the
    anticipated tax consequences of the sale of assets and
    dissolution of Spatializer. If any of the anticipated tax
    consequences described herein prove to be incorrect, the result
    could be an increased tax liability at the corporate
    <FONT style="white-space: nowrap">and/or</FONT>
    stockholder level, thus reducing the benefits to us and our
    stockholders from the sale of assets and dissolution.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <I>Tax consequences to Spatializer of the sale of assets to DTS
    and DTS BVI.</I>&#160;&#160;The purchase price that Spatializer
    receives for substantially all its assets, plus the amount of
    any liabilities assumed by DTS and DTS BVI that are required to
    be capitalized for tax purposes, will be allocated among all of
    Spatializer&#146;s assets that are sold to DTS and DTS BVI.
    Spatializer will recognize gain or loss on each of the assets
    sold in an amount equal to the difference between the sales
    price allocated to that asset and Spatializer&#146;s tax basis
    in that asset.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    We do not believe the sale of assets will result in any federal
    corporate income tax liability (including any alternative
    minimum tax liability) because we anticipate that any taxable
    gain from the sale of a particular asset to DTS and DTS BVI will
    be offset for income tax purposes by losses that Spatializer
    will recognize from the sale of other assets to DTS and DTS BVI,
    as well as by Spatializer&#146;s current and prior years&#146;
    net operating losses. However, the Internal Revenue Service may
    disagree with our determination of the amount of
    Spatializer&#146;s net operating loss carryforward available to
    offset all of such gain or Spatializer&#146;s allocation of the
    purchase price among the assets sold, any of which may increase
    Spatializer&#146;s income tax liability as a result of the sale
    of assets.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <I>Tax consequences to Spatializer of the
    dissolution.</I>&#160;&#160;After the consummation of the sale
    of assets and until the dissolution is completed, Spatializer
    will continue to be subject to federal income taxation on its
    taxable income, if any, such as interest income, gain from the
    sale of any remaining assets or income from the collection of
    accounts receivables not sold to DTS and DTS BVI. In addition,
    although we currently do not intend to make distributions of
    property other than cash, in the event we do make a distribution
    of property to our stockholders, Spatializer may recognize gain
    upon such distribution. Spatializer will be treated as though it
    sold the distributed property to the distributee-stockholders
    for its fair market value on the date of the distribution.
    Management believes that Spatializer has a sufficient amount of
    its net operating loss carryforward available to offset all of
    any federal income or gain recognized by Spatializer as a result
    of the dissolution.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <I>Tax consequences to our stockholders of the
    dissolution.</I>&#160;&#160;Amounts received by stockholders in
    the dissolution of Spatializer will be treated as full payment
    in exchange for their shares of our stock. A stockholder will
    recognize gain or loss in the year the payment is received by
    the stockholder in an amount equal to the difference between
    (i)&#160;the sum of the amount of cash and the fair market value
    (at the time of distribution) of any property distributed to
    such stockholder, and (ii)&#160;the stockholder&#146;s tax basis
    in the shares of stock owned by the stockholder. The gain or
    loss will be a capital gain or loss, assuming that the shares of
    stock have been held by the stockholder as a capital asset, and
    will be a long term capital gain or loss if the shares have been
    held by the stockholder for more than one year. Long term
    capital gains realized by stockholders that are individuals are
    generally subject to a 15% maximum tax rate. The deductibility
    of capital losses is subject to limitations.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    After the close of our taxable year, we will provide
    stockholders and the IRS with a statement of the amount of cash,
    if any, distributed to each stockholder during the year as a
    payment in liquidation of Spatializer and, if any property was
    distributed, our best estimate of the value of such property.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <B>THE FOREGOING SUMMARY OF U.S.&#160;FEDERAL INCOME TAX
    CONSEQUENCES IS INCLUDED FOR GENERAL INFORMATION ONLY AND DOES
    NOT CONSTITUTE LEGAL OR TAX ADVICE TO ANY STOCKHOLDER. EACH
    STOCKHOLDER IS URGED TO CONSULT A TAX ADVISOR AS TO THE
    PARTICULAR TAX CONSEQUENCES TO SUCH STOCKHOLDER OF THE SALE OF
    ASSETS AND DISSOLUTION, INCLUDING THE APPLICABILITY AND EFFECT
    OF ANY STATE, LOCAL OR FOREIGN LAWS AND CHANGES IN APPLICABLE
    TAX LAWS.</B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <B>TO ENSURE COMPLIANCE WITH INTERNAL REVENUE SERVICE CIRCULAR
    230, WE INFORM YOU THAT (i)&#160;THE FOREGOING SUMMARY OF
    U.S.&#160;FEDERAL INCOME TAX CONSEQUENCES WAS WRITTEN TO SUPPORT
    THE PROMOTION OR MARKETING OF THE TRANSACTION(S) OR MATTER(S)
    ADDRESSED HEREIN; (ii)&#160;THE SUMMARY OF THE U.S.&#160;FEDERAL
    INCOME TAX CONSEQUENCES SET FORTH IN THIS COMMUNICATION IS NOT
    INTENDED OR WRITTEN </B>
</DIV>

<P align="center" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <BR>
    14
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <B>TO BE USED, AND CANNOT BE USED, FOR THE PURPOSE OF AVOIDING
    PENALTIES UNDER THE INTERNAL REVENUE CODE; AND
    (iii)&#160;STOCKHOLDERS SHOULD SEEK ADVICE BASED ON THEIR
    PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR.</B>
</DIV>
<A name='116'>
<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: 'Times New Roman', Times">MARKET
    PRICE AND DIVIDEND DATA</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Our common stock was listed and commenced trading on the NASDAQ
    SmallCap market on August&#160;21, 1995 under the symbol
    &#147;SPAZ&#148;. In January 1999, the common stock was delisted
    by the NASDAQ SmallCap Market due to our inability to maintain
    listing requirements. Our common stock immediately commenced
    trading on the OTC Bulletin&#160;Board under the same symbol.
    The following table sets forth the high and low bid price of our
    common stock as reported on the OTC Bulletin&#160;Board for
    fiscal years 2004 and 2005 and the first three quarters of
    fiscal 2006. The quotations listed below reflect interim dealer
    prices without retail mark-up, mark-down or commission and may
    not represent actual transactions.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="83%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="4%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=02 type=hang1 -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="4%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=03 type=hang1 -->
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom">
    <B>High<BR>
    </B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom">
    <B>Low<BR>
    </B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
<DIV style="border-bottom: 1px solid #000000; width: 1%; padding-bottom: 1px">
    <B>Period:</B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom" style="border-bottom: 1px solid #000000">
    <B>(U.S.&#160;$)</B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom" style="border-bottom: 1px solid #000000">
    <B>(U.S.&#160;$)</B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt">2004
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 20pt">
    <FONT style="font-size: 10pt">First Quarter
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    0.22
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    0.11
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 20pt">
    <FONT style="font-size: 10pt">Second Quarter
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    0.14
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    0.06
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 20pt">
    <FONT style="font-size: 10pt">Third Quarter
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    0.10
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    0.05
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 20pt">
    <FONT style="font-size: 10pt">Fourth Quarter
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    0.09
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    0.05
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt">2005
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 20pt">
    <FONT style="font-size: 10pt">First Quarter
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    0.10
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    0.06
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 20pt">
    <FONT style="font-size: 10pt">Second Quarter
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    0.09
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    0.05
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 20pt">
    <FONT style="font-size: 10pt">Third Quarter
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    0.07
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    0.05
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 20pt">
    <FONT style="font-size: 10pt">Fourth Quarter
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    0.07
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    0.03
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt">2006
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 20pt">
    <FONT style="font-size: 10pt">First Quarter
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    0.04
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    0.02
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 20pt">
    <FONT style="font-size: 10pt">Second Quarter
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    0.02
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    0.02
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 20pt">
    <FONT style="font-size: 10pt">Third Quarter
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    0.02
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    0.02
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    On October&#160;&#160;&#160;, 2006, the closing price reported
    by the OTC Bulletin&#160;Board was
    U.S.&#160;$0.&#160;&#160;&#160;&#160;&#160;. Stockholders are
    urged to obtain current market prices for our common stock.
    Computershare Investor Services, LLC is our transfer agent and
    registrar.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    There were no sales of unregistered securities by Spatializer
    during the year ended December&#160;31, 2004. In December 2005,
    we issued shares of our common stock in connection with the
    mandatory conversion of our
    <FONT style="white-space: nowrap">Series&#160;B-1</FONT>
    Redeemable Convertible Preferred Stock, par value $.01&#160;per
    share, which transaction was previously described and included
    in our
    <FONT style="white-space: nowrap">Form&#160;8-K</FONT>
    filed with the SEC on December&#160;30, 2005 (with date of
    earliest event reported of December&#160;29, 2005).
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    To our knowledge, there were
    approximately&#160;&#160;&#160;&#160;&#160; holders of record of
    the stock of Spatializer as of October&#160;&#160;&#160;, 2006.
    Our transfer agent has indicated that beneficial ownership is in
    excess of 4,000 stockholders.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    We have not paid any cash dividends on our common stock and have
    no present intention of paying any dividends or distributions
    other than in connection with the dissolution of Spatializer.
    While our policy has been to retain earnings, if any, for use in
    operations and in the development of our business, if the sale
    of assets and dissolution contemplated in this proxy statement
    are approved and effectuated, all remaining funds and assets
    available for distribution, if any, will be distributed to
    stockholders.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    The Company did not repurchase any of its equity securities
    during the fourth quarter of the fiscal year ended
    December&#160;31, 2005.
</DIV>

<P align="center" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <BR>
    15
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->
<A name='117'>
<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: 'Times New Roman', Times">PROPOSAL&#160;1</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <B>APPROVAL OF SALE OF ALL OR SUBSTANTIALLY ALL OF THE ASSETS
    OF</B>
</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <B>SPATIALIZER AND DESPER PRODUCTS</B>
</DIV>
</A>
<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    The following sets forth a summary of the terms of the proposed
    sale of all or substantially all of the assets of Spatializer
    and its wholly owned subsidiary, Desper Products. The following
    is qualified in its entirety by reference to the Asset Purchase
    Agreement attached hereto as Annex&#160;A. All stockholders are
    urged to read the Asset Purchase Agreement carefully.
</DIV>
<A name='118'>
<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: 'Times New Roman', Times">Parties
    to Agreement</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Spatializer, Desper Products, DTS and DTS BVI, entered into an
    Asset Purchase Agreement dated as of September&#160;18, 2006.
</DIV>
<A name='119'>
<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: 'Times New Roman', Times">Assets to
    be Acquired; Liabilities</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    The agreement provides that DTS and DTS BVI will acquire all of
    our and Desper Products&#146; right, title and interest in and
    to all property and assets, real, personal or mixed, tangible or
    intangible, of every kind and description, wherever located,
    used in the conduct of our and Desper Products&#146; business.
    Those assets include intellectual property, certain contracts
    proposed to be assumed by DTS and DTS BVI, accounts receivable
    originating from those assumed contracts (subject to the payment
    to Spatializer by DTS of a pro rata portion of the quarterly
    royalties received during the quarter in which the closing of
    the asset transaction occurs) and records, reports and databases
    relating to certain intellectual property. Neither DTS nor DTS
    BVI is acquiring our cash or cash equivalents or any accounts
    receivable not originating from the assumed contracts.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Except for certain specified liabilities, neither DTS nor DTS
    BVI will be assuming any liabilities of Spatializer or Desper
    Products, other than the obligations from and after the closing
    under the agreements assumed by DTS and DTS BVI.
</DIV>
<A name='120'>
<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: 'Times New Roman', Times">Consideration</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    At the closing of the sale transaction, DTS and DTS BVI will pay
    Spatializer cash in the amount of $1,000,000 and assume the
    liabilities and obligations described above.
</DIV>
<A name='121'>
<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: 'Times New Roman', Times">Representations
    and Warranties</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Spatializer and Desper Products made certain representations and
    warranties to DTS and DTS BVI regarding, among other things:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

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

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

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    our respective corporate authority to execute and deliver the
    Asset Purchase Agreement;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    due execution and delivery of the Asset Purchase Agreement;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    enforceability of the Asset Purchase Agreement (except as
    limited by applicable bankruptcy, insolvency, reorganization,
    moratorium, fraudulent conveyance and other similar laws of
    general application affecting enforcement of creditors&#146;
    rights generally and the availability of the remedy of specific
    performance or injunctive or other forms of equitable relief may
    be subject to equitable defenses and would be subject to the
    discretion of the court before which any proceeding therefor may
    be brought);
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    our respective corporate existence, organization and similar
    corporate matters;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    our respective subsidiaries;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    required consents, approvals, orders and authorizations of, and
    notices to, governmental authorities and third&#160;parties
    relating to, the Asset Purchase Agreement and related matters;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    documents that Spatializer has filed with the Securities and
    Exchange Commission, the accuracy of certain specified financial
    statements and other information contained in documents
    Spatializer filed with the
</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <BR>
    16
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

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

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

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>
</TD>
    <TD align="left">
    Securities and Exchange Commission since January&#160;1, 2004,
    and its compliance with the Sarbanes-Oxley Act of 2002 and other
    matters with respect to its internal controls and procedures;
</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

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

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

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    absence of certain changes since December&#160;31, 2005 to the
    assets being transferred;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    absence of dividends, stock splits, combinations or
    reclassifications of capital stock, certain employee-related
    events, changes in financial or tax accounting methods, tax
    elections or any licensing or other agreement with regard to
    material intellectual property or rights thereto related to us
    since December&#160;31, 2005;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    title to the assets being transferred;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    environmental matters;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    certain of our contracts;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    any material adverse changes in our business relationship with
    certain of our customers;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    the absence of pending and threatened litigation involving
    either Spatializer or Desper Products;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    our compliance with applicable laws, judgments, and permits;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    employee benefit plans;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    tax matters with respect to Spatializer;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    our intellectual property;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    our engagement of, and payment of fees to, brokers, investment
    bankers, and financial advisors, and fees payable by us to other
    advisors in connection with the transaction contemplated by the
    Asset Purchase Agreement;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    solvency;&#160;and
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    accuracy of information supplied by us in connection with this
    proxy statement.
</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    DTS and DTS BVI made certain representations and warranties in
    the Asset Purchase Agreement relating to, among other things:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

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

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

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    its corporate organization and similar corporate matters;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    authorization, execution, delivery, performance, and
    enforceability of, and required consents, approvals, orders, and
    authorizations of, and notices to, governmental authorities and
    third parties relating to, the Asset Purchase Agreement and
    related matters;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    its engagement of brokers, investment bankers or financial
    advisors;&#160;and
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    accuracy of information supplied by DTS and DTS BVI in
    connection with this proxy statement.
</TD>
</TR>

</TABLE>
<A name='122'>
<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: 'Times New Roman', Times">Covenants
    of Spatializer and Desper Products</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Each of Spatializer and Desper Products has agreed to a number
    of covenants that it must comply with between the date of the
    Asset Purchase Agreement and the date of the closing of the
    asset sale or the termination of the Asset Purchase Agreement.
    Those covenants include, without limitation, the following:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

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

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

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    neither Spatializer nor Desper Products will (i)&#160;modify,
    amend or terminate any of its material contracts or waive,
    release or assign any material rights or claims, (ii)&#160;enter
    into, terminate or amend any material contract, (iii)&#160;incur
    any material liability, (iv)&#160;permit the assets to be sold
    to become subject to any encumbrance or (v)&#160;sell, transfer,
    lease, license or otherwise dispose of any of those assets or
    our intellectual property;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    neither Spatializer nor Desper Products will adopt a plan of
    complete or partial liquidation or dissolution. However,
    Spatializer may adopt a plan of dissolution in accordance with
    the Delaware General Corporation Law (&#147;DGCL&#148;) if and
    only if (x)&#160;such plan provides for the consummation of the
    asset sale transaction in
</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <BR>
    17
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

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

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

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>
</TD>
    <TD align="left">
    accordance with the terms of the Asset Purchase Agreement;
    (y)&#160;such plan is adopted in accordance with the DGCL; and
    (z)&#160;Spatializer does not adopt a plan of distribution or
    make any distribution on or prior to the 213th&#160;day after
    the date of the closing of the asset sale transaction;
</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

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

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

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    neither Spatializer nor Desper Products will adopt a plan of
    complete or partial merger, consolidation, restructuring,
    recapitalization or other reorganization; provided, that
    Spatializer may adopt a plan of merger for the sole purpose of
    the sale of Spatializer as a corporate shell and without any of
    the assets to be sold to DTS and DTS BVI, provided such plan
    includes the consummation of the transactions in accordance with
    the terms of the Asset Purchase Agreement and Spatializer
    demonstrates that such plan will not delay either the
    solicitation of proxies in favor of, nor the consummation, of
    the transactions contemplated by the Asset Purchase Agreement;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    each of Spatializer and Desper Products will file, on a timely
    basis, with appropriate taxing authorities all tax returns
    required to be filed by it prior to the closing date and timely
    pay all taxes related thereto;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    neither Spatializer nor Desper Products will take, or agree to
    or commit to take, any action that would or is reasonably likely
    to result in any of the conditions to the closing set forth in
    the agreement not being satisfied, or would make any
    representation or warranty of either Spatializer or Desper
    Products contained in the Asset Purchase Agreement inaccurate in
    any respect at, or as of any time prior to, the closing date, or
    that would materially impair the ability of DTS, DTS BVI,
    Spatializer or Desper Products to consummate the closing in
    accordance with the terms of the Asset Purchase Agreement or
    materially delay the consummation of the transactions
    contemplated by the Asset Purchase Agreement;&#160;and
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    neither Spatializer nor Desper Products will enter into any
    agreement, contract, commitment or arrangement to do any of the
    foregoing, or authorize, recommend, propose or announce an
    intention to do, any of the foregoing.
</TD>
</TR>

</TABLE>
<A name='123'>
<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: 'Times New Roman', Times">No
    Solicitation</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Each of Spatializer and Desper Products agreed that neither it
    nor any affiliate of it would, directly or indirectly,
    encourage, solicit, participate in or initiate discussions or
    negotiations with, or provide any information to, any person or
    group (other than DTS or any of its affiliates or
    representatives) concerning any acquisition proposal.
    Furthermore, Spatializer agreed not to approve or recommend, or
    propose to approve or recommend any acquisition proposal, or
    enter into any agreement with respect to any acquisition
    proposal. Upon execution of the Asset Purchase Agreement,
    Spatializer, Desper Products and their representatives were
    required to immediately cease any existing activities,
    discussions or negotiations with any parties conducted with
    respect to any of the foregoing and to request or demand the
    return of all documents, analyses, financial statements,
    projections, descriptions and other data previously furnished to
    others in connection with efforts to sell the assets to be sold
    to DTS and DTS BVI. Spatializer must immediately notify DTS of
    the existence of any proposal or inquiry received by
    Spatializer, Desper Products or their representatives.
    Additionally, Spatializer is required to immediately communicate
    to DTS the terms of any proposal or inquiry which may be
    received (and provide to DTS copies of any written materials
    received by Spatializer in connection with such proposal,
    discussion, negotiation or inquiry) and the identity of the
    party making such proposal or inquiry.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Neither the board of directors of Spatializer nor Desper
    Products is permitted to (i)&#160;withdraw or modify, or propose
    to withdraw or modify, in a manner adverse to DTS and DTS BVI,
    the approval by its board of directors of the Asset Purchase
    Agreement or the transactions contemplated thereby or the
    recommendation to the stockholders of Spatializer,
    (ii)&#160;approve or recommend or propose to approve or
    recommend, any acquisition proposal or (iii)&#160;authorize
    Spatializer or Desper Products to enter into any agreement
    (other than pursuant to the Asset Purchase Agreement) with
    respect to any acquisition proposal.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    However, Spatializer may engage in discussions with third
    parties for the sole purpose of the sale of Spatializer as a
    corporate shell and without any of the assets to be sold to DTS
    or DTS BVI provided the terms would include the consummation of
    the asset sale transaction in accordance with the terms of the
    Asset Purchase Agreement and Spatializer demonstrates that
    transaction will not delay either the solicitation of proxies in
    favor of the transactions, or the consummation of the
    transactions, contemplated in the Asset Purchase Agreement.
</DIV>

<P align="center" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <BR>
    18
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->
<A name='124'>
<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: 'Times New Roman', Times">Conditions
    to Closing</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    The Asset Purchase Agreement contains a number of conditions to
    the obligations of the parties to consummate the asset sale
    transaction. Neither party is obligated to close if the approval
    of the stockholders of Spatializer is not obtained at the Annual
    Meeting or any postponement, adjournment or continuation thereof.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Neither DTS nor DTS BVI will be required to purchase the assets
    of Spatializer or Desper Products pursuant to the Asset Purchase
    Agreement under certain specified circumstances. For example,
    DTS and DTS BVI will not be required to purchase the assets of
    Spatializer or Desper Products if there is any threatened or
    pending suit, action or proceeding by any governmental entity
    affecting DTS&#146;s or DTS BVI&#146;s ability to exploit the
    assets proposed to be sold or seeking to preclude consummation
    of the asset sale transaction. Furthermore, Spatializer and
    Desper Products must have obtained all consents and approvals of
    any person necessary to the consummation of the closing. If any
    material adverse change (or any development that, insofar as
    reasonably can be foreseen, is reasonably likely to result in
    any material adverse change) in the consolidated financial
    condition, businesses, results of operations or prospects of
    Spatializer and Desper Products taken as a whole or on
    DTS&#146;s or DTS BVI&#146;s ability to exploit the assets
    proposed to be sold has occurred, DTS and DTS BVI will have the
    right not to consummate the asset sale transaction. All of the
    representations and warranties of Spatializer set forth in the
    Asset Purchase Agreement that are qualified as to materiality
    must be true and complete in all respects and any such
    representations and warranties that are not so qualified must be
    true and complete in all material respects, in each case as of
    the date of the Asset Purchase Agreement and as of the closing
    date. Additionally, neither Spatializer nor Desper Products
    shall have failed to perform in any material respect any
    material obligation or to comply in any material respect with
    any of its respective agreement or covenant to be performed or
    complied with by it under the Asset Purchase Agreement. As the
    foregoing conditions are for the sole benefit of DTS and DTS
    BVI, DTS may waive, in whole or in part, any of those conditions
    at any time and from time to time in its sole discretion.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    The obligations of Spatializer to consummate the sale of its
    assets pursuant to the Asset Purchase Agreement are also subject
    to the satisfaction on or prior to the closing date of certain
    conditions, including that all of the representations and
    warranties of DTS and DTS BVI set forth in the Asset Purchase
    Agreement that are qualified as to materiality are true and
    complete in all respects and any such representations and
    warranties that are not so qualified will be true and complete
    in all material respects, in each case as of the date of the
    Asset Purchase Agreement and as of the closing date and neither
    DTS nor DTS BVI shall have failed to perform in any material
    respect any material obligation or to comply in any material
    respect with any agreement or covenant to be performed or
    complied with by it under the Asset Purchase Agreement.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    No federal or state regulatory approval is required in order to
    consummate the asset sale.
</DIV>
<A name='125'>
<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: 'Times New Roman', Times">Termination
    of Agreement</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    The asset sale transaction may be terminated or abandoned at any
    time prior to the closing date:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

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

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

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    By the mutual written consent of Spatializer and DTS.
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    By either Spatializer or DTS if any governmental entity issues a
    final and non-appealable order, decree or ruling or takes any
    other action which permanently restrains, enjoins or otherwise
    prohibits the asset sale transaction.
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    By Spatializer or DTS if the other has breached in any material
    respect any of its respective representations, warranties,
    covenants or other agreements contained in the Asset Purchase
    Agreement, which breach cannot be or has not been cured within
    30&#160;days after written notice of such breach.
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    By Spatializer or DTS on or after June&#160;30, 2007, if the
    closing has not occurred by that date and if the failure of the
    closing to occur is not the result of a breach of a
    representation, warranty or covenant by the party desiring to
    terminate the Asset Purchase Agreement.
</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    If the Asset Purchase Agreement is terminated after the Annual
    Meeting and stockholder approval is not obtained at the Annual
    Meeting, Spatializer is required to reimburse DTS for all
    <FONT style="white-space: nowrap">out-of-pocket</FONT>
    expenses incurred by DTS in connection with the asset sale
    transaction. However, if Spatializer uses its best efforts to
    secure stockholder approval, it will not be responsible for
    reimbursing those expenses.
</DIV>

<P align="center" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <BR>
    19
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->
<A name='126'>
<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: 'Times New Roman', Times">Indemnification</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Spatializer and Desper Products are required to jointly and
    severally indemnify, defend and hold harmless DTS and DTS BVI
    and certain affiliates thereof from and against and in respect
    of losses:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

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

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

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    that arise out of any breach by Spatializer or Desper Products
    of its representations and warranties contained in or made
    pursuant to this Agreement provided any claim for such losses is
    brought within 183&#160;days of the closing;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    that arise out of any breach by Spatializer or Desper Products
    of its covenants or agreements contained in or made pursuant to
    this Agreement;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    related to liabilities not agreed to be assumed by DTS and DTS
    BVI;&#160;and
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    that arise from the failure to obtain any required consent with
    respect to the assignment of the contracts to be assumed by DTS
    and DTS BVI in connection with the asset sale transaction.
</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Neither Spatializer nor Desper Products will be liable for any
    losses resulting from a breach of its responsibilities or
    warranties described above unless and until the amount of those
    losses exceeds $50,000. Once such losses exceed $50,000
    Spatializer will be responsible for any amounts in excess of
    $15,000. Certain covenants of Spatializer and Desper Products
    terminate on the 275th&#160;day following the closing.
</DIV>

<DIV style="margin-top: 9pt; font-size: 1pt">&nbsp;</DIV>
<A name='127'>
<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: 'Times New Roman', Times">Brokers</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Spatializer engaged the services of SEG to assist it in locating
    a potential buyer for Spatializer. At the closing, Spatializer
    will be required to pay SEG (or its affiliates) the sum of
    $250,000 in cash for its services.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Neither DTS nor DTS BVI engaged the services of any broker or
    finder in connection with the transactions contemplated by the
    Asset Purchase Agreement.
</DIV>

<DIV style="margin-top: 9pt; font-size: 1pt">&nbsp;</DIV>
<A name='128'>
<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: 'Times New Roman', Times">Transfer
    Taxes</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    DTS will pay for transfer taxes incurred with respect to the
    transfer by Spatializer to DTS and DTS BVI of tangible personal
    property having a fair market value of up to $20,000. To the
    extent that such taxes are paid by Spatializer, DTS will
    reimburse Spatializer for such transfer taxes within ten
    business days of DTS&#146;s receipt of notice and proof of
    payment from Spatializer.
</DIV>

<DIV style="margin-top: 9pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: 'Times New Roman', Times">Joint and
    Several Liability</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    DTS has agreed to be jointly and severally liable for any
    obligations of DTS BVI under the Asset Purchase Agreement, any
    agreement signed by DTS BVI at the closing of the asset sale
    transaction.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <B>THE BOARD OF DIRECTORS OF SPATIALIZER HAS DEEMED THE SALE OF
    ASSETS OF SPATIALIZER AND DESPER PRODUCTS TO BE IN THE BEST
    INTERESTS OF THE STOCKHOLDERS OF SPATIALIZER AND ADVISABLE AND
    UNANIMOUSLY RECOMMENDS THAT YOU VOTE &#147;FOR&#148; THE SALE OF
    ASSETS TO DTS PURSUANT TO THE ASSET PURCHASE AGREEMENT.</B>
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>
<A name='129'>
<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: 'Times New Roman', Times">PROPOSAL&#160;2<BR>
    </FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: 'Times New Roman', Times">APPROVAL
    OF DISSOLUTION OF SPATIALIZER</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    In the event that the sale of assets transaction described under
    proposal&#160;1 above is approved by the stockholders of
    Spatializer, the stockholders will then be asked to take action
    upon the resolution of the board of directors of Spatializer
    regarding the proposed dissolution of Spatializer.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    At present, Spatializer has no employees other than Henry R.
    Mandell who serves as the Chairman of the Board and Secretary of
    Spatializer and is providing certain services to Spatializer in
    connection with its SEC reporting requirements and the
    transactions discussed in this proxy statement. See
    &#147;Summary of Sale of All or Substantially All of the Assets
    of Spatializer and Desper Products and Dissolution of
    Spatializer&#160;&#151; Background of the Sale of Assets and
    Dissolution.&#148; Spatializer continues to collect royalties
    but is no longer pursuing additional customers nor furthering
    product development. The board of directors of Spatializer
    believes that the business of Spatializer is no longer
    sustainable and thus has directed that the assets of Spatializer
    and its wholly owned
</DIV>

<P align="center" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <BR>
    20
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    subsidiary, Desper Products, be sold in order to maximize value
    for the stockholders of Spatializer. If all or substantially all
    of the assets of Spatializer and Desper Products are sold
    pursuant to the Asset Purchase Agreement, Spatializer will cease
    any further ongoing operations as it will not have assets
    available to it to continue its current business plan nor
    employees to carry on the business. Thus, the board of directors
    of Spatializer has deemed it advisable that, following the
    consummation of the asset sale transaction, Spatializer be
    dissolved.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    If the stockholders of Spatializer approve the asset sale
    transaction and such sale is consummated, and assuming the
    stockholders of Spatializer also approve of dissolution of
    Spatializer, the board of directors will commence an orderly
    process to wind up Spatializer. Such process would include the
    marshalling of assets of Spatializer. Such process could include
    a sale of the corporate shell in order to further maximize
    stockholder value if such an opportunity were to present itself
    and the board believed that such sale would be in the best
    interests of the stockholders of Spatializer. There is no
    assurance that any such opportunity may become available to
    Spatializer.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Spatializer would also be required to pay or make reasonable
    provision for the payment of claims against or obligations of
    Spatializer, if any, and to make such other provisions as may be
    required under Delaware law. The payment of any obligations and
    claims would be made to the full extent of Spatializer&#146;s
    assets as required by Delaware law. The Asset Purchase Agreement
    contains certain representations and warranties made by
    Spatializer to DTS and DTS BVI which will survive for a period
    of six months following the closing of the asset sale
    transaction and requires indemnification for the breach of those
    representations
    <FONT style="white-space: nowrap">and/or</FONT>
    certain other matters as provided in the Asset Purchase
    Agreement. In order to ensure that there are funds available to
    satisfy Spatializer&#146;s and Desper Products&#146;
    indemnification obligations under the Asset Purchase Agreement,
    we do not intend to make any distribution of assets until at
    least six months following the closing (or thereafter if any
    claims are pending as of the end of such six month period) and
    then only after all other assets have been marshaled, if any,
    and liabilities paid or otherwise provided for as required by
    Delaware law.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    If and to the extent that any assets of Spatializer remain after
    the payment or reasonable provision for the payment of all such
    liabilities and obligations of Spatializer, those remaining
    assets would be distributed to the stockholders of Spatializer
    on a pro rata basis based on the stockholders ownership of
    Spatializer on the record date for such distribution.
    Spatializer does not know if any assets will be available for
    distribution to stockholders or, if so, the amount that would
    ultimately be available for such distribution.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    To the extent that the winding up is delayed, the assets
    distributable to stockholders will be reduced by franchise
    taxes, legal expenses, accounting expenses, administrative
    expenses, transfer agent fees and other costs and expenses
    attributable to Spatializer&#146;s continued existence as a
    public company.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    If the stockholders of Spatializer do not approve of the asset
    sale transaction, then the stockholders will not be asked to
    vote on the dissolution of Spatializer. If the stockholders
    approve of the asset sale transaction but not approve of the
    dissolution, then it is anticipated that the assets of
    Spatializer would be required to be held (rather than
    distributed to stockholders) to meet the ongoing expenses of
    Spatializer to maintain its corporate existence until it can be
    dissolved. There is no assurance that there would be sufficient
    assets to maintain the corporate existence for an extended
    period of time.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Notwithstanding approval of the stockholders of Spatializer of
    the proposed dissolution of Spatializer by its stockholders, the
    board of directors of Spatializer may abandon such proposed
    dissolution without further action by its stockholders. If the
    asset sale is not consummated, the board of directors may, but
    is not required, to abandon the dissolution. If the dissolution
    is abandoned and another transaction is proposed, stockholders
    will be informed thereof and given the opportunity to vote on
    the proposed alternative, if such alternative would otherwise
    require stockholder approval.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <B>THE BOARD OF DIRECTORS OF SPATIALIZER HAS DEEMED THE</B>
</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <B>DISSOLUTION OF SPATIALIZER TO BE IN THE BEST INTERESTS OF
    THE</B>
</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <B>STOCKHOLDERS OF SPATIALIZER AND ADVISABLE PROVIDED THE SALE
    OF ASSETS</B>
</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <B>TRANSACTION IS APPROVED AND CONSUMMATED. THE BOARD OF
    DIRECTORS</B>
</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <B>OF SPATIALIZER UNANIMOUSLY RECOMMENDS THAT YOU VOTE
    &#147;FOR&#148; THE</B>
</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <B>DISSOLUTION OF SPATIALIZER.</B>
</DIV>

<P align="center" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <BR>
    21
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->
<A name='130'>
<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: 'Times New Roman', Times">PROPOSAL&#160;3<BR>
    </FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: 'Times New Roman', Times">NOMINATION
    AND ELECTION OF DIRECTOR</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Spatializer has a classified board of directors currently fixed
    at three members. Our board of directors is currently divided
    into three (3)&#160;classes of Directors, with one director in
    one class (&#147;Class&#160;I&#148;), one director in a separate
    class (&#147;Class&#160;II&#148;) and one director in a third
    separate class (&#147;Class&#160;III&#148;), with one class
    elected each year at our Annual Meeting for a three year term.
    At present, there is one vacancy on the board of directors and
    there is no intention to fill the vacancy at this time.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    At this Annual Meeting, the Board intends to nominate
    Mr.&#160;Mandell as a Class&#160;II Director for a three
    (3)&#160;year term expiring in 2009. Spatializer currently has
    two (2)&#160;Directors, with the term of Carlo Civelli expiring
    in 2008. Assuming Mr.&#160;Mandell is re-elected, the Board will
    consist of two (2)&#160;directors with the term of the vacant
    seat expiring in 2007. Two directors will be critical to
    completing the sale of assets and dissolution of the Company.
    Mr.&#160;Mandell provides critical information on both the
    history and operations of Spatializer.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    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
    directors, 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. Shares represented by proxies
    marked &#147;withhold&#148; for the nominee will be counted as a
    negative vote.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <B>THE BOARD OF DIRECTORS RECOMMENDS A VOTE &#147;FOR&#148; MR.
    MANDELL</B>
</DIV>
<A name='131'>
<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: 'Times New Roman', Times">PROPOSAL&#160;4<BR>
    </FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: 'Times New Roman', Times">RATIFICATION
    OF SELECTION OF INDEPENDENT AUDITORS</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    The board of directors has selected Farber&#160;&#38; Hass LLP
    as Spatializer&#146;s independent auditors for the fiscal year
    ending December&#160;31, 2006, and has further directed that
    management submit the selection of independent auditors for
    ratification by the stockholders at the Annual Meeting.
    Farber&#160;&#38; Hass LLP has audited Spatializer&#146;s
    financial statements since 1999. Representatives of
    Farber&#160;&#38; Hass LLP are expected to be present at the
    Annual Meeting, will have an opportunity to make a statement if
    they so desire and will be available to respond to appropriate
    questions.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Stockholder ratification of the selection of Farber&#160;&#38;
    Hass LLP as Spatializer&#146;s independent auditors is not
    required by Spatializer&#146;s Amended and Restated Bylaws or
    otherwise. However, the board of directors is submitting the
    selection of Farber&#160;&#38; Hass LLP to the stockholders for
    ratification as a matter of good corporate practice. If the
    stockholders fail to ratify the selection, the board of
    directors will reconsider whether or not to retain that firm.
    Even if the selection is ratified, the board of directors, in
    its discretion, may direct the appointment of different
    independent auditors at any time during the year if it
    determines that such a change would be in the best interests of
    Spatializer and its stockholders.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    The affirmative vote of the holders of a majority of the shares
    present in person or represented by proxy and entitled to vote
    at the Annual Meeting will be required to ratify the selection
    of Farber&#160;&#38; Hass LLP. Abstentions will be counted
    toward the tabulation of votes cast on proposals presented to
    the stockholders and will have the same effect as negative
    votes. Shares represented by executed proxies will be voted, if
    no abstention or vote against is marked, for the ratification of
    Farber&#160;&#38; Hass LLP as Spatializer&#146;s independent
    auditors.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    The following summarizes the fees paid to Farber&#160;&#38; Hass
    LLP for the audit of Spatializer&#146;s annual financial
    statements for the two fiscal years ended December&#160;31, 2005
    and 2004:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="82%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="5%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=02 type=hang1 -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="5%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=03 type=hang1 -->
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="center" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="6" align="center" valign="bottom" style="border-bottom: 1px solid #000000">
    <B>December&#160;31,</B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="center" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom" style="border-bottom: 1px solid #000000">
    <B>2005</B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom" style="border-bottom: 1px solid #000000">
    <B>2004</B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt">Audit Fees(1)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    24,815
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    34,865
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt">Audit-Related Fees(2)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    10,050
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt">Tax Fees(3)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    6,895
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    6,895
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt">All Other Fees
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt">Total Fees
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    41,760
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    41,760
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD style="border-top: 3px double #000000">
&nbsp;
</TD>
<TD style="border-top: 3px double #000000">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD style="border-top: 3px double #000000">
&nbsp;
</TD>
<TD style="border-top: 3px double #000000">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">

</DIV>

<P align="center" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <BR>
    22
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV style="font-size: 1pt; margin-left: 0%; width: 13%; align: left; border-bottom: 1pt solid #000000"></DIV><!-- callerid=999 iwidth=455 length=60 -->

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>



<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">

<TR>
    <TD width="2%"></TD>
    <TD width="1%"></TD>
    <TD width="97%"></TD>
</TR>

<TR>
    <TD align="right" valign="top">
    (1) </TD>
    <TD></TD>
    <TD valign="bottom">
    Audit Fees are fees for professional services rendered for the
    annual audit, the reviews of Spatializer&#146;s financial
    statements included in
    <FONT style="white-space: nowrap">Form&#160;10-Qs</FONT>
    and services normally provided in connection with statutory and
    regulatory filings.</TD>
</TR>

<TR style="line-height: 3pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD align="right" valign="top">
    (2) </TD>
    <TD></TD>
    <TD valign="bottom">
    Audit-Related Fees are for assurance and related services that
    are reasonably related to the performance of the fiscal 2005
    audit and not reported under Audit Fees.</TD>
</TR>

<TR style="line-height: 3pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD align="right" valign="top">
    (3) </TD>
    <TD></TD>
    <TD valign="bottom">
    Tax Fees are fees for professional services rendered for tax
    compliance, tax planning and tax advice.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Although neither the Audit Committee nor the board of directors
    has adopted policies and procedures for the pre-approval of
    audit and non-audit services rendered by Spatializer&#146;s
    independent auditor, Farber&#160;&#38; Hass LLP, the charter of
    the Audit Committee requires that the Audit Committee
    pre-approve the engagement of the auditor to perform all
    proposed audit, review and attest services, as well as
    engagements to perform any proposed permissible non-audit
    services. The pre-approval of services was delegated to
    Spatializer&#146;s Chief Financial Officer with the decision to
    be reported to the Audit Committee and ratified at its next
    scheduled meeting. One hundred percent of the auditors&#146;
    fees were pre-approved by the Audit Committee during the last
    fiscal year. Based on the fact that the Audit Committee has no
    members at present and the office of Chief Financial Officer is
    vacant, the board of directors will be responsible for serving
    in the capacity of the Audit Committee and approving audit and
    non-audit services to be rendered by Spatializer&#146;s
    independent auditors until such time, if any, as members may be
    appointed to the Audit Committee.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Spatializer was not billed any fees for professional services
    described in Paragraph&#160;(c)(4)(ii) of
    <FONT style="white-space: nowrap">Rule&#160;2-01</FONT>
    of
    <FONT style="white-space: nowrap">Regulation&#160;S-X</FONT>
    rendered by Farber&#160;&#38; Hass LLP for the fiscal year ended
    December&#160;31, 2003.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <B>THE BOARD OF DIRECTORS RECOMMENDS A VOTE &#147;FOR&#148;
    PROPOSAL&#160;4.</B>
</DIV>
<A name='132'>
<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: 'Times New Roman', Times">DIRECTORS
    AND EXECUTIVE OFFICERS</FONT></B>
</DIV>
</A>
<A name='133'>
<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: 'Times New Roman', Times">General</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    The following table sets forth certain information with respect
    to the directors and executive officers of Spatializer as of
    October&#160;&#160;&#160;, 2006. As described above, Henry R.
    Mandell, whose term ends in 2006, is to be considered for
    election to the board of directors as a Class&#160;II Director,
    with a term expiring in 2009 and is the only executive officer
    of Spatializer.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="50%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=02 type=quadleft -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=02 type=maindata -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=02 type=quadright -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="45%">&nbsp;</TD>	<!-- colindex=03 type=maindata -->
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
<DIV style="border-bottom: 1px solid #000000; width: 1%; padding-bottom: 1px">
    <B>Name</B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="3" nowrap align="center" valign="bottom">
<DIV style="border-bottom: 1px solid #000000; width: 1%; padding-bottom: 1px">
    <B>Age</B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="center" valign="bottom">
<DIV style="border-bottom: 1px solid #000000; width: 1%; padding-bottom: 1px">
    <B>Position</B>
</DIV>
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt">DIRECTOR WITH TERM ENDING IN 2006:
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt">Henry R. Mandell
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="top">
    <FONT style="font-size: 10pt">50
    </FONT>
</TD>
<TD>
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="bottom">
    <FONT style="font-size: 10pt">Chairman of the Board&#160;&#151;
    2/00 to date.<BR>
    Chief Executive Officer&#160;&#151; 2/00 to 1/06<BR>
    Secretary&#160;&#151; 9/98 to date.<BR>
    Chief Financial Officer&#160;&#151; 3/98 to 1/06.
    </FONT>
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt">DIRECTOR WITH TERM ENDING IN 2008:
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt">Carlo Civelli
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="top">
    <FONT style="font-size: 10pt">56
    </FONT>
</TD>
<TD>
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="bottom">
    <FONT style="font-size: 10pt">Director&#160;&#151; 3/93 to date.
    </FONT>
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <I>HENRY R. MANDELL.</I> Chairman since February 2000; Chief
    Executive Officer from February 2000 through January&#160;6,
    2006; Interim Chief Executive Office from September 1998 to
    February 2000; Secretary since September 1998; Chief Financial
    Officer from March 1998 through January&#160;6, 2006; 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.
    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.&#160;Mandell was a Senior Auditor for Arthur Young and
    Company from August 1978 to June 1981, where he qualified as a
    Certified Public Accountant. Mr.&#160;Mandell is currently the
    President and Chief Operating Officer of several operating
    entities in the apparel industry doing business as Ed&#160;Hardy.
</DIV>

<P align="center" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <BR>
    23
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <I>CARLO CIVELLI.</I> Director since March 1993. Previously,
    Mr.&#160;Civelli was our VP Finance&#160;&#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&#160;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 ten years. Director and Financial Consultant to Clarion
    Finanz AG.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    In December 2005, James D. Pace and Gilbert N. Segel resigned as
    directors of Spatializer and the authorized number of directors
    of Spatializer was reduced to three persons, leaving a vacancy
    in the Class&#160;I seat on the board of directors. The board
    does not intend to fill the vacancy at this time because of
    Spatializer&#146;s current circumstances.
</DIV>
<A name='134'>
<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: 'Times New Roman', Times">Compensation
    Of Directors</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    None of Spatializer&#146;s Directors received any cash
    compensation or other arrangements for services provided in
    their capacity as Directors. However, Spatializer has granted
    stock options to Directors in that capacity. Under the 1995
    Stock Option Plan, each Director, who is not an employee of
    Spatializer, is entitled to an automatic annual grant of an
    option to purchase 50,000&#160;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, Spatializer issued such
    options to its employee and non-employee directors on
    February&#160;10, 2005 at an exercise price of $0.10. All
    options granted in 2005 were above the closing share price on
    the date of grant.
</DIV>
<A name='135'>
<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: 'Times New Roman', Times">Activities
    of the Board of Directors and its Committees</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Members of the board of directors are elected by the holders of
    the common stock of Spatializer and represent the interests of
    all stockholders. The board of directors meets periodically to
    review significant developments affecting Spatializer and to act
    on matters requiring Board approval. Although the board of
    directors has in the past delegated many matters to committees
    or others, it reserved certain powers and functions to itself.
    Spatializer encourages the members of its board of directors to
    attend annual meetings of Spatializer&#146;s stockholders. Of
    the four board members in office at the time of last year&#146;s
    annual meeting, three attended the prior year&#146;s annual
    meeting.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    During 2005, the board of directors of Spatializer, which
    consisted of four (4)&#160;members through December&#160;19,
    2005, had two formal meetings and took certain actions by
    written consent. Except for Carlo Civelli (who missed both
    meetings because of time, location and travel conflicts but was
    advised and consented telephonically to the actions and
    discussions at each meeting), all incumbent Directors of
    Spatializer 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 Spatializer and the
    committees on which he served.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Through December&#160;19, 2005, standing committees of the board
    of directors of Spatializer included a Special Committee, an
    Audit Committee and a Compensation and Stock Option Committee.
    Following the resignations of Messrs.&#160;Pace and Segel from
    the board of directors on December&#160;19, 2005, the duties and
    responsibilities of these committees have been undertaken by the
    board of directors as a whole. The following disclosure
    regarding committees of the board of directors relates to the
    period commencing January&#160;1, 2005 through December&#160;19,
    2005.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 2%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><I><FONT style="font-family: 'Times New Roman', Times">Special
    Committee</FONT></I></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    In November 2002, the board of directors created a Special
    Committee to review certain strategic opportunities as they
    arise and to obtain additional information regarding such
    opportunities for consideration and evaluation by the board of
    directors. Through December&#160;19, 2005, the Special Committee
    consisted of Messrs.&#160;Mandell, Pace and Segel. The Special
    Committee had no in-person meetings, telephonic meetings or
    discussions in connection with strategic business matters in
    2005, as any such matters were discussed with the board as a
    whole.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 2%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><I><FONT style="font-family: 'Times New Roman', Times">Audit
    Committee</FONT></I></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Through December&#160;19, 2005, the Audit Committee of
    Spatializer&#146;s board of directors consisted of
    Mr.&#160;Segel who was a non-employee director.
    Mr.&#160;Mandell, an employee of Spatializer, participated as an
    ex-officio member.
</DIV>

<P align="center" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <BR>
    24
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Mr.&#160;Segel was considered independent, as defined in the
    NASD listing standards, and met the criteria for independence
    set forth in the rules promulgated under the Securities Exchange
    Act of 1934, as amended. This committee is directed to review
    the scope, cost and results of the independent audit of
    Spatializer&#146;s books and records, the results of the annual
    audit and quarterly reviews of Spatializer&#146;s financial
    statements with management and the internal auditors and the
    adequacy of Spatializer&#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 Spatializer&#146;s independent auditors for
    consulting work; and to report to the board of directors, when
    so requested, on any accounting or financial matters. The Audit
    Committee of the board of directors held one formal meeting
    during fiscal 2005 and had either telephonic meetings or
    discussions in connection with each of the quarterly interim
    filings.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 2%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><I><FONT style="font-family: 'Times New Roman', Times">Nominating
    Committee</FONT></I></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    The board of director of Spatializer historically did not, and
    does not currently, maintain a Nominating Committee, due to the
    small size of the Board and, prior to December&#160;19, 2005 the
    resultant committee demands placed on individual directors
    already serving on multiple committees. Thus, the board of
    directors as a whole was and is responsible for, among other
    things, identifying, reviewing and evaluating candidates to
    serve as directors of Spatializer, reviewing, evaluating and
    considering incumbent directors, recommending candidates for
    election to the board of directors, making recommendations
    regarding the membership of the committees of the board of
    directors and assessing the performance of individual members of
    the board of directors. This evaluation may also be performed in
    conjunction with outside counsel. At present, there are only two
    directors, namely Henry&#160;R.&#160;Mandell and Carlo Civelli.
    Of those two directors, only Mr.&#160;Civelli would be
    considered independent.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    The board of directors has not established any specific minimum
    qualifications that must be met for recommendation for a
    position on the board of directors. As Spatializer is trying to
    sell all or substantially all of its assets and to dissolve and
    wind up, the board of directors does not believe that
    establishing any such qualifications is necessary at this point
    in time. In considering candidates for director, the board of
    directors will generally consider all relevant factors,
    including among others the candidate&#146;s applicable expertise
    and demonstrated excellence in his or her field, the usefulness
    of such expertise to Spatializer, the availability of the
    candidate to devote sufficient time and attention to the affairs
    of Spatializer, the candidate&#146;s reputation for personal
    integrity and ethics and the candidate&#146;s ability to
    exercise sound business judgment. Other relevant factors,
    including diversity, age and skills, will also be considered.
    Candidates for director are reviewed in the context of the
    existing membership of the board of directors (including the
    qualities and skills of the existing directors), the operating
    requirements of Spatializer and the long-term interests of its
    stockholders.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    The board of directors uses its network of contacts when
    compiling a list of potential director candidates and may also
    engage outside consultants (such as professional search firms).
    In addition, the board of directors also considers potential
    director candidates recommended by stockholders or major
    customers. All potential director candidates are evaluated based
    on the factors set forth above, and to date the board of
    directors has established no special procedure for the
    consideration of director candidates recommended by stockholders.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Stockholders who wish to recommend individuals for consideration
    by the board of directors to become nominees for election to the
    board of directors may do so by delivering a written
    recommendation to the Chairman of the Board at the following
    address: 2060 East Avenida de Los Arboles, # D190, Thousand
    Oaks,
    <FONT style="white-space: nowrap">California&#160;91362-1376</FONT>
    at least one hundred twenty (120)&#160;days prior to the
    anniversary date of the mailing of Spatializer&#146;s proxy
    statement for this Annual Meeting of Stockholders. The deadline
    for nominating a director for the next Annual Meeting of
    Stockholders
    is&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;,
    2007. Submissions must include the full name of the proposed
    nominee, a description of the proposed nominee&#146;s business
    experience for at least the previous five years, complete
    biographical information, a description of the proposed
    nominee&#146;s qualifications as a director and a representation
    that the nominating stockholder is a beneficial or record owner
    of Spatializer&#146;s common stock. Any such submission must be
    accompanied by the written consent of the proposed nominee to be
    named as a nominee and to serve as a director if elected.
</DIV>

<P align="center" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <BR>
    25
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 2%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><I><FONT style="font-family: 'Times New Roman', Times">Compensation
    and Stock Committee</FONT></I></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    The Compensation and Stock Option Committee of Spatializer (the
    &#147;Compensation Committee&#148;) consisted of
    Messrs.&#160;Pace and Segel through December&#160;19, 2005, each
    of whom was a non-employee director of Spatializer and a
    &#147;disinterested person&#148; with respect to the plans
    administered by such committee, as such term is defined in
    <FONT style="white-space: nowrap">Rule&#160;16b-3</FONT>
    adopted under the Securities Exchange Act of 1934, as amended,
    and the rules and regulations thereunder (collectively, the
    &#147;Exchange Act&#148;). Following the resignation of
    Messrs.&#160;Pace and Segel from the board of directors of
    Spatializer, the two Compensation Committee positions have been
    vacant. The Compensation Committee reviews and approves annual
    salaries, bonuses and other forms and items of compensation for
    senior officers and employees of Spatializer. Except for plans
    that are, in accordance with their terms or as required by law,
    administered by the board of directors or another particularly
    designated group, the Compensation Committee also administers
    and implements all of Spatializer&#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 one
    meeting in 2005. The 1996 Incentive Plan lapsed in 2005. No
    Compensation Committee interlock relationships existed in 2005.
</DIV>

<DIV style="margin-top: 9pt; font-size: 1pt">&nbsp;</DIV>
<A name='136'>
<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: 'Times New Roman', Times">Code of
    Ethics</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Spatializer has adopted a Code of Ethics that applies to all of
    our directors, officers and employees. A copy of our Code of
    Ethics may be obtained free of charge upon written request of
    our Secretary in care of 2060&#160;East&#160;Avenida de Los
    Arboles, # D190, Thousand Oaks, California
    <FONT style="white-space: nowrap">91362-1376.</FONT>
</DIV>

<DIV style="margin-top: 9pt; font-size: 1pt">&nbsp;</DIV>
<A name='137'>
<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: 'Times New Roman', Times">Stockholder
    Communications with the Board of Directors</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    The board of directors will consider recommendations for board
    nominees and proposals submitted by Spatializer&#146;s
    stockholders. Historically, Spatializer has not adopted a formal
    process for stockholder communications with the board of
    directors. Nevertheless, every effort has been made to ensure
    that the views of stockholders are heard by the board of
    directors or individual directors, as applicable, and that
    appropriate responses are provided to stockholders in a timely
    manner. Stockholders may address any concerns they have to the
    board of directors by writing Spatializer&#146;s Chairman of the
    Board in care of 2060 East Avenida de Los Arboles,&#160;# D190,
    Thousand Oaks, California
    <FONT style="white-space: nowrap">91362-1376,</FONT>
    or by email to investor@spatializer.com. Spatializer believes
    its responsiveness to stockholder communications to the board of
    directors has been excellent.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>
<A name='138'>
<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: 'Times New Roman', Times">SECURITY
    OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    The following table sets forth information (except as otherwise
    indicated by footnote) as to shares of common stock owned as of
    October&#160;&#160;&#160;, 2006 or which can be acquired within
    sixty days of October&#160;&#160;&#160;, 2006 by (i)&#160;each
    person known by management to beneficially own more than five
    percent (5%) of Spatializer&#146;s outstanding common stock,
    (ii)&#160;each of Spatializer&#146;s directors, and officers,
    (iii)&#160;all executive officers and directors as a group. On
    October&#160;&#160;&#160;, 2006 there were
    <B>[48,763,383]</B>&#160;shares of common stock outstanding.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="68%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="17%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=02 type=hang1 -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="6%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=03 type=hang1 -->
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom">
    <B>Amount and Nature of<BR>
    </B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom">
    <B>Percent of<BR>
    </B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
<DIV style="border-bottom: 1px solid #000000; width: 1%; padding-bottom: 1px">
    <B>Name of Beneficial Owner</B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom" style="border-bottom: 1px solid #000000">
    <B>Beneficial Ownership</B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom" style="border-bottom: 1px solid #000000">
    <B>Class</B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt">Carlo Civelli(1)(2)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    5,763,780
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    11.75
</TD>
<TD nowrap align="left" valign="bottom">
    %
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt">Henry R. Mandell(1)(3)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2,212,875
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    4.4
</TD>
<TD nowrap align="left" valign="bottom">
    %
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt">All directors and executive
    officers as a group (2&#160;persons)(1)(2)(3)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    7,976,655
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    16.15
</TD>
<TD nowrap align="left" valign="bottom">
    %
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV style="font-size: 1pt; margin-left: 0%; width: 13%; align: left; border-bottom: 1pt solid #000000"></DIV><!-- callerid=999 iwidth=455 length=60 -->

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>



<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">

<TR>
    <TD width="2%"></TD>
    <TD width="1%"></TD>
    <TD width="97%"></TD>
</TR>

<TR>
    <TD align="right" valign="top">
    (1) </TD>
    <TD></TD>
    <TD valign="bottom">
    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.</TD>
</TR>

<TR style="line-height: 3pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD align="right" valign="top">
    (2) </TD>
    <TD></TD>
    <TD valign="bottom">
    Carlo Civelli controls Clarion Finanz AG, a non-reporting
    investment company. Holdings of Mr.&#160;Civelli and Clarion
    Finanz AG are combined, and include all shares of Spatializer
    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. Includes
    300,000 options to acquire common stock held by
    Mr.&#160;Civelli, all of which are vested and currently
    exercisable. Mr.&#160;Civelli&#146;s address is Gerberstrasse 5
    8023, Zurich, Switzerland.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <BR>
    26
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">

<TR>
    <TD width="2%"></TD>
    <TD width="1%"></TD>
    <TD width="97%"></TD>
</TR>

<TR>
    <TD align="right" valign="top">
    (3) </TD>
    <TD></TD>
    <TD valign="bottom">
    Includes 1,550,000 options held by Mr.&#160;Mandell, all of
    which are vested and are exercisable at various prices from
    $0.05 to $0.30. This includes options granted on
    February&#160;21, 2005, and exercisable at $0.10&#160;per share,
    relating to the extension of Mr.&#160;Mandell&#146;s employment
    agreement in 2005. The options have varying expiration dates of
    which the final such expiration date is February&#160;21, 2010.</TD>
</TR>

</TABLE>
<A name='139'>
<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: 'Times New Roman', Times">EXECUTIVE
    COMPENSATION</FONT></B>
</DIV>
</A>
<A name='140'>
<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: 'Times New Roman', Times">Named
    Executive Officer</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    The following table sets forth separately, for the last three
    complete fiscal years, each component of compensation paid or
    awarded to, or earned by, the Chief Executive Officer of
    Spatializer. There were no other executive officers who were
    serving as executive officers at December&#160;31, 2005 who had
    annual income of at least $100,000 in 2005.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: 'Times New Roman', Times">SUMMARY
    COMPENSATION TABLE</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="57%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="3%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=02 type=hang1 -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="6%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=03 type=hang1 -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=04 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=04 type=lead -->
    <TD width="3%" align="right">&nbsp;</TD>	<!-- colindex=04 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=04 type=hang1 -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=05 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=05 type=lead -->
    <TD width="12%" align="right">&nbsp;</TD>	<!-- colindex=05 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=05 type=hang1 -->
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom">
    <B>Long Term<BR>
    </B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom">
    <B>Compensation<BR>
    </B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom">
    <B>Awards Securities<BR>
    </B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="6" align="center" valign="bottom" style="border-bottom: 1px solid #000000">
    <B>Annual Compensation</B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom">
    <B>Under Option<BR>
    </B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
<DIV style="border-bottom: 1px solid #000000; width: 1%; padding-bottom: 1px">
    <B>Name and Principal Position</B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom" style="border-bottom: 1px solid #000000">
    <B>Year</B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom" style="border-bottom: 1px solid #000000">
    <B>Salary</B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom" style="border-bottom: 1px solid #000000">
    <B>Bonus</B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom" style="border-bottom: 1px solid #000000">
    <B>Granted (#)</B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <I><FONT style="font-size: 10pt">Henry R.
    Mandell</FONT></I><FONT style="font-size: 10pt">(1)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    12/05
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    214,200
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    N/A
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    500,000
</TD>
<TD nowrap align="left" valign="bottom">
    (2)
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 20pt">
    <FONT style="font-size: 10pt">Chief Executive Officer
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    12/04
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    214,200
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    N/A
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    50,000
</TD>
<TD nowrap align="left" valign="bottom">
    (3)
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    12/03
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    214,200
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    N/A
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    400,000
</TD>
<TD nowrap align="left" valign="bottom">
    (4)
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV style="font-size: 1pt; margin-left: 0%; width: 13%; align: left; border-bottom: 1pt solid #000000"></DIV><!-- callerid=999 iwidth=455 length=60 -->

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>



<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">

<TR>
    <TD width="2%"></TD>
    <TD width="1%"></TD>
    <TD width="97%"></TD>
</TR>

<TR>
    <TD align="right" valign="top">
    (1) </TD>
    <TD></TD>
    <TD valign="bottom">
    Mr.&#160;Mandell&#146;s base salary in each of the three fiscal
    years reported above was $214,200 and he was entitled to a
    bonus, as granted by the Compensation Committee, equal to five
    percent (5%) of Spatializer&#146;s income after taxes (not to
    exceed $100,000). Mr.&#160;Mandell does not receive any other
    cash compensation but did receive reimbursement for expenses and
    benefits on the same terms as other employees.</TD>
</TR>

<TR style="line-height: 3pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD align="right" valign="top">
    (2) </TD>
    <TD></TD>
    <TD valign="bottom">
    Reflects an additional 500,000 options granted in conjunction
    with the extension in February 2005 (effective as of November
    2004)&#160;of Mr.&#160;Mandell&#146;s employment contract with
    Spatializer, which options are exercisable at $0.10&#160;per
    share.</TD>
</TR>

<TR style="line-height: 3pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD align="right" valign="top">
    (3) </TD>
    <TD></TD>
    <TD valign="bottom">
    Reflects 50,000&#160;directors options granted annually at the
    Annual Meeting of Stockholders to each director, exercisable at
    $0.09&#160;per share.</TD>
</TR>

<TR style="line-height: 3pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD align="right" valign="top">
    (4) </TD>
    <TD></TD>
    <TD valign="bottom">
    Reflects 50,000 exercisable at $0.07&#160;per share, an
    additional 100,000 options granted for five (5)&#160;year Board
    service, exercisable at $0.05&#160;per share, and 250,000
    options at $0.05&#160;per share granted in conjunction with the
    extension of Mr.&#160;Mandell&#146;s employment contract in
    November 2003.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: 'Times New Roman', Times">OPTION
    GRANTS DURING THE LAST FISCAL YEAR</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    The following table is presented in accordance with the Exchange
    Act and the regulations thereunder and sets forth stock options
    granted under Spatializer&#146;s 1995 Stock Option Plan during
    the 2005 fiscal year to Henry&#160;R.&#160;Mandell, the only
    Named Executive Officer:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="35%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="5%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=02 type=hang1 -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="8%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=03 type=hang1 -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=04 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=04 type=lead -->
    <TD width="6%" align="right">&nbsp;</TD>	<!-- colindex=04 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=04 type=hang1 -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=05 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=05 type=lead -->
    <TD width="10%" align="right">&nbsp;</TD>	<!-- colindex=05 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=05 type=hang1 -->
    <TD width="4%">&nbsp;</TD>	<!-- colindex=06 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=06 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=06 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=06 type=hang1 -->
    <TD width="8%">&nbsp;</TD>	<!-- colindex=07 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=07 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=07 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=07 type=hang1 -->
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="center" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="6" nowrap align="center" valign="bottom">
    <B>Potential Realizable<BR>
    </B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="center" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="14" nowrap align="center" valign="bottom" style="border-bottom: 1px solid #000000">
    <B>Individual Grants</B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="6" nowrap align="center" valign="bottom">
    <B>Value at Assumed<BR>
    </B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="center" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom">
    <B>% of Total<BR>
    </B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="6" nowrap align="center" valign="bottom">
    <B>Annual Rates of<BR>
    </B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="center" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom">
    <B>Securities<BR>
    </B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom">
    <B>Options<BR>
    </B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="6" nowrap align="center" valign="bottom">
    <B>Stock Price<BR>
    </B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="center" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom">
    <B>Under<BR>
    </B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom">
    <B>Granted to<BR>
    </B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom">
    <B>Exercise or<BR>
    </B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="6" nowrap align="center" valign="bottom">
    <B>Appreciation for<BR>
    </B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="center" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom">
    <B>Options<BR>
    </B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom">
    <B>Employees in<BR>
    </B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom">
    <B>Base Price<BR>
    </B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom">
    <B>Expiration<BR>
    </B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="6" nowrap align="center" valign="bottom" style="border-bottom: 1px solid #000000">
    <B>Option Term</B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="center" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom" style="border-bottom: 1px solid #000000">
    <B>Granted</B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom" style="border-bottom: 1px solid #000000">
    <B>Fiscal Year</B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom" style="border-bottom: 1px solid #000000">
    <B>($/Security)</B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom" style="border-bottom: 1px solid #000000">
    <B>Date</B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom" style="border-bottom: 1px solid #000000">
    <B>5%</B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom" style="border-bottom: 1px solid #000000">
    <B>10%</B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt">Henry R. Mandell
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    500,000
</TD>
<TD nowrap align="left" valign="bottom">
    (1)
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    100.0
</TD>
<TD nowrap align="left" valign="bottom">
    %
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    0.10
</TD>
<TD nowrap align="left" valign="bottom">
    (2)
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    February 2010
</TD>
<TD nowrap align="left" valign="bottom">
    (1)
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    0
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    0
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV style="font-size: 1pt; margin-left: 0%; width: 13%; align: left; border-bottom: 1pt solid #000000"></DIV><!-- callerid=999 iwidth=455 length=60 -->

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>



<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">

<TR>
    <TD width="2%"></TD>
    <TD width="1%"></TD>
    <TD width="97%"></TD>
</TR>

<TR>
    <TD align="right" valign="top">
    (1) </TD>
    <TD></TD>
    <TD valign="bottom">
    All options are fully vested and expire by February 2010.</TD>
</TR>

<TR style="line-height: 3pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD align="right" valign="top">
    (2) </TD>
    <TD></TD>
    <TD valign="bottom">
    Market price on the date of grant.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <BR>
    27
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: 'Times New Roman', Times">AGGREGATED
    OPTION EXERCISES IN LAST FISCAL YEAR<BR>
    AND FISCAL YEAR-END OPTION VALUES</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    The following table (presented in accordance with the Exchange
    Act and the regulations promulgated thereunder) sets forth the
    fiscal year-end value of unexercised options on an aggregated
    basis of the only Named Executive Officer. Mr.&#160;Mandell did
    not exercise any options to acquire shares of the common stock
    of Spatializer during fiscal 2005:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="32%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="8%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=02 type=hang1 -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="10%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=03 type=hang1 -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=04 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=04 type=lead -->
    <TD width="12%" align="right">&nbsp;</TD>	<!-- colindex=04 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=04 type=hang1 -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=05 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=05 type=lead -->
    <TD width="19%" align="right">&nbsp;</TD>	<!-- colindex=05 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=05 type=hang1 -->
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom">
    <B>Value of Unexercised<BR>
    </B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom">
    <B>Securities<BR>
    </B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom">
    <B>Unexercised<BR>
    </B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom">
    <B>In-the-Money Options at<BR>
    </B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom">
    <B>Acquired on<BR>
    </B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom">
    <B>Aggregate<BR>
    </B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom">
    <B>Options at Fiscal<BR>
    </B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom">
    <B>Fiscal Year-End ($)<BR>
    </B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
<DIV style="border-bottom: 1px solid #000000; width: 1%; padding-bottom: 1px">
    <B>Name</B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom" style="border-bottom: 1px solid #000000">
    <B>Exercise</B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom" style="border-bottom: 1px solid #000000">
    <B>Value Realized</B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom" style="border-bottom: 1px solid #000000">
    <B>Year-End</B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom" style="border-bottom: 1px solid #000000">
    <B>Exercisable/Unexercisable</B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt">Henry R. Mandell
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    0
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    0
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,550,000
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    0
</TD>
<TD nowrap align="left" valign="bottom">
    (1)
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV style="font-size: 1pt; margin-left: 0%; width: 13%; align: left; border-bottom: 1pt solid #000000"></DIV><!-- callerid=999 iwidth=455 length=60 -->

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>



<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">

<TR>
    <TD width="2%"></TD>
    <TD width="1%"></TD>
    <TD width="97%"></TD>
</TR>

<TR>
    <TD align="right" valign="top">
    (1) </TD>
    <TD></TD>
    <TD valign="bottom">
    Calculated at an average exercise price of $0.10&#160;per share.</TD>
</TR>

</TABLE>
<A name='141'>
<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: 'Times New Roman', Times">Compensation
    of Directors</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    None of Spatializer&#146;s directors received any cash
    compensation or other arrangements for services provided in
    their capacity as directors during the fiscal year ended
    December&#160;31, 2005. However, Spatializer has granted stock
    options to directors in that capacity. Under the 1995 Stock
    Option Plan, each non-employee director was entitled to an
    automatic annual grant of an option to purchase
    50,000&#160;shares of Spatializer&#146;s common stock. Employee
    directors could receive such a grant at the discretion of the
    board of directors. No options were granted in 2005 since the
    1995 Stock Option Plan expired during the last fiscal year.
</DIV>
<A name='142'>
<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: 'Times New Roman', Times">Employment
    Agreement</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    On February&#160;21, 2005, Spatializer amended the Employment
    Agreement, effective as of November&#160;12, 1999, as amended,
    with respect to Henry R. Mandell&#146;s employment as Chief
    Executive Officer and Chief Financial Officer of Spatializer.
    The amendment, effective as of November&#160;12, 2004, extended
    the term of Mr.&#160;Mandell&#146;s employment through
    November&#160;12, 2006. In addition, the terms of the amendment
    provided for a grant of a stock option to acquire
    500,000&#160;shares of common stock at an exercise price of
    $0.10&#160;per share and a term of five years. This option grant
    replaced options that had been previously issued to
    Mr.&#160;Mandell under such Employment Agreement but had expired
    unexercised.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    However, on December&#160;19, 2005, Henry R. Mandell gave notice
    that he was resigning from all positions held by him with
    Spatializer, other than as a director, Chairman of the Board and
    Secretary thereof, effective as of January&#160;6, 2006.
    Effective as of January&#160;6, 2006, Spatializer entered into
    an agreement with Mr.&#160;Mandell to continue his employment
    with Spatializer as Chairman and Secretary. Under the terms of
    that agreement, Mr.&#160;Mandell continues to provide certain
    specified services to Spatializer, which services may be
    provided in person, by telephone, by email or otherwise as
    Mr.&#160;Mandell sees fit, such services to be rendered at such
    hours <FONT style="white-space: nowrap">and/or</FONT>
    on weekends as he may determine. Those services include without
    limitation supervising the preparation of Spatializer&#146;s
    financial statements and records, reviewing and authorizing day
    to day disbursements, supervising all of Spatializer&#146;s
    licensing and business activities, handling stockholder
    communications and serving as the contact person with
    Spatializer&#146;s financial advisor. He is permitted to accept,
    and has accepted, other employment during the term of the
    agreement.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    As an incentive for Mr.&#160;Mandell to continue in the employ
    of Spatializer during the term of the agreement, and in
    consideration for foregoing certain severance pay to which he
    otherwise may have been entitled, Spatializer agreed to pay him
    a lump sum payment of $35,733.33, which amount was paid
    concurrently with the execution of the agreement. He is entitled
    to a monthly salary of $5,000 during the term of the agreement,
    a bonus of $10,000 for his assistance in the preparation of
    Spatializer&#146;s
    <FONT style="white-space: nowrap">Form&#160;10-K</FONT>
    of Spatializer for the fiscal year ended December&#160;31, 2005
    and a separate bonus of $5,000 each for his assistance on each
    <FONT style="white-space: nowrap">Form&#160;10-Q</FONT>
    upon which he assists for any quarterly period ending after
    December&#160;31, 2005. Additionally, should Spatializer be sold
    or enter into certain specified extraordinary transactions
    during the term of the agreement, Mr.&#160;Mandell may be
    entitled to an additional bonus, not to exceed $150,000. During
    the term of the agreement, he will also be entitled to employee
    benefits and reimbursement of reasonable, actual and necessary
    business expenses.
</DIV>

<P align="center" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <BR>
    28
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    The agreement contains certain non-competition, non-solicitation
    and confidentiality provisions. The agreement terminated certain
    provisions of Mr.&#160;Mandell&#146;s then existing extended
    employment agreement (including without limitation the
    compensation and severance pay obligations thereunder) but
    continued certain other provisions thereof (such as the
    proprietary information, confidentiality and other similar
    provisions thereunder).
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    The agreement was to terminate by its terms upon the earlier of
    (i)&#160;the consummation of certain extraordinary transactions,
    (ii)&#160;the expiration, termination or non-renewal of the
    directors&#146; and officers&#146; insurance policy of
    Spatializer under which Mr.&#160;Mandell is covered as a
    director and officer of Spatializer and (iii)&#160;June&#160;30,
    2006. Spatializer may terminate Mr.&#160;Mandell&#146;s
    employment at any time during the term and Mr.&#160;Mandell may
    voluntarily resign his employment at any time during such term.
    In June 2006, the board of directors agreed to extend the
    employment agreement until the earlier of 12&#160;months from
    its June&#160;30, 2006 expiration date and the date of
    Spatializer&#146;s dissolution.
</DIV>
<A name='143'>
<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: 'Times New Roman', Times">Certain
    Relationships and Related Transactions</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Except as described in &#147;Employment Agreements&#148; above,
    during 2005, Spatializer 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 Spatializer&#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.
</DIV>
<A name='144'>
<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: 'Times New Roman', Times">Compliance
    with Section&#160;16(a) of the Exchange Act</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Under the Exchange Act, Spatializer&#146;s Directors, certain
    executive and other officers, and any person holding more than
    ten percent (10%) of Spatializer&#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. Copies of these
    reports must also be furnished to us. Based solely upon a review
    of the copies of reports furnished to Spatializer as filed with
    the Commission, Spatializer is informed that all such reports
    were filed on a timely basis.
</DIV>
<A name='145'>
<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: 'Times New Roman', Times">Indemnification
    of Directors and Executive Officers</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Spatializer&#146;s Certificate of Incorporation, as amended, and
    its Amended and Restated Bylaws provide that Spatializer will
    indemnify any officer or director of Spatializer 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.
</DIV>
<A name='146'>
<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: 'Times New Roman', Times">ANNUAL
    REPORT</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Spatializer has previously forwarded to each stockholder who so
    requested in writing a copy of Spatializer&#146;s Annual Report
    on
    <FONT style="white-space: nowrap">Form&#160;10-K</FONT>
    for the fiscal year ended December&#160;31, 2005 as filed with
    the Securities and Exchange Commission and the quarterly reports
    for the interim periods in 2006. Requests for additional copies
    of these reports should be sent to Spatializer in care of 2060
    East Avenida de Los Arboles, # D190, Thousand Oaks, California
    <FONT style="white-space: nowrap">91362-1376</FONT><FONT style="font-variant: SMALL-CAPS">,</FONT>
    Attention: Henry R. Mandell. Copies of our financial statements
    may also be found on the website of the Securities and Exchange
    Commission (www.sec.gov).
</DIV>

<P align="center" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <BR>
    29
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->
<A name='147'>
<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: 'Times New Roman', Times">STOCKHOLDER
    PROPOSALS</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    In the event that an additional annual stockholder meeting is
    scheduled after the annual meeting described in this proxy
    statement and a stockholder wishes to submit a proposal for
    inclusion in Spatializer&#146;s proxy statement and form of
    proxy for that next meeting in conformity with current
    Securities and Exchange Commission proxy regulations, any such
    proposal must be received by the Secretary of Spatializer no
    later
    than&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;,
    2007. If a stockholder intends to present a proposal at that
    next meeting, but does not seek inclusion of that proposal in
    the proxy statement for that meeting, the holders of proxies for
    that meeting will be entitled to exercise their discretionary
    authority on that proposal if Spatializer does not have notice
    of the proposal at or
    by&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;,
    2007.
</DIV>
<A name='148'>
<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: 'Times New Roman', Times">OTHER
    BUSINESS</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    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.
</DIV>

<DIV style="margin-top: 24pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 49%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    BY ORDER OF THE BOARD
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 49%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <IMG src="v24256prv2425601.gif" alt="-s- Henry R. Mandell" >
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 49%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Henry R. Mandell
</DIV>

<DIV align="left" style="margin-left: 49%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">

</DIV>

<DIV align="left" style="margin-left: 49%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Chairman
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    DATED:&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;,
    2006
</DIV>

<P align="center" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <BR>
    30
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->
<A name='149'>
<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: 'Times New Roman', Times">ANNEX
    A</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <B>ASSET PURCHASE AGREEMENT</B>
</DIV>

<P align="center" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <BR>
    31
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="right" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: 'Times New Roman', Times">EXECUTION
    COPY</FONT></B>
</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: 'Times New Roman', Times">ASSET
    PURCHASE AGREEMENT<BR>
    by and among<BR>
    DTS, INC.,<BR>
    DTS BVI LIMITED,<BR>
    SPATIALIZER AUDIO LABORATORIES, INC.<BR>
    and<BR>
    DESPER PRODUCTS, INC.<BR>
    dated as of<BR>
    September&#160;18, 2006</FONT></B>
</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<P align="left" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">

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

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><U><FONT style="font-family: 'Times New Roman', Times">TABLE
    OF CONTENTS</FONT></U></B>
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="18%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="76%">&nbsp;</TD>	<!-- colindex=02 type=maindata -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=03 type=quadleft -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=03 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=03 type=quadright -->
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="center" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="center" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="3" nowrap align="center" valign="bottom" style="border-bottom: 1px solid #000000">
    <B>Page(s)</B>
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD colspan="3" align="left" valign="top">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">ARTICLE&#160;I
    PURCHASE AND SALE OF ASSETS
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-1
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;1.1
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="bottom">
    <FONT style="font-size: 10pt">Sale and Transfer of Assets
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-1
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;1.2
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="bottom">
    <FONT style="font-size: 10pt">Assumption of Liabilities
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-1
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;1.3
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    <FONT style="font-size: 10pt">Excluded Liabilities
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-2
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;1.4
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="bottom">
    <FONT style="font-size: 10pt">The Purchase Price
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-2
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;1.5
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="bottom">
    <FONT style="font-size: 10pt">Allocation of Purchase Price; Tax
    Filings
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-2
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom" style="line-height: 19pt">
<TD colspan="3">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD>
&nbsp;
</TD>
<TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
<TD colspan="3" align="left" valign="top">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">ARTICLE&#160;II
    THE CLOSING
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-3
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;2.1
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    <FONT style="font-size: 10pt">The Closing
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-3
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;2.2
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="bottom">
    <FONT style="font-size: 10pt">Deliveries by Seller and Seller
    Subsidiary
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-3
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;2.3
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="bottom">
    <FONT style="font-size: 10pt">Deliveries by Purchaser
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-3
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom" style="line-height: 19pt">
<TD colspan="3">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD>
&nbsp;
</TD>
<TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
<TD colspan="3" align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">ARTICLE&#160;III
    REPRESENTATIONS AND WARRANTIES OF SELLER AND SELLER SUBSIDIARY
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-4
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;3.1
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    <FONT style="font-size: 10pt">Authorization
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-4
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;3.2
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    <FONT style="font-size: 10pt">Binding Agreement
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-4
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;3.3
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    <FONT style="font-size: 10pt">Good Title&#160;Conveyed
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-4
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;3.4
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="bottom">
    <FONT style="font-size: 10pt">Organization; Qualification of
    Seller
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-4
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;3.5
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="bottom">
    <FONT style="font-size: 10pt">Subsidiaries and Affiliates
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-5
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;3.6
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="bottom">
    <FONT style="font-size: 10pt">Consents and Approvals; No
    Violations
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-5
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;3.7
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="bottom">
    <FONT style="font-size: 10pt">SEC Reports and Financial
    Statements
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-5
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;3.8
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="bottom">
    <FONT style="font-size: 10pt">Property Held by Others
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-6
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;3.9
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="bottom">
    <FONT style="font-size: 10pt">Absence of Certain Changes
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-6
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;3.10
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="bottom">
    <FONT style="font-size: 10pt">Title to Properties; Encumbrances
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-6
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;3.11
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    <FONT style="font-size: 10pt">Environmental Matters
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-6
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;3.12
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="bottom">
    <FONT style="font-size: 10pt">Contracts and Commitments
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-6
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;3.13
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    <FONT style="font-size: 10pt">Customers
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-6
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;3.14
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    <FONT style="font-size: 10pt">Litigation
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-6
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;3.15
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="bottom">
    <FONT style="font-size: 10pt">Compliance with Laws
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-7
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;3.16
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="bottom">
    <FONT style="font-size: 10pt">Employee Benefit Plans
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-7
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;3.17
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    <FONT style="font-size: 10pt">Tax Matters
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-7
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;3.18
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    <FONT style="font-size: 10pt">Intellectual Property
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-7
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;3.19
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    <FONT style="font-size: 10pt">Solvency
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-9
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;3.20
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="bottom">
    <FONT style="font-size: 10pt">Brokers or Finders
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-9
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;3.21
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    <FONT style="font-size: 10pt">Full Disclosure
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-9
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;3.22
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    <FONT style="font-size: 10pt">Proxy Statement
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-9
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom" style="line-height: 19pt">
<TD colspan="3">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD>
&nbsp;
</TD>
<TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
<TD colspan="3" align="left" valign="top">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">ARTICLE&#160;IV
    REPRESENTATIONS AND WARRANTIES OF PURCHASER
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-9
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;4.1
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    <FONT style="font-size: 10pt">Organization
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-9
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;4.2
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="bottom">
    <FONT style="font-size: 10pt">Authorization; Validity of
    Agreement; Necessary Action
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-9
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;4.3
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="bottom">
    <FONT style="font-size: 10pt">Consents and Approvals; No
    Violations
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-10
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;4.4
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="bottom">
    <FONT style="font-size: 10pt">Brokers or Finders
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-10
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;4.5
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    <FONT style="font-size: 10pt">Information Supplied
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-10
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
</TD>
</TR>
</TABLE>

<P align="center" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <BR>
    A-i
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="18%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="76%">&nbsp;</TD>	<!-- colindex=02 type=maindata -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=03 type=quadleft -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=03 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=03 type=quadright -->
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="center" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="center" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="3" nowrap align="center" valign="bottom" style="border-bottom: 1px solid #000000">
    <B>Page(s)</B>
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD colspan="3" align="left" valign="top">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">ARTICLE&#160;V
    COVENANTS
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-10
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;5.1
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="bottom">
    <FONT style="font-size: 10pt">Interim Operations of Seller and
    Seller Subsidiary
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-10
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;5.2
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    <FONT style="font-size: 10pt">Access; Confidentiality
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-11
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;5.3
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    <FONT style="font-size: 10pt">Stockholder Meeting
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-11
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;5.4
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    <FONT style="font-size: 10pt">Proxy Statement
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-11
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;5.5
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="bottom">
    <FONT style="font-size: 10pt">Efforts and Actions to Cause
    Closing to Occur
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-12
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;5.6
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="bottom">
    <FONT style="font-size: 10pt">Notification of Certain Matters
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-12
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;5.7
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="bottom">
    <FONT style="font-size: 10pt">No Solicitation of Competing
    Transaction
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-13
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;5.8
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="bottom">
    <FONT style="font-size: 10pt">No Assumption of Labor Liabilities
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-13
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;5.9
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    <FONT style="font-size: 10pt">Subsequent Actions
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-13
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;5.10
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    <FONT style="font-size: 10pt">Publicity
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-14
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;5.11
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="bottom">
    <FONT style="font-size: 10pt">Mail Received After Closing
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-14
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;5.12
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="bottom">
    <FONT style="font-size: 10pt">Access to Books and Records
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-14
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;5.13
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="bottom">
    <FONT style="font-size: 10pt">Waiver of Bulk Sales Requirement
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-14
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;5.14
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    <FONT style="font-size: 10pt">Accounts Receivable
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-14
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;5.15
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="bottom">
    <FONT style="font-size: 10pt">Proxy Solicitation Efforts
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-14
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;5.16
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    <FONT style="font-size: 10pt">Post-Closing Assignment
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-14
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom" style="line-height: 19pt">
<TD colspan="3">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD>
&nbsp;
</TD>
<TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
<TD colspan="3" align="left" valign="top">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">ARTICLE&#160;VI
    CONDITIONS
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-15
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;6.1
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="bottom">
    <FONT style="font-size: 10pt">Conditions to Each Party&#146;s
    Obligation to Effect the Closing
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-15
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;6.2
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="bottom">
    <FONT style="font-size: 10pt">Conditions to Obligations of
    Purchaser to Effect the Closing
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-15
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;6.3
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="bottom">
    <FONT style="font-size: 10pt">Conditions to Obligations of
    Seller to Effect the Closing
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-16
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom" style="line-height: 19pt">
<TD colspan="3">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD>
&nbsp;
</TD>
<TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
<TD colspan="3" align="left" valign="top">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">ARTICLE&#160;VII
    TERMINATION
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-16
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;7.1
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    <FONT style="font-size: 10pt">Termination
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-16
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;7.2
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="bottom">
    <FONT style="font-size: 10pt">Effect of Termination
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-17
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom" style="line-height: 19pt">
<TD colspan="3">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD>
&nbsp;
</TD>
<TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
<TD colspan="3" align="left" valign="top">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">ARTICLE&#160;VIII
    INDEMNIFICATION
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-17
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;8.1
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    <FONT style="font-size: 10pt">Indemnification; Remedies
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-17
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;8.2
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    <FONT style="font-size: 10pt">Limitations
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-17
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;8.3
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="bottom">
    <FONT style="font-size: 10pt">Notice of Claim; Defense
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-18
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;8.4
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="bottom">
    <FONT style="font-size: 10pt">Survival of Indemnification Claims
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-18
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;8.5
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="bottom">
    <FONT style="font-size: 10pt">Tax Effect of Indemnification
    Payments
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-18
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;8.6
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="bottom">
    <FONT style="font-size: 10pt">Survival of Covenants,
    Representations and Warranties
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-18
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom" style="line-height: 19pt">
<TD colspan="3">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD>
&nbsp;
</TD>
<TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
<TD colspan="3" align="left" valign="top">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">ARTICLE&#160;IX
    DEFINITIONS AND INTERPRETATION
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-18
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;9.1
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    <FONT style="font-size: 10pt">Definitions
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-18
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;9.2
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    <FONT style="font-size: 10pt">Interpretation
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-21
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom" style="line-height: 19pt">
<TD colspan="3">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD>
&nbsp;
</TD>
<TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
<TD colspan="3" align="left" valign="top">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">ARTICLE&#160;X
    MISCELLANEOUS
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-22
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;10.1
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="bottom">
    <FONT style="font-size: 10pt">Fees and Expenses
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-22
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;10.2
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="bottom">
    <FONT style="font-size: 10pt">Amendment and Modification
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-22
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;10.3
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    <FONT style="font-size: 10pt">Notices
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-22
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;10.4
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    <FONT style="font-size: 10pt">Counterparts
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-23
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;10.5
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="bottom">
    <FONT style="font-size: 10pt">Entire Agreement; No Third Party
    Beneficiaries
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-23
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;10.6
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    <FONT style="font-size: 10pt">Severability
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-23
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;10.7
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    <FONT style="font-size: 10pt">Governing Law
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-23
    </FONT>
</TD>
<TD>
</TD>
</TR>
</TABLE>

<P align="center" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <BR>
    A-ii
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="18%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="76%">&nbsp;</TD>	<!-- colindex=02 type=maindata -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=03 type=quadleft -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=03 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=03 type=quadright -->
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="center" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="center" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="3" nowrap align="center" valign="bottom" style="border-bottom: 1px solid #000000">
    <B>Page(s)</B>
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;10.8
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    <FONT style="font-size: 10pt">Enforcement; Venue
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-23
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;10.9
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="bottom">
    <FONT style="font-size: 10pt">Time of Essence
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-24
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;10.10
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    <FONT style="font-size: 10pt">Extension; Waiver
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-24
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;10.11
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="bottom">
    <FONT style="font-size: 10pt">Election of Remedies
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-24
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt; font-variant: SMALL-CAPS">Section</FONT><FONT style="font-size: 10pt">&#160;10.12
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    <FONT style="font-size: 10pt">Assignment
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">A-24
    </FONT>
</TD>
<TD>
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><U><FONT style="font-family: 'Times New Roman', Times">EXHIBITS</FONT></U></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="9%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=maindata -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="87%">&nbsp;</TD>	<!-- colindex=03 type=maindata -->
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt">Exhibit&#160;A
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    <FONT style="font-size: 10pt">&#151;
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">Form&#160;Of Assumption Agreement
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt">Exhibit&#160;B
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    <FONT style="font-size: 10pt">&#151;
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">Purchase Price Allocation
    </FONT>
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt">Exhibit&#160;C
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    <FONT style="font-size: 10pt">&#151;
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">Form&#160;Of Bill Of Sale And
    Assignment
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt">Exhibit&#160;D
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    <FONT style="font-size: 10pt">&#151;
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="top">
    <FONT style="font-size: 10pt">Schedule&#160;Of Liens
    </FONT>
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt">Exhibit&#160;E
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    <FONT style="font-size: 10pt">&#151;
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">Assumed Contracts
    </FONT>
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">

</DIV>

<P align="center" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <BR>
    A-iii
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: 'Times New Roman', Times">ASSET
    PURCHASE AGREEMENT</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Asset Purchase Agreement, dated as of September&#160;18, 2006,
    by and among DTS, Inc., a Delaware corporation
    (&#147;<U>Purchaser</U>&#148;), DTS BVI Limited, a corporation
    organized under the laws of the British Virgin Islands and a
    subsidiary of Purchaser (&#147;<U>Purchaser
    Subsidiary</U>&#148;), Spatializer Audio Laboratories, Inc., a
    Delaware corporation (&#147;<U>Seller</U>&#148;), and Desper
    Products, Inc., a California corporation which is a wholly owned
    subsidiary of Seller (&#147;<U>Seller Subsidiary</U>&#148;).
    Certain capitalized terms used in this Agreement have the
    meanings assigned to them in ARTICLE&#160;IX.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    WHEREAS, the Boards of Directors of each of Purchaser, Purchaser
    Subsidiary, Seller and Seller Subsidiary has approved, and deems
    it advisable and in the best interests of its respective
    stockholders to consummate the acquisition of the Purchased
    Assets by Purchaser, which acquisition is to be effected by the
    sale of the Purchased Assets to Purchaser or Purchaser
    Subsidiary, as determined by Purchaser, by Seller and Seller
    Subsidiary, subject to only those liabilities expressly assumed
    by Purchaser or Purchaser Subsidiary pursuant hereto, and
    otherwise upon the terms and subject to the conditions set forth
    herein;&#160;and
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    WHEREAS, Purchaser and Purchaser Subsidiary intend to co-develop
    the Purchased Assets and allocate them among each of them such
    that all tangible Purchased Assets and all other domestic
    Purchased Assets be transferred to Purchaser and all foreign
    Purchased Assets be transferred to Purchaser Subsidiary, each at
    the Closing as contemplated hereby.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    NOW, THEREFORE, in consideration of the foregoing and the
    representations, warranties, covenants and agreements set forth
    herein, intending to be legally bound hereby, the parties hereto
    agree as follows:
</DIV>

<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <FONT style="font-family: 'Times New Roman', Times">ARTICLE&#160;I<BR>
    </FONT>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <FONT style="font-family: 'Times New Roman', Times">PURCHASE AND
    SALE OF ASSETS
    </FONT>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;1.1&#160;&#160;<I><U>Sale
    and Transfer of Assets</U>.</I>&#160;&#160;Subject to the terms
    and conditions of this Agreement, at the Closing Seller and
    Seller Subsidiary shall sell, convey, assign, transfer and
    deliver to Purchaser or Purchaser Subsidiary as specified by
    Purchaser the Purchased Assets, and Purchaser or Purchaser
    Subsidiary, as applicable, agrees to purchase and accept from
    Seller and Seller Subsidiary the Purchased Assets, free and
    clear of all Encumbrances, except for the Encumbrances
    specifically to be assumed by Purchaser or Purchaser Subsidiary
    pursuant to the Assumption Agreement in the form of
    <U>Exhibit&#160;A</U> hereto (the &#147;<U>Assumption
    Agreement</U>&#148;). The term &#147;<U>Purchased
    Assets</U>&#148; means all of Seller&#146;s and Seller
    Subsidiary&#146;s right, title and interest in and to all
    property and assets, real, personal or mixed, tangible or
    intangible, of every kind and description, wherever located,
    used in the conduct of the Business, and shall include but not
    be limited to:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (a)&#160;all Seller Intellectual Property;
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (b)&#160;all Assumed Contracts;
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (c)&#160;all accounts receivable and royalties originating from
    the Assumed Contracts, subject to Purchaser&#146;s obligation
    pursuant to Section&#160;5.14;&#160;and
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (d)&#160;all records, reports and databases related to outbound
    licenses of Seller Intellectual Property;
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <U>provided</U>, <U>that</U>, (x)&#160;cash and cash equivalents
    and (y)&#160;accounts receivable not originating from the
    Assumed Contracts are not Purchased Assets.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;1.2&#160;&#160;<I><U>Assumption
    of Liabilities</U>.</I>&#160;&#160;Except for obligations
    specifically to be assumed by Purchaser or Purchaser Subsidiary
    pursuant to the Assumption Agreement, neither Purchaser nor
    Purchaser Subsidiary shall assume nor shall be deemed to have
    assumed or agreed to be responsible for any Liabilities of
    Seller, Seller Subsidiary or any of either of their Affiliates,
    whether or not arising out of the ownership and operation of the
    Purchased Assets or the Business. Upon the terms and subject to
    the conditions of this Agreement and the Assumption Agreement,
    Purchaser or Purchaser Subsidiary, as determined by Purchaser,
    shall assume on the Closing Date, effective as of the time of
    the Closing, and pay, perform and discharge when due all
    liabilities, obligations and commitments under the Assumed
    Contracts, to the extent arising or relating to performance by
</DIV>

<P align="center" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <BR>
    A-1
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Seller or Seller Subsidiary after the Closing Date, other than
    any Liabilities, arising due to any breach of any such Assumed
    Contract by Seller or Seller Subsidiary (collectively, the
    &#147;<U>Assumed Liabilities</U>&#148;).
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;1.3&#160;&#160;<I><U>Excluded
    Liabilities</U>.</I>&#160;&#160;Notwithstanding any provision in
    this Agreement, Purchaser or Purchaser Subsidiary, as
    applicable, is assuming only the Assumed Liabilities and is not
    assuming any other Liability of Seller, Seller Subsidiary or any
    of either of their Affiliates whether or not arising out of the
    ownership and operation of the Purchased Assets or the Business
    (all Liabilities of Seller, Seller Subsidiary and either of
    their Affiliates not expressly assumed by Purchaser or Purchaser
    Subsidiary shall be retained by Seller, Seller Subsidiary and
    their Affiliates and are referred to as the &#147;<U>Excluded
    Liabilities</U>&#148;). Without limiting the generality of the
    preceding sentence, the Excluded Liabilities include:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (a)&#160;all Liabilities relating to the operations of Seller or
    Seller Subsidiary or the Business, except as set forth in
    Section&#160;1.2;
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (b)&#160;all Liabilities related to any accounts payable or any
    indebtedness of Seller or Seller Subsidiary, except those
    Liabilities first arising after the Effective Time under the
    Assumed Contracts;
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (c)&#160;all Liabilities relating to any products manufactured
    or licensed by Seller or Seller Subsidiary prior to the
    Effective Time, including warranty obligations and product
    liabilities and intellectual property indemnities irrespective
    of the legal theory asserted;
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (d)&#160;all Liabilities related to any Assumed Contract that
    arise prior to the Effective Time;
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (e)&#160;all Liabilities related to any Assumed Contract that
    arise subsequent to the Effective Time but that arise out of or
    relate to any breach that occurred prior to the Effective Time;
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (f)&#160;all Liabilities with respect to Taxes relating to the
    Business, the Seller or Seller Subsidiary;
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (g)&#160;subject to Purchaser&#146;s limited obligation pursuant
    to Section&#160;10.1, all Liabilities with respect to Taxes
    arising out of or relating to the sale of the Purchased Assets
    or assumption of the Assumed Liabilities;
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (h)&#160;all Liabilities with respect to Taxes relating to the
    ownership or use of the Purchased Assets prior to the Effective
    Time;
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (i)&#160;all Liabilities, obligations and commitments relating
    to any Environmental Claim;
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (j)&#160;all Liabilities relating to any employee benefits or
    employee plans provided to any employee or consultant of Seller
    or Seller Subsidiary;
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (k)&#160;all Liabilities relating to employment, severance or
    termination agreements with any employee or consultant of Seller
    or Seller Subsidiary;
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (l)&#160;all Liabilities relating to any violation of law by
    Seller or Seller Subsidiary or any litigation against Seller or
    Seller Subsidiary;&#160;and
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (m)&#160;all Liabilities relating to brokers fees or success
    fees with respect to the Transaction.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;1.4&#160;&#160;<I><U>The
    Purchase Price</U>.</I>&#160;&#160;Subject to the terms and
    conditions of this Agreement, in consideration of the aforesaid
    sale, conveyance, assignment, transfer and delivery to Purchaser
    and Purchaser Subsidiary of the Purchased Assets, at the Closing
    Purchaser shall (i)&#160;pay or cause to be paid to Seller an
    amount of cash equal to One&#160;Million Dollars ($1,000,000)
    U.S. and (ii)&#160;Purchaser or Purchaser Subsidiary, as
    determined by Purchaser, shall assume the Assumed Liabilities.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;1.5&#160;&#160;<I><U>Allocation
    of Purchase Price; Tax Filings</U>.</I>&#160;&#160;The Purchase
    Price shall be allocated among the Purchased Assets as set forth
    in <U>Exhibit&#160;B</U> hereto, which has been arrived at by
    arm&#146;s length negotiation, in compliance with
    Section&#160;1060 of the Code and the regulations promulgated
    thereunder. Each of Purchaser, Purchaser Subsidiary, Seller and
    Seller Subsidiary shall (i)&#160;timely file all forms
    (including Internal Revenue Service Form&#160;8594)&#160;and Tax
    Returns required to be filed in connection with such allocation,
    (ii)&#160;be bound by such allocation for purposes of
    determining Taxes, (iii)&#160;prepare and file, and cause its
    Affiliates to prepare and file, its Tax Returns on a basis
    consistent with such allocation and (iv)&#160;take no position,
    and cause its Affiliates to take no position, inconsistent with
    such allocation on any applicable Tax Return, in any audit or
    proceeding before any taxing
</DIV>

<P align="center" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <BR>
    A-2
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    authority, in any report made for Tax, financial accounting or
    any other purposes, or otherwise. In the event that the
    Allocation set forth on <U>Exhibit&#160;B</U> hereto is disputed
    by any taxing authority, the party receiving notice of such
    dispute shall promptly notify the other party hereto concerning
    the existence and resolution of such dispute.
</DIV>

<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <FONT style="font-family: 'Times New Roman', Times">ARTICLE&#160;II<BR>
    </FONT>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <FONT style="font-family: 'Times New Roman', Times">THE CLOSING
    </FONT>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;2.1&#160;&#160;<I><U>The
    Closing</U>.</I>&#160;&#160;The sale and transfer of the
    Purchased Assets by Seller and Seller Subsidiary to Purchaser
    and Purchaser Subsidiary shall take place at the offices of
    Purchaser, 5171 Clareton Drive, Agoura Hills, CA 91301, at
    10:00&#160;a.m., local time, on a day mutually agreed to by
    Seller and Purchaser which day shall be not later than ten
    Business Days following the satisfaction or waiver of all
    conditions to closing set forth in ARTICLE&#160;VI (other than
    conditions which can be satisfied only by the delivery of
    certificates, opinions or other documents at the Closing),
    unless another date or place is agreed in writing by each of the
    parties hereto.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;2.2&#160;&#160;<I><U>Deliveries
    by Seller and Seller Subsidiary</U>.</I>&#160;&#160;At the
    Closing, Seller and Seller Subsidiary shall deliver or cause to
    be delivered to Purchaser and Purchaser Subsidiary:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (a)&#160;a duly executed Bill of Sale and Assignment in the form
    annexed hereto as <U>Exhibit&#160;C</U>;
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (b)&#160;all documents of title and instruments of conveyance
    necessary to transfer and record beneficial and record ownership
    to Purchaser or Purchaser Subsidiary, as applicable, of all
    Purchased Assets;
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (c)&#160;assignments of all Patents, Trademarks, trade names,
    domain names, ideas, assumed names and Copyrights and all
    applications and disclosures therefor and all other Intellectual
    Property included among the Purchased Assets;
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (d)&#160;duly executed copies of all required consents;
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (e)&#160;all documents containing or relating to
    &#147;know-how&#148; to be acquired by Purchaser or Purchaser
    Subsidiary pursuant hereto;
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (f)&#160;all of the books, records and customer data and reports
    of Seller or Seller Subsidiary relating to the Purchased Assets;
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (g)&#160;the officers&#146; certificate referred to in
    Section&#160;6.2(c) hereof;
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (h)&#160;all such other deeds, endorsements, assignments and
    other instruments as, in the opinion of Purchaser&#146;s
    counsel, are necessary to vest in Purchaser or Purchaser
    Subsidiary, as applicable, good and marketable title to the
    Purchased Assets free and clear of all Encumbrances;
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (i)&#160;evidence of the satisfaction of all obligations and
    release of all liens encumbering the Purchased Assets, including
    without limitation those items specified on
    <U>Exhibit&#160;D</U> hereto;&#160;and
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (j)&#160;all other previously undelivered documents required to
    be delivered by Seller or Seller Subsidiary to Purchaser or
    Purchaser Subsidiary at or prior to the Closing in connection
    with the Transactions.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Seller and Seller Subsidiary shall take all actions reasonably
    requested by Purchaser to deliver physical possession of the
    Purchased Assets to Purchaser or Purchaser Subsidiary at the
    Closing at such location in southern California as is specified
    by Purchaser; <U>provided</U>, <U>that</U>, all out of pocket
    costs related to delivery of the Purchased Assets that are
    either arranged for by Purchaser, or arranged for by Seller with
    Purchaser&#146;s written pre-approval, shall be paid or
    reimbursed, as applicable, by Purchaser.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;2.3&#160;&#160;<I><U>Deliveries
    by Purchaser</U>.</I>&#160;&#160;At the Closing, Purchaser shall
    deliver or cause to be delivered to Seller:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (a)&#160;immediately available funds in the amount of One
    Million Dollars ($1,000,000) (U.S.);
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (b)&#160;the Assumption Agreement, duly executed by Purchaser or
    Purchaser Subsidiary, as applicable;
</DIV>

<P align="center" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <BR>
    A-3
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (c)&#160;the officer&#146;s certificate referred to in
    Section&#160;6.3 hereof;&#160;and
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (d)&#160;such other documents as are required to be delivered by
    Purchaser or Purchaser Subsidiary to Seller at or prior to the
    Closing pursuant to this Agreement.
</DIV>

<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <FONT style="font-family: 'Times New Roman', Times">ARTICLE&#160;III<BR>
    </FONT>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <FONT style="font-family: 'Times New Roman', Times">REPRESENTATIONS
    AND WARRANTIES OF SELLER AND SELLER SUBSIDIARY
    </FONT>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Except as specifically set forth in the Disclosure Schedule
    prepared by Seller and delivered to Purchaser simultaneously
    with the execution hereof, each of Seller and Seller Subsidiary
    represent and warrant to Purchaser and Purchaser Subsidiary that
    all of the statements contained in this Article&#160;III are
    true and complete as of the date of this Agreement (or, if made
    as of a specified date, as of such date), and will be true and
    complete in all material respects (without giving effect to any
    materiality qualifier therein) as of the Closing Date as though
    made on the Closing Date. Each exception set forth in the
    Disclosure Schedule and each other response to this Agreement
    set forth in the Disclosure Schedule is identified by reference
    to, or has been grouped under a heading referring to, a specific
    individual section or subsection, as applicable, of this
    Agreement and, relates only to such section or subsection, as
    applicable and to another section or subsection of this
    Agreement only to the extent the applicability of such
    disclosure thereto is readily apparent.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;3.1&#160;&#160;<I><U>Authorization</U>.</I>&#160;&#160;Each
    of Seller and Seller Subsidiary has full corporate power and
    authority to execute and deliver this Agreement and to
    consummate the Transactions. The execution, delivery and
    performance by Seller and Seller Subsidiary of this Agreement
    and the consummation by each of them of the Transactions have
    been duly authorized by Seller&#146;s and Seller
    Subsidiary&#146;s Boards of Directors and by the sole
    shareholder of Seller Subsidiary, and no other corporate action
    on the part of Seller or Seller Subsidiary is necessary to
    authorize the execution and delivery by Seller of this Agreement
    or the consummation by it of the Transactions, subject only to
    the approval of this Agreement and the Transactions (including
    without limitation the sale of the Purchased Assets) by the
    holders of a majority of the outstanding shares of Seller Common
    Stock (&#147;<U>Stockholder Approval</U>&#148;).
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;3.2&#160;&#160;<I><U>Binding
    Agreement</U>.</I>&#160;&#160;This Agreement has been duly
    executed and delivered by each of Seller and Seller Subsidiary
    and, assuming due and valid authorization, execution and
    delivery thereof by Purchaser, this Agreement is a valid and
    binding obligation of Seller and Seller Subsidiary enforceable
    against Seller and Seller Subsidiary in accordance with its
    terms, except (i)&#160;as limited by applicable bankruptcy,
    insolvency, reorganization, moratorium, fraudulent conveyance
    and other similar laws of general application affecting
    enforcement of creditors&#146; rights generally and
    (ii)&#160;the availability of the remedy of specific performance
    or injunctive or other forms of equitable relief may be subject
    to equitable defenses and would be subject to the discretion of
    the court before which any proceeding therefor may be brought.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;3.3&#160;&#160;<I><U>Good
    Title&#160;Conveyed</U>.</I>&#160;&#160;The bill of sale and the
    deeds, endorsements, assignments and other instruments to be
    executed and delivered by Seller and Seller Subsidiary to
    Purchaser and Purchaser Subsidiary at the Closing will be valid
    and binding obligations of Seller and Seller Subsidiary,
    enforceable in accordance with their respective terms, and will
    effectively vest in Purchaser or Purchaser Subsidiary, as
    applicable, good, valid and marketable title to all the assets
    to be transferred to Purchaser pursuant to and as contemplated
    by this Agreement free and clear of all Encumbrances, except
    Encumbrances to be assumed by Purchaser or Purchaser Subsidiary
    pursuant to the Assumption Agreement.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;3.4&#160;&#160;<I><U>Organization;
    Qualification of Seller</U>.</I>&#160;&#160;Each of Seller and
    Seller Subsidiary (i)&#160;is a corporation duly organized,
    validly existing and in good standing under the laws of its
    state of incorporation; (ii)&#160;has full corporate power and
    authority to carry on its business and to own those Purchased
    Assets to be transferred by it to Purchaser; and (iii)&#160;is
    duly qualified or licensed to do business as a foreign
    corporation in good standing in every jurisdiction in which the
    conduct of its business or the character of its assets requires
    such qualification, except where the failure to be so qualified
    or licensed as a foreign corporation could not, individually or
    in the aggregate, reasonably be expected to have a material
    adverse effect on Seller and Seller Subsidiary, taken as a
    whole, or on the Purchased Assets.
</DIV>

<P align="center" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <BR>
    A-4
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;3.5&#160;&#160;<I><U>Subsidiaries
    and Affiliates</U>.</I>&#160;&#160;The Disclosure Schedule sets
    forth the name, jurisdiction of incorporation and authorized and
    outstanding capital of each Subsidiary of Seller. All the
    outstanding capital stock of each Subsidiary of Seller is owned
    directly by Seller, and there are no outstanding options, rights
    or agreements of any kind relating to the issuance, sale or
    transfer of any capital stock or other equity securities of any
    such Subsidiary. Seller has heretofore delivered to Purchaser
    complete and correct copies of the certificate of incorporation
    and by-laws of Seller and Seller Subsidiary, as presently in
    effect.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;3.6&#160;&#160;<I><U>Consents
    and Approvals; No Violations</U>.</I>&#160;&#160;Except for the
    filing with the SEC of (x)&#160;a proxy statement relating to
    the approval by the stockholders of Seller of the principal
    terms of this Agreement and the Transactions (the &#147;<U>Proxy
    Statement</U>&#148;) and (y)&#160;such reports under the
    Exchange Act as may be required in connection with this
    Agreement and the Transactions, none of the execution, delivery
    or performance of this Agreement by Seller or Seller Subsidiary,
    the consummation by Seller or Seller Subsidiary of the
    Transactions or compliance by Seller or Seller Subsidiary with
    any of the provisions hereof will (i)&#160;conflict with or
    result in any breach of any provision of the certificate of
    incorporation, the by-laws or similar organizational documents
    of Seller or Seller Subsidiary, (ii)&#160;require any filing
    with, or permit, authorization, consent or approval of, any
    Governmental Entity or other Person (including, without
    limitation, consents from parties to loans, contracts, leases,
    licenses and other agreements to which Seller or Seller
    Subsidiary is a party) other than documents to record record
    ownership of registered Seller Intellectual Property,
    (iii)&#160;require any consent, approval or notice under, or
    result in a violation or breach of, or constitute (with or
    without due notice or the passage of time or both) a default (or
    give rise to any right of termination, amendment, cancellation
    or acceleration) under, any of the terms, conditions or
    provisions of any agreement to which Seller or Seller Subsidiary
    is a party or by which the Purchased Assets are bound, or
    (iv)&#160;violate any order, writ, injunction, decree, statute,
    rule or regulation applicable to Seller, the Purchased Assets,
    Seller Subsidiary or any of their properties or assets,
    excluding from the foregoing clauses&#160;(ii), (iii)&#160;and
    (iv)&#160;such violations, breaches or defaults could not,
    individually or in the aggregate, reasonably be expected to have
    a material adverse effect on Seller and Seller Subsidiary, taken
    as a whole, or on the Purchased Assets.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;3.7&#160;&#160;<I><U>SEC
    Reports and Financial Statements</U>.</I>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (a)&#160;Seller has filed, or furnished, as applicable, with the
    SEC all forms, reports, schedules, statements and other
    documents required to be filed by it since January&#160;1, 2004
    (together with all exhibits and schedules thereto and all
    information incorporated therein by reference, the
    &#147;<U>Seller SEC Documents</U>&#148;). The Seller SEC
    Documents, as of their respective dates or, if amended, as of
    the date of the last such amendment, (i)&#160;did not contain
    any untrue statement of a material fact or omit to state a
    material fact required to be stated therein or necessary in
    order to make the statements therein, in light of the
    circumstances under which they were made, not misleading and
    (ii)&#160;complied in all material respects with the applicable
    requirements of the Exchange Act, Securities Act and the
    Sarbanes-Oxley Act of 2002 and the rules and regulations
    promulgated under such acts and the applicable rules and
    regulations of the SEC thereunder. No Subsidiary of Seller is
    separately required to make any filings with the SEC.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (b)&#160;The consolidated financial statements of Seller
    included or incorporated by reference in the Seller SEC
    Documents complied in all material respects with applicable
    accounting requirements and with the published rules and
    regulations of the SEC with respect thereto, were prepared in
    accordance with GAAP applied on a consistent basis during the
    periods indicated (except as may be indicated in the notes
    thereto or, in the case of unaudited interim financial
    statements, as may be permitted by the SEC on
    <FONT style="white-space: nowrap">Form&#160;10-Q</FONT>
    under the Exchange Act) and fairly presented the consolidated
    financial position of Seller and its consolidated Subsidiaries
    as of the dates thereof and the consolidated results of their
    operations and cash flows for the periods then ended, except
    that the unaudited interim financial statements were or are
    subject to normal and recurring year-end adjustments which were
    not material in amount. Since January&#160;1, 2004, there has
    been no material change in Seller&#146;s accounting methods or
    principles that would be required to be disclosed in
    Seller&#146;s financial statements in accordance with GAAP,
    except as required by applicable law and described in the notes
    to such financial statements. Except (a)&#160;as disclosed in
    such financial statements and (b)&#160;for liabilities and
    obligations incurred in the ordinary course of business and
    consistent with past practice since the Balance Sheet Date that
    are immaterial in the aggregate, neither Seller nor Seller
    Subsidiary has any Liability that has, or could reasonably be
    expected to have, a material adverse effect on Seller and Seller
    Subsidiary, taken as a whole, or on Purchaser&#146;s ability to
    exploit the Purchased Assets.
</DIV>

<P align="center" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <BR>
    A-5
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;3.8&#160;&#160;<I><U>Property
    Held by Others</U>.</I>&#160;&#160;The Disclosure Schedule lists
    all property owned by Seller or Seller Subsidiary and included
    within the Purchased Assets which is not in the possession of
    Seller, if any, together, in each case, with the name, address
    and telephone number of each Person who holds such property.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;3.9&#160;&#160;<I><U>Absence
    of Certain Changes</U>.</I>&#160;&#160;Since the Balance Sheet
    Date, neither Seller nor Seller Subsidiary has:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (a)&#160;permitted or allowed any of the Purchased Assets to be
    subjected to any Encumbrance;
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (b)&#160;sold, transferred, licensed or otherwise disposed of
    any Purchased Asset; or permitted to lapse any rights to the use
    of any Seller Intellectual Property, or disposed of or disclosed
    to any Person other than representatives of Purchaser any trade
    secret, formula, process, know-how or other Intellectual
    Property not theretofore a matter of public knowledge;&#160;or
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (c)&#160;agreed, whether in writing or otherwise, to take any
    action described in this section.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;3.10&#160;&#160;<I><U>Title
    to Properties; Encumbrances</U>.</I>&#160;&#160;Each of Seller
    and Seller Subsidiary has good, valid and marketable title to
    all the Purchased Assets free and clear of all Encumbrances.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;3.11&#160;&#160;<I><U>Environmental
    Matters</U>.</I>&#160;&#160;Each of Seller and Seller Subsidiary
    is in material compliance with all Environmental Laws. There is
    no Environmental Claim by any Person that is pending or, to the
    knowledge of Seller, threatened against Seller, or Seller
    Subsidiary, or against any Person whose liability for any
    Environmental Claim Seller or Seller Subsidiary has retained or
    assumed either contractually or by operation of law.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;3.12&#160;&#160;<I><U>Contracts
    and Commitments</U>.</I>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (a)&#160;The Disclosure Schedule sets forth each outbound
    license of Seller Intellectual Property. Except for the outbound
    licenses of Seller Intellectual Property specified in the
    Disclosure Schedule, neither Seller nor Seller Subsidiary has
    any agreements, contracts, commitments or restrictions which are
    material to the Business.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (b)&#160;Except as set forth in the Disclosure Schedule, neither
    Seller nor Seller Subsidiary has any outstanding contracts with
    agents, consultants, advisors, salesmen, sales representatives,
    distributors or dealers.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (c)&#160;Neither Seller nor Seller Subsidiary is in default
    under or in violation of, nor is there any valid basis for any
    claim of default under or violation of, any contract required to
    be set forth in the Disclosure Schedule pursuant to
    Section&#160;3.12(a) or 3.12(b).
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (d)&#160;Neither Seller nor Seller Subsidiary is restricted by
    agreement from carrying on its business anywhere in the world.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (e)&#160;Seller has provided Purchaser with a correct and
    complete copy of each contract identified in the Disclosure
    Schedules and all amendments thereto and waivers thereunder.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (f)&#160;Except for the contracts set forth in
    Section&#160;3.12(a) of the Disclosure Schedule for which Seller
    has provided Purchaser a correct and complete copy (including
    all amendments thereto and waivers thereunder), no Person has
    been granted a royalty-free license to any Seller Intellectual
    Property.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (g)&#160;Except for the contracts set forth in
    Section&#160;3.12(a) of the Disclosure Schedule for which Seller
    has provided Purchaser a correct and complete copy (including
    all amendments thereto and waivers thereunder), no outbound
    license of Seller Intellectual Property permits the licensee to
    sublicense or assign such license.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;3.13&#160;&#160;<I><U>Customers</U>.</I>&#160;&#160;To
    Seller&#146;s knowledge, there has not been any material adverse
    change in the business relationship of Seller or Seller
    Subsidiary with any customer who accounted for more than 5% of
    its consolidated sales for the year ended December&#160;31, 2005.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;3.14&#160;&#160;<I><U>Litigation</U>.</I>&#160;&#160;There
    is no action, suit, inquiry, proceeding or investigation by or
    before any court or governmental or other regulatory or
    administrative agency or commission pending or, to the knowledge
    of Seller, threatened, against or involving the Seller or Seller
    Subsidiary, or which questions or challenges the validity of
    this Agreement or any action taken or to be taken by Seller or
    Seller Subsidiary pursuant to this Agreement or in connection
    with the Transactions; and there is no valid basis for any such
    action, proceeding or investigation. Neither Seller nor Seller
    Subsidiary is subject to any judgment, order or decree.
</DIV>

<P align="center" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <BR>
    A-6
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;3.15&#160;&#160;<I><U>Compliance
    with Laws</U>.</I>&#160;&#160;Each of Seller and Seller
    Subsidiary has complied in all respects with all laws, rules and
    regulations, ordinances, judgments, decrees, orders, writs and
    injunctions of all United States federal, state, local, foreign
    governments and agencies thereof that affect their business,
    properties or assets and no notice, charge, claim, action or
    assertion has been received by Seller or Seller Subsidiary or
    has been filed, commenced or threatened against Seller or Seller
    Subsidiary alleging any violation of any of the foregoing, in
    each case, except as could not, individually or in the
    aggregate, reasonably be expected to have a material adverse
    effect on Seller and Seller Subsidiary, taken as a whole, or on
    the Purchased Assets.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;3.16&#160;&#160;<I><U>Employee
    Benefit Plans</U>.</I>&#160;&#160;Neither Seller or Seller
    Subsidiary currently has or has ever had in place, any Plans or
    is or has been subject to any multi-employer plan.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;3.17&#160;&#160;<I><U>Tax
    Matters</U>.</I>&#160;&#160;Seller and Seller Subsidiary has
    each timely filed, or caused to be filed (taking into account
    any valid extensions of due dates), all Tax Returns, including
    information returns and returns for estimated taxes, required by
    any taxing jurisdiction with respect to Taxes and all Taxes
    shown on said returns to be due and all other Taxes due and
    owing (whether or not shown on any return) have been paid in
    full or are being contested in good faith as described in the
    Disclosure Schedule, which Tax Returns are complete and accurate
    in all material respects. Seller and Seller Subsidiary has each
    withheld all amounts required to be withheld on account of Taxes
    from amounts paid to employees, former employees, directors,
    officers, members, residents and non-residents and has remitted
    or will remit the same to the appropriate taxing authorities
    within the prescribed time periods. None of the Tax Returns
    filed by Seller or Seller Subsidiary has been audited by any
    taxing authority and, to Seller&#146;s knowledge, there is no
    such examination currently in progress. No deficiency in the
    payment of Taxes for any period has been asserted in writing by
    any taxing authority and remains unsettled. Neither Seller nor
    Seller Subsidiary has entered into any agreement, waiver or
    other arrangement providing for any extension of time with
    respect to the assessment or collection of any Taxes.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;3.18&#160;&#160;<I><U>Intellectual
    Property</U>.</I>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (a)&#160;The Disclosure Schedule sets forth a true and complete
    list of all Patents and Patent applications, Trademark
    registrations and applications, service mark registrations and
    applications, Software, Copyright registrations and
    applications, material unregistered Trademarks, service marks,
    Copyrights and Internet domain names used or held for use by
    Seller or Seller Subsidiary, together with all licenses related
    to the foregoing, whether Seller or Seller Subsidiary is the
    licensee or licensor thereunder.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (b)&#160;Seller or Seller Subsidiary is the sole and exclusive
    owner of all Seller Intellectual Property, free and clear of all
    Encumbrances, except for that Intellectual Property indicated in
    the Disclosure Schedule as being licensed to Seller or Seller
    Subsidiary, under which Seller or Seller Subsidiary has a valid
    license, free and clear of all Encumbrances.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (c)&#160;Except as indicated in the Disclosure Schedule, all
    Patents, registrations and applications for Intellectual
    Property that are owned by Seller or Seller Subsidiary
    (i)&#160;are valid, subsisting, in proper form and enforceable,
    and have been duly maintained, including the submission of all
    necessary filings and fees in accordance with the legal and
    administrative requirements of the appropriate jurisdictions and
    (ii)&#160;have not lapsed, expired or been abandoned, and no
    patent, registration or application therefor is the subject of
    any opposition, interference, cancellation proceeding or other
    legal or governmental proceeding before any Governmental Entity
    in any jurisdiction.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (d)&#160;Seller or Seller Subsidiary owns or has the valid right
    to use all of the Intellectual Property used by it or held for
    use by it in connection with its business. There are no
    conflicts with or infringements of any Seller Intellectual
    Property by any third party. The conduct of the businesses of
    Seller and Seller Subsidiary does not conflict with or infringe
    in any way on any proprietary right of any third party. There is
    no claim, suit, action or proceeding pending or, to the
    knowledge of Seller, threatened against Seller or Seller
    Subsidiary (i)&#160;alleging any such conflict or infringement
    with any third party&#146;s proprietary rights or
    (ii)&#160;challenging the ownership, use, validity or
    enforceability of the Seller Intellectual Property.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (e)&#160;The Disclosure Schedule lists all algorithms related to
    the Business. There is no Software currently or previously, or
    contemplated to be, licensed, sublicensed or sold to or by
    Seller or Seller Subsidiary. &#147;<U>Software</U>&#148; means
    any and all (i)&#160;computer programs, including any and all
    software implementations of algorithms, models
</DIV>

<P align="center" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <BR>
    A-7
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    and methodologies, whether in source code or object code,
    (ii)&#160;computer databases and computer compilations,
    including any and all data and collections of data, whether
    machine readable or otherwise, (iii)&#160;descriptions, flow-
    charts and other work product used to design, plan, organize and
    develop any of the foregoing, (iv)&#160;any Domain Names and the
    technology supporting and content contained on any Internet
    site(s), and (v)&#160;all documentation, including user manuals
    and training materials, relating to any of the foregoing.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (f)&#160;Each item of Software listed in the Disclosure Schedule
    is either (i)&#160;owned by Seller or Seller Subsidiary, or
    (ii)&#160;currently in the public domain or otherwise available
    to Seller or Seller Subsidiary without the license, lease or
    consent of any third party. With respect to the Software set
    forth in the Disclosure Schedule which Seller or Seller
    Subsidiary purports to own, such Software was either developed
    by (x)&#160;employees of Seller or Seller Subsidiary within the
    scope of their employment; or (y)&#160;independent contractors
    who have assigned their rights to Seller or Seller Subsidiary
    and waived any moral rights in favor of Seller or Seller
    Subsidiary pursuant to written agreements. The Seller Software
    generally functions in the manner intended, free of any
    significant bugs or programming errors.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (g)&#160;Except pursuant to the outbound licenses of Seller
    Intellectual Property set forth in Section&#160;3.12(a) of the
    Disclosure Schedule, neither Seller nor Seller Subsidiary has
    ever distributed to any third party any of the Seller Software
    and, except as contemplated hereby, no such distribution is
    presently contemplated. Each of Seller and Seller Subsidiary has
    taken all actions customary in the software industry to document
    the Seller Software and its operation, such that the Seller
    Software, including the source code and documentation, have been
    written in a clear and professional manner so that they may be
    understood, modified and maintained in an efficient manner by
    reasonably competent programmers. The Seller Software is free of
    any undisclosed program routine, device, or other feature,
    including, without limitation, a time bomb, software lock,
    drop-dead device, or malicious logic or, as of the time of each
    delivery, any virus, worm or Trojan horse, that is designed to
    delete, disable, deactivate, interfere with, or otherwise harm
    them (a &#147;<U>Disabling Code</U>&#148;), and any virus or
    other intentionally created, undocumented contaminant (a
    &#147;<U>Contaminant</U>&#148;), that may, or may be used to,
    access, modify, delete, damage or disable any hardware, system
    or data or that may result in damage thereto. The components
    obtained from third party suppliers are free of any Disabling
    Codes or Contaminants that may, or may be used to, access,
    modify, delete, damage or disable any hardware, system or data
    or that might result in damage thereto.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (h)&#160;All employees and consultants of Seller or Seller
    Subsidiary, whether former or current, have entered into valid
    and binding agreements with Seller or Seller Subsidiary
    sufficient to vest title in Seller or Seller Subsidiary of all
    rights in any Intellectual Property created by such employee or
    consultant in the scope of his or her services or employment for
    Seller or Seller Subsidiary, as the case may be.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (i)&#160;Each of Seller and Seller Subsidiary takes and has
    taken reasonable measures to protect the confidentiality of its
    trade secrets, know-how or other confidential information
    material to its business as currently operated or planned to be
    operated (together, &#147;<U>Trade Secrets</U>&#148;). No
    material or significant Trade Secret has been disclosed or
    authorized to be disclosed to any third party, including any
    employee, agent, contractor or other person, other than pursuant
    to a written non-disclosure agreement (or other written
    agreement or employment policy imposing non-disclosure
    obligations) that adequately protects Seller&#146;s or Seller
    Subsidiary&#146;s proprietary interests in and to such Trade
    Secrets. No party to any non-disclosure agreement relating to
    any Trade Secrets is in breach thereof. All nonpublic
    information provided by or on behalf of Seller or Seller
    Subsidiary to third parties (other than Purchaser) has been
    returned to Seller or destroyed.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (j)&#160;All consents, filings, and authorizations by or with
    Governmental Entities or third parties necessary with respect to
    the consummation of the Transactions, as they may affect the
    Intellectual Property, have been obtained.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (k)&#160;Neither Seller nor Seller Subsidiary has entered into
    any consent, indemnification, forbearance to sue, settlement
    agreement or cross-licensing arrangement with any Person
    relating to the Seller Intellectual Property or the Intellectual
    Property of any third party, except as contained in any license
    agreements listed in the Disclosure Schedule.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (l)&#160;Neither Seller, Seller Subsidiary, nor Purchaser is,
    nor will be as a result of the execution and delivery of this
    Agreement, the other Documents or the performance of its
    obligations under this Agreement or the other Documents, in
    breach of any license, sublicense or other agreement relating to
    the Seller Intellectual Property.
</DIV>

<P align="center" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <BR>
    A-8
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;3.19&#160;&#160;<I><U>Solvency</U>.</I>&#160;&#160;Neither
    Seller nor Seller Subsidiary is insolvent and will not be
    rendered insolvent by the Transactions. As used in this section
    &#147;insolvent&#148; means that the sum of the debts and other
    Liabilities of a party exceeds the present fair saleable value
    of such party&#146;s assets. Immediately after giving effect to
    the Transactions, the cash available to Seller and Seller
    Subsidiary, after taking into account all other anticipated uses
    of the cash, will be sufficient to pay all Liabilities of Seller
    and Seller Subsidiary. Neither Seller nor Seller Subsidiary
    intends to file for reorganization or liquidation under the
    bankruptcy or reorganization laws of any jurisdiction within one
    year from the Closing Date. Seller has conducted an auction
    process with respect to the sale of the Purchased Assets, and
    based on among other things, the offers of participants in the
    process, has concluded that it is receiving reasonably
    equivalent value from Purchaser for the Purchased Assets.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;3.20&#160;&#160;<I><U>Brokers
    or Finders</U>.</I>&#160;&#160;No agent, broker, investment
    banker, financial advisor or other firm or Person is or will be
    entitled to any broker&#146;s or finder&#146;s fee or any other
    commission or similar fee in connection with any of the
    Transactions except for Strategic Equity Group and its assignee
    Edgewater Capital, LLC, whose fees and expenses shall be paid by
    Seller. True and complete copies of all agreements between
    Seller and Strategic Equity Group or Edgewater Capital LLC,
    including, without limitation, any fee arrangements have been
    furnished to Purchaser.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;3.21&#160;&#160;<I><U>Full
    Disclosure</U>.</I>&#160;&#160;To the knowledge of Seller,
    Seller has not failed to disclose to Purchaser any facts
    material to the Purchased Assets. No representation or warranty
    by Seller or Seller Subsidiary contained in this Agreement and
    no statement contained in any document (including, without
    limitation, financial statements and the Disclosure Schedule),
    certificate, or other writing furnished or to be furnished by
    Seller or Seller Subsidiary to Purchaser or any of its
    representatives pursuant to the provisions hereof or in
    connection with the Transactions, contains or will contain any
    untrue statement of material fact or omits or will omit to state
    any material fact necessary, in light of the circumstances under
    which it was made, in order to make the statements herein or
    therein not misleading.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;3.22&#160;&#160;<I><U>Proxy
    Statement</U>.</I>&#160;&#160;The Proxy Statement will not, at
    the date it is first mailed to the stockholders of Seller and at
    the time of the Stockholders&#146; Meeting, contain any untrue
    statement of a material fact or omit to state any material fact
    required to be stated therein or necessary in order to make the
    statements therein, in light of the circumstances under which
    they are made, not misleading, except that no representation or
    warranty is made by Seller with respect to statements made or
    incorporated by reference therein based on information supplied
    by or on behalf of Purchaser specifically for inclusion or
    incorporation by reference in the Proxy Statement. The Proxy
    Statement will comply as to form in all material respects with
    the requirements of the Exchange Act.
</DIV>

<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <FONT style="font-family: 'Times New Roman', Times">ARTICLE&#160;IV<BR>
    </FONT>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <FONT style="font-family: 'Times New Roman', Times">REPRESENTATIONS
    AND WARRANTIES OF PURCHASER AND PURCHASER SUBSIDIARY
    </FONT>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Purchaser represents and warrants to Seller that:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;4.1&#160;&#160;<I><U>Organization</U>.</I>&#160;&#160;Each
    of Purchaser and Purchaser Subsidiary is a corporation duly
    organized, validly existing and in good standing under the laws
    of its jurisdiction of incorporation and has all requisite
    corporate power and authority to own, lease and operate its
    properties and to carry on its business as now being conducted,
    except where the failure to be so organized, existing and in
    good standing or to have such power, authority, and governmental
    approvals would not have, individually or in the aggregate, a
    material adverse effect on the ability of Purchaser or Purchaser
    Subsidiary to consummate the Transactions.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;4.2&#160;&#160;<I><U>Authorization;
    Validity of Agreement; Necessary Action</U>.</I>&#160;&#160;Each
    of Purchaser and Purchaser Subsidiary has all requisite
    corporate power and authority to execute and deliver this
    Agreement and to consummate the Transactions. The execution,
    delivery and performance by Purchaser and Purchaser Subsidiary
    of this Agreement and the consummation of the Transactions have
    been duly authorized by the Board of Directors of Purchaser and
    Purchaser Subsidiary, and no other corporate action on the part
    of Purchaser or Purchaser Subsidiary is necessary to authorize
    the execution and delivery by Purchaser or Purchaser Subsidiary
    of this Agreement or the consummation of the Transactions. This
    Agreement has been duly executed and delivered by Purchaser and
    Purchaser Subsidiary, and, assuming due and valid authorization,
    execution and delivery hereof by Seller and Seller Subsidiary,
    is a valid and binding obligation of Purchaser, enforceable
    against Purchaser and Purchaser Subsidiary
</DIV>

<P align="center" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <BR>
    A-9
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    in accordance with its terms except (i)&#160;as limited by
    applicable bankruptcy, insolvency, reorganization, moratorium,
    fraudulent conveyance and other similar laws of general
    application affecting enforcement of creditors&#146; rights
    generally and (ii)&#160;the availability of the remedy of
    specific performance or injunctive or other forms of equitable
    relief may be subject to equitable defenses and would be subject
    to the discretion of the court before which any proceeding
    therefor may be brought.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;4.3&#160;&#160;<I><U>Consents
    and Approvals; No Violations</U>.</I>&#160;&#160;None of the
    execution, delivery or performance of this Agreement by
    Purchaser or Purchaser Subsidiary, the consummation by Purchaser
    or Purchaser Subsidiary of the Transactions or compliance by
    Purchaser or Purchaser Subsidiary with any of the provisions
    hereof will (i)&#160;conflict with or result in any breach of
    any provision of the certificate of incorporation or by-laws of
    Purchaser or Purchaser Subsidiary, (ii)&#160;require any filing
    with, or permit, authorization, consent or approval of, any
    Governmental Entity, (iii)&#160;result in a violation or breach
    of, or constitute (with or without due notice or lapse of time
    or both) a default (or give rise to any right of termination,
    cancellation or acceleration) under, any of the terms,
    conditions or provisions of any note, bond, mortgage, indenture,
    lease, license, contract, agreement or other instrument or
    obligation to which Purchaser or Purchaser Subsidiary is a party
    or by which any of its properties or assets may be bound, or
    (iv)&#160;violate any order, writ, injunction, decree, statute,
    rule or regulation applicable to Purchaser or Purchaser
    Subsidiary or any of their properties or assets, excluding from
    the foregoing clauses&#160;(ii), (iii)&#160;and (iv)&#160;such
    violations, breaches or defaults which would not, individually
    or in the aggregate, have a material adverse effect on the
    ability of Purchaser or Purchaser Subsidiary to consummate the
    Transactions.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;4.4&#160;&#160;<I><U>Brokers
    or Finders</U>.</I>&#160;&#160;Neither Purchaser nor Purchaser
    Subsidiary has entered into any agreement or arrangement
    entitling any agent, broker, investment banker, financial
    advisor or other firm or Person to any broker&#146;s or
    finder&#146;s fee or any other commission or similar fee in
    connection with any of the Transactions.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;4.5&#160;&#160;<I><U>Information
    Supplied</U>.</I>&#160;&#160;None of the information to be
    supplied by or on behalf of Purchaser or Purchaser Subsidiary in
    writing specifically for inclusion or incorporation by reference
    in the Proxy Statement will, at the date it is first mailed to
    the stockholders of Seller and at the time of the
    Stockholders&#146; Meeting, contain any untrue statement of a
    material fact or omit to state any material fact required to be
    stated therein or necessary in order to make the statements
    therein, in light of the circumstances under which they are
    made, not misleading.
</DIV>

<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <FONT style="font-family: 'Times New Roman', Times">ARTICLE&#160;V<BR>
    </FONT>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <FONT style="font-family: 'Times New Roman', Times">COVENANTS
    </FONT>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;5.1&#160;&#160;<I><U>Interim
    Operations of Seller and Seller
    Subsidiary</U>.</I>&#160;&#160;Each of Seller and Seller
    Subsidiary shall procure that, and each of Seller and Seller
    Subsidiary covenants and agrees that, after the date hereof and
    prior to the Closing Date, except (i)&#160;as expressly provided
    in this Agreement, (ii)&#160;as set forth in the Disclosure
    Schedule or (iii)&#160;as may be agreed in writing by Purchaser
    in its sole discretion:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (a)&#160;neither Seller nor Seller Subsidiary shall
    (i)&#160;modify, amend or terminate any contract identified on
    <U>Schedule </U>E hereto or any material contract or waive,
    release or assign any material rights or claims, (ii)&#160;enter
    into, terminate or amend any contract identified on
    <U>Schedule&#160;E</U> hereto or any material contract,
    (iii)&#160;incur any material liability, (iv)&#160;permit the
    Purchased Assets to become subject to any Encumbrance or
    (v)&#160;sell, transfer, lease, license or otherwise dispose of
    any of the Purchased Assets or Seller Intellectual Property;
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (b)&#160;neither Seller nor Seller Subsidiary shall adopt a plan
    of complete or partial liquidation or dissolution;
    <U>provided</U>, <U>that</U>, Seller may adopt a plan of
    dissolution in accordance with the DGCL if and only if
    (x)&#160;such plan provides for the consummation of the
    Transactions in accordance with the terms of this Agreement;
    (y)&#160;such plan is adopted in accordance with the DGCL; and
    (z)&#160;Seller does not adopt a plan of distribution or make
    any distribution on or prior to the
    213<SUP style="font-size: 85%; vertical-align: text-top">th</SUP>&#160;day
    after the Closing Date;
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (c)&#160;neither Seller nor Seller Subsidiary shall adopt a plan
    of complete or partial merger, consolidation, restructuring,
    recapitalization or other reorganization; <U>provided</U>,
    <U>that</U>, Seller may adopt a plan of merger for the sole
    purpose of the sale of Seller as a corporate shell and without
    any of the Purchased Assets if and only if such plan includes
    the consummation of the Transactions in accordance with the
    terms of this Agreement and
</DIV>

<P align="center" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <BR>
    A-10
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Seller demonstrates that such plan will not delay either the
    solicitation of proxies in favor of the Transactions or the
    consummation of the Transactions;
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (d)&#160;each of Seller and Seller Subsidiary shall file, on a
    timely basis, with appropriate taxing authorities all Tax
    Returns required to be filed prior to the Closing Date and
    timely pay all Taxes related thereto;
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (e)&#160;neither Seller nor Seller Subsidiary shall take, or
    agree to or commit to take, any action that would or is
    reasonably likely to result in any of the conditions to the
    Closing set forth in ARTICLE&#160;VI not being satisfied, or
    would make any representation or warranty of Seller or Seller
    Subsidiary contained herein inaccurate in any respect at, or as
    of any time prior to, the Closing Date, or that would materially
    impair the ability of Seller, Purchaser or Seller Subsidiary to
    consummate the Closing in accordance with the terms hereof or
    materially delay such consummation;&#160;and
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (f)&#160;neither Seller nor Seller Subsidiary shall enter into
    any agreement, contract, commitment or arrangement to do any of
    the foregoing, or authorize, recommend, propose or announce an
    intention to do, any of the foregoing.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;5.2&#160;&#160;<I><U>Access;
    Confidentiality</U>.</I>&#160;&#160;Seller and Seller Subsidiary
    shall use its best efforts to preserve the organization of their
    book, records and customer data and reports in the same manner
    and format as previously made available to Purchaser. Between
    the date of this Agreement and the Closing, Seller and Seller
    Subsidiary shall (i)&#160;afford Purchaser and its authorized
    representatives reasonable access to all offices and other
    facilities and to all books and records, (ii)&#160;permit
    Purchaser to make such inspections and to make copies of such
    books and records as it may reasonably require and
    (iii)&#160;furnish Purchaser with such financial and operating
    data and other information as Purchaser may from time to time
    reasonably request. Purchaser and its authorized representatives
    shall conduct all such inspections in a manner that will
    minimize disruptions to the business and operations of Seller.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;5.3&#160;&#160;<I><U>Stockholder
    Meeting</U>.</I>&#160;&#160;Seller shall, as promptly as
    practicable following the execution of this Agreement, establish
    a record date for, duly call, give notice of, convene and hold a
    meeting of its stockholders to approve the principal terms of
    this Agreement and the Transactions (the &#147;<U>Stockholder
    Meeting</U>&#148;). Seller shall, through its Board of
    Directors, recommend to its stockholders approval of the
    principal terms of this Agreement and the Transactions and shall
    include such recommendation in the Proxy Statement. Without
    limiting the generality of the foregoing, Seller&#146;s
    obligations pursuant to the first sentence of this
    Section&#160;5.3 shall not be affected by the commencement,
    public proposal, public disclosure or communication of any
    Acquisition Proposal. Seller shall not withdraw or modify such
    approval or recommendation of this Agreement or the Transactions.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;5.4&#160;&#160;<I><U>Proxy
    Statement</U>.</I>&#160;&#160;As promptly as practicable after
    the execution of this Agreement, Seller shall prepare and file
    with the SEC the Proxy Statement. Seller shall use its
    reasonable best efforts to (i)&#160;respond to any comments on
    the Proxy Statement or requests for additional information from
    the SEC as soon as practicable after receipt of any such
    comments or requests and (ii)&#160;cause the Proxy Statement to
    be mailed to its stockholders as promptly as practicable. Seller
    shall promptly (i)&#160;notify Purchaser upon the receipt of any
    such comments or requests and (ii)&#160;provide Purchaser with
    copies of all correspondence between Seller and its
    representatives, on the one hand, and the SEC and its staff, on
    the other hand, with respect to the Proxy Statement. Prior to
    responding to any such comments or requests or the filing or
    mailing of the Proxy Statement, (i)&#160;Seller shall provide
    Purchaser with a reasonable opportunity to review and comment on
    any drafts of the Proxy Statement and related correspondence and
    filings, (ii)&#160;Seller shall include in such drafts,
    correspondence and filings all comments reasonably proposed by
    Purchaser and (iii)&#160;to the extent practicable, Seller and
    its outside counsel shall permit Purchaser and its outside
    counsel to participate in all communications with the SEC and
    its staff (including all meetings and telephone conferences)
    relating to the Proxy Statement, this Agreement or any of the
    Transactions. If at any time prior to the Stockholders Meeting
    any event shall occur, or fact or information shall be
    discovered that should be set forth in an amendment of or a
    supplement to the Proxy Statement, Seller shall, in accordance
    with the foregoing procedures, prepare and file with the SEC
    such amendment or supplement as soon thereafter as is reasonably
    practicable and to the extent required by applicable law, cause
    such amendment or supplement to be distributed to the
    stockholders of Seller. Each of Purchaser and Purchaser
    Subsidiary shall cooperate with Seller in connection with the
    preparation of the Proxy Statement and shall provide in a timely
    fashion all information requested by Seller concerning Purchaser
    and Purchaser Subsidiary that is required to be included in the
    Proxy Statement.
</DIV>

<P align="center" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <BR>
    A-11
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;5.5&#160;&#160;<I><U>Efforts
    and Actions to Cause Closing to Occur</U>.</I>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (a)&#160;Prior to the Closing, upon the terms and subject to the
    conditions of this Agreement, Purchaser, Purchaser Subsidiary,
    Seller and Seller Subsidiary shall use their respective
    reasonable best efforts to take, or cause to be taken, all
    actions, and to do, or cause to be done and cooperate with each
    other in order to do, all things necessary, proper or advisable
    (subject to any applicable laws) to consummate the Closing and
    the other Transactions as promptly as practicable including, but
    not limited to the preparation and filing of all forms,
    registrations and notices required to be filed to consummate the
    Closing and the other Transactions and the taking of such
    actions as are necessary to obtain any requisite approvals,
    authorizations, consents, orders, licenses, permits,
    qualifications, exemptions or waivers by any third party or
    Governmental Entity. In addition, no party hereto shall take any
    action after the date hereof that could reasonably be expected
    to materially delay the obtaining of, or result in not
    obtaining, any permission, approval or consent from any
    Governmental Entity or other Person required to be obtained
    prior to Closing.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (b)&#160;Prior to the Closing, each party shall promptly consult
    with the other parties hereto with respect to, provide any
    necessary information with respect to, and provide the other
    parties (or their respective counsel) with copies of, all
    filings made by such party with any Governmental Entity or any
    other information supplied by such party to a Governmental
    Entity in connection with this Agreement and the Transactions.
    Each party hereto shall promptly provide the other parties with
    copies of any communication received by such party from any
    Governmental Entity regarding any of the Transactions.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (c)&#160;Seller shall use its best efforts to obtain the release
    of the liens and judgments described in Section&#160;3.3 of the
    Disclosure Schedule (other than tax liens, which shall be
    discharged in accordance with (i)&#160;below) and otherwise
    shall obtain, prior to the Closing, (i)&#160;the unconditional
    release of each Person holding a tax or other lien (other than
    those liens, excepting tax liens, and judgments described in
    Section&#160;3.3 of the Disclosure Schedule) on property owned
    or leased by Seller or Seller Subsidiary and (ii)&#160;the
    unconditional consent to the Closing and the other Transactions
    of each other party to each material contract with Seller or
    Seller Subsidiary. All such releases and consents, to the extent
    obtained, shall be in writing and executed counterparts thereof
    shall be delivered to Purchaser at or prior to the Closing.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;5.6&#160;&#160;<I><U>Notification
    of Certain Matters</U>.</I>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (a)&#160;From time to time prior to the Closing, Seller and
    Seller Subsidiary shall promptly supplement or amend the
    Disclosure Schedule with respect to any matter existing or
    occurring as of or prior to the date of this Agreement that was
    required to be set forth or described in the Disclosure Schedule
    in order to make any representation or warranty in the Agreement
    true and complete. No supplement or amendment of the Disclosure
    Schedule made after the execution hereof by Seller or Seller
    Subsidiary pursuant to this section&#160;5.6(a) or otherwise
    shall, except as set forth in Section&#160;5.6(b), be deemed to
    cure any breach of any representation of or warranty made
    pursuant to this Agreement.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (b)&#160;From time to time prior to the Closing, Seller and
    Seller Subsidiary shall promptly supplement or amend the
    Disclosure Schedule with respect to any matter arising after the
    date of this Agreement that, if existing at, or occurring on,
    the date of this Agreement, would have been required to be set
    forth or described in the Disclosure Schedule in order to make
    any representation or warranty in the Agreement true and
    correct. Should Seller or Seller Subsidiary supplement the
    Disclosure Schedule in respect of circumstances set forth in
    this Section&#160;5.6(b), Purchaser shall have the right in its
    sole discretion to terminate this Agreement. Should Purchaser
    elect not to terminate this Agreement under these circumstances
    but rather to consummate the Transactions, then, unless
    Purchaser and Seller agree otherwise in writing, Purchaser shall
    be deemed to have waived the breach to the extent disclosure was
    required and made pursuant to this Section&#160;5.6(b).
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (c)&#160;Seller and Seller Subsidiary shall give notice to
    Purchaser promptly after becoming aware of (i)&#160;the
    occurrence or non-occurrence of any event whose occurrence or
    non-occurrence would be likely to cause either (A)&#160;any
    representation or warranty contained in this Agreement to be
    untrue or inaccurate in any material respect at any time from
    the date hereof to the Closing Date or (B)&#160;any condition
    set forth in ARTICLE&#160;VI to be unsatisfied in any material
    respect at any time from the date hereof to the Closing Date and
    (ii)&#160;any failure of Seller and Seller Subsidiary or any
    officer, director, employee or agent thereof, to comply with or
    satisfy any covenant, condition or
</DIV>

<P align="center" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <BR>
    A-12
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    agreement to be complied with or satisfied by it hereunder;
    provided, however, that the delivery of any notice pursuant to
    this section shall not limit or otherwise affect the remedies
    available hereunder to the party receiving such notice.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;5.7&#160;&#160;<I><U>No
    Solicitation of Competing Transaction</U>.</I>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (a)&#160;Neither Seller, Seller Subsidiary nor any Affiliate
    thereof shall (and Seller shall cause the officers, directors,
    employees, representatives and agents of Seller, Seller
    Subsidiary and each Affiliate thereof, including investment
    bankers, attorneys and accountants, not to), directly or
    indirectly, encourage, solicit, participate in or initiate
    discussions or negotiations with, or provide any information to,
    any Person or group (other than Purchaser, any of its Affiliates
    or representatives) concerning any Acquisition Proposal. Seller
    shall not approve or recommend, or propose to approve or
    recommend any Acquisition Proposal, or enter into any agreement
    with respect to any Acquisition Proposal. Upon execution of this
    Agreement, Seller and Seller Subsidiary and their
    representatives shall immediately cease any existing activities,
    discussions or negotiations with any parties conducted
    heretofore with respect to any of the foregoing and Seller and
    Seller Subsidiary shall request (or if Seller or Seller
    Subsidiary has the contractual right to do so, demand) the
    return of all documents, analyses, financial statements,
    projections, descriptions and other data previous furnished to
    others in connection with efforts to sell the Purchased Assets,
    Seller or Seller Subsidiary. Seller shall immediately notify
    Purchaser of the existence of any proposal or inquiry received
    by Seller, Seller Subsidiary or their representatives and Seller
    shall immediately communicate to Purchaser the terms of any
    proposal or inquiry which may be received (and shall immediately
    provide to Purchaser copies of any written materials received by
    Seller in connection with such proposal, discussion, negotiation
    or inquiry) and the identity of the party making such proposal
    or inquiry.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (b)&#160;Neither Seller&#146;s Board of Directors nor Seller
    Subsidiary&#146;s Board of Directors shall (i)&#160;withdraw or
    modify, or propose to withdraw or modify, in a manner adverse to
    Purchaser, the approval by such Boards of Directors of this
    Agreement or the Transactions or recommendation to their
    stockholders, (ii)&#160;approve or recommend or propose to
    approve or recommend, any Acquisition Proposal or
    (iii)&#160;authorize Seller or Seller Subsidiary to enter into
    any agreement (other than pursuant to this Agreement) with
    respect to any Acquisition Proposal.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (c)&#160;Notwithstanding the foregoing clauses&#160;(a) and (b),
    Seller may engage in discussions with third parties for the sole
    purpose of the sale of Seller as a corporate shell and without
    any of the Purchased Assets if and only if the terms would
    include the consummation of the Transactions in accordance with
    the terms of this Agreement and Seller demonstrates that such
    transaction will not delay either the solicitation of proxies in
    favor of the Transactions or the consummation of the
    Transactions.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;5.8&#160;&#160;<I><U>No
    Assumption of Labor Liabilities</U>.</I>&#160;&#160;Neither
    Purchaser nor Purchaser Subsidiary shall assume any labor
    agreements or any liabilities thereunder or the fringe benefit
    plans or any other liabilities which Seller or Seller Subsidiary
    may have with respect to any union or employees (including
    former employees) either on the date hereof or the date of the
    Closing, including liabilities of Seller or Seller Subsidiary
    with respect to payment of wages or pensions which may have
    accrued, vested or been earned prior to the Closing and
    liabilities of Seller or Seller Subsidiary to contribute to
    pension or other fringe benefit plans with respect to or on
    account of service prior to the Closing,
    <FONT style="white-space: nowrap">and/or</FONT> any
    other term or condition of employment.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;5.9&#160;&#160;<I><U>Subsequent
    Actions</U>.</I>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (a)&#160;If at any time after the Closing but prior to the
    dissolution of Seller, Purchaser will consider or be advised
    that any deeds, bills of sale, instruments of conveyance,
    assignments, assurances or any other actions or things are
    necessary or desirable to vest, perfect or confirm ownership (of
    record or otherwise) in Purchaser or Purchaser Subsidiary, its
    right, title or interest in, to or under any or all of the
    Purchased Assets or otherwise to carry out this Agreement,
    Seller and Seller Subsidiary shall execute and deliver all
    deeds, bills of sale, instruments of conveyance, powers of
    attorney, assignments and assurances and take and do all such
    other actions and things as may be requested by Purchaser in
    order to vest, perfect or confirm any and all right, title and
    interest in, to and under such rights, properties or assets in
    Purchaser or Purchaser Subsidiary or otherwise to carry out this
    Agreement.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (b)&#160;In case at any time after the Closing Date any further
    action is necessary, proper or advisable to carry out the
    purposes of this Agreement, as soon as reasonably practicable,
    each party hereto shall take, or cause its proper officers or
    directors to take, all such necessary, proper or advisable
    actions.
</DIV>

<P align="center" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <BR>
    A-13
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;5.10&#160;&#160;<I><U>Publicity</U>.</I>&#160;&#160;Seller&#146;s
    and Seller Subsidiary&#146;s initial press release with respect
    to the execution of this Agreement shall be subject to
    Purchaser&#146;s prior review, opportunity for comment, and
    approval, which shall not be unreasonably withheld. Thereafter,
    until the Closing, or the date the Transactions are terminated
    or abandoned pursuant to ARTICLE&#160;VII, neither Seller,
    Seller Subsidiary nor any of their respective Affiliates shall
    issue or cause the publication of any press release or other
    public announcement with respect to this Agreement or the other
    Transactions without prior review, opportunity for comment, and
    approval by Purchaser, which shall not be unreasonably withheld,
    except as may be required by law or by any listing agreement. In
    the event that Seller or Seller Subsidiary is required by
    applicable law or listing agreement to issue or cause the
    publication of any press release or other public announcement
    with respect to this Agreement or the other Transactions, it
    shall promptly notify Purchaser in advance of any such
    disclosure, and provide Purchaser with the text of any
    disclosure language, statement or announcement and will
    reasonably cooperate with Purchaser to the extent it may seek to
    limit such disclosure or comment on the form or substance of
    such disclosure.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;5.11&#160;&#160;<I><U>Mail
    Received After Closing</U>.</I>&#160;&#160;Seller and Seller
    Subsidiary shall, promptly upon the Closing, file with the
    United States Postal Service a change of address notification to
    direct all mail sent to Seller or Seller Subsidiary to Purchaser.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;5.12&#160;&#160;<I><U>Access
    to Books and Records</U>.</I>&#160;&#160;On and after the
    Closing and until dissolution of Seller, during normal business
    hours, Seller and Seller Subsidiary will permit Purchaser and
    its auditors, through their authorized representatives, to have
    access to and examine and make copies of all books and records
    relating to the Purchased Assets which are not delivered to
    Purchaser pursuant hereto.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;5.13&#160;&#160;<I><U>Waiver
    of Bulk Sales Requirement</U>.</I>&#160;&#160;Each of the
    parties waives compliance with any applicable bulk sales laws,
    including without limitation the Uniform Commercial Code Bulk
    Transfer provisions. Seller and Seller Subsidiary agree to pay
    and discharge in due course and will indemnify and save harmless
    Purchaser, from and against all claims made by creditors of
    Seller and Seller Subsidiary, including expenses and
    attorneys&#146; fees incurred by Purchaser in defending against
    such claims.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;5.14&#160;&#160;<I><U>Accounts
    Receivable</U>.</I>&#160;&#160;In its attempt to collect
    royalties or accounts receivable, Seller shall not, and shall
    cause its agents not to, take any action that could reasonably
    be expected to negatively affect Purchaser&#146;s relationship
    with any licensee of Seller Intellectual Property.
    Notwithstanding that the accounts receivable are included among
    the Purchased Assets, Purchaser shall pay to Seller on or prior
    to the 70th&#160;day after the end of the calendar quarter
    during which the Closing occurs, the Closing Quarter Royalty
    Payment. The &#147;<U>Closing Quarter Royalty Payment</U>&#148;
    shall be an amount equal to the product of (X)&#160;the total
    amount of self reported royalties actually received by Purchaser
    on or prior to the 60th&#160;day after the end of the calendar
    quarter during which the Closing occurs earned under the Assumed
    Contracts in respect of such quarter multiplied by (Y)&#160;a
    fraction, the numerator of which is the actual number of days
    elapsed during such quarter prior to the Closing Date and the
    denominator of which is the total number of days in such
    quarter. Subject to Purchaser&#146;s obligation in respect of
    the Closing Quarter Royalty Payment, Seller and Seller
    Subsidiary shall promptly remit to Purchaser all royalty
    payments received in respect of the Assumed Contracts after the
    Closing.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;5.15&#160;&#160;<I><U>Proxy
    Solicitation Efforts</U>.</I>&#160;&#160;Seller shall
    (x)&#160;engage the services of Georgeson Shareholder Services
    or another Person reasonably acceptable to Purchaser to act as a
    proxy solicitation agent to solicit proxies voting in favor of
    the Transactions; (y)&#160;make presentations explaining
    Seller&#146;s rationale for the Transactions and explaining why
    the Transactions are in the best interests of Seller and its
    stockholders to any Person which will potentially issue a
    recommendation as to how Seller&#146;s stockholders should vote
    at the Stockholders Meeting; and (z)&#160;otherwise use its best
    efforts to secure Stockholder Approval for the Transactions.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;5.16&#160;&#160;<I><U>Post-Closing
    Assignment</U>.</I>&#160;&#160;Should Seller or Seller
    Subsidiary identify after the Closing Date a contract or License
    related to the Seller Intellectual Property, it shall give
    prompt written notice of such fact to Purchaser and, at the
    written request of Purchaser, assign any contract or License
    relating to the Seller Intellectual Property to Purchaser or
    Purchaser Subsidiary as Purchaser may request in its sole
    discretion.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;5.17&#160;&#160;<I><U>Pre-Closing
    Delivery</U>.</I>&#160;&#160;Immediately prior to the Closing,
    Seller shall make available to Purchaser at Purchaser&#146;s
    offices the hard drive resident in Phil Brown&#146;s computer
    located at 2025 Gateway Place, Suite&#160;365, San&#160;Jose,
    California 95110 as of April&#160;13, 2006 and the DVDs
    containing the source code for the
</DIV>

<P align="center" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <BR>
    A-14
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    algorithms, development platforms and Software specified in the
    Disclosure Schedules together with the passwords and other
    information necessary to access the data on such mediums. It
    shall be a condition precedent to Purchaser&#146;s obligation to
    effect the Closing that it is capable of accessing the data on
    such mediums and is able to confirm that such data conforms in
    all material respects to the data thereon examined by Purchaser
    during its site visit to Seller&#146;s San&#160;Jose offices on
    April&#160;13, 2006.
</DIV>

<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <FONT style="font-family: 'Times New Roman', Times">ARTICLE&#160;VI<BR>
    </FONT>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <FONT style="font-family: 'Times New Roman', Times">CONDITIONS
    </FONT>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;6.1&#160;&#160;<I><U>Conditions
    to Each Party&#146;s Obligation to Effect the
    Closing</U>.</I>&#160;&#160;The respective obligation of each
    party to effect the Closing shall be subject to the satisfaction
    at or prior to the Closing Date of each of the following
    conditions:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (a)&#160;<I><U>Statutes; Court Orders</U>.</I>&#160;&#160;No
    statute, rule or regulation shall have been enacted or
    promulgated by any governmental authority which prohibits the
    consummation of the Closing; and there shall be no order or
    injunction of a court of competent jurisdiction in effect
    precluding consummation of the Closing;&#160;and
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (b)&#160;<I><U>Stockholder
    Approval</U>.</I>&#160;&#160;Stockholder Approval shall have
    been obtained.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;6.2&#160;&#160;<I><U>Conditions
    to Obligations of Purchaser and Purchaser Subsidiary to Effect
    the Closing</U>.</I>&#160;&#160;The obligations of Purchaser and
    Purchaser Subsidiary to consummate the Closing shall be subject
    to the satisfaction on or prior to the Closing Date of each of
    the following conditions:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (a)&#160;<I><U>Government Action</U>.</I>&#160;&#160;There shall
    not be threatened or pending any suit, action or proceeding by
    any Governmental Entity affecting Purchaser&#146;s or Purchaser
    Subsidiary&#146;s ability to exploit the Purchased Assets or
    seeking to preclude consummation of the Transaction;
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (b)&#160;Intentionally Omitted.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (c)&#160;<I><U>Officer&#146;s
    Certificate</U>.</I>&#160;&#160;Seller and Seller Subsidiary
    shall have delivered to Purchaser and Purchaser Subsidiary at
    the Closing a certificate signed by the chief executive officer
    of Seller and Seller Subsidiary, dated the Closing Date, in form
    and substance satisfactory to Purchaser, to the effect that, as
    of the Closing Date, (w)&#160;all of the representations and
    warranties of Seller set forth in this Agreement that are
    qualified as to materiality are true and complete, (x)&#160;all
    such representations and warranties that are not so qualified
    are true and complete in all material respects, (y)&#160;there
    has not occurred any material adverse change (or any development
    that, insofar as reasonably can be foreseen, is reasonably
    likely to result in any material adverse change) in the
    consolidated financial condition, businesses, results of
    operations or prospects of Seller and Seller Subsidiary, taken
    as a whole, or on the Purchased Assets and (z)&#160;Seller and
    Seller Subsidiary have performed all obligations required under
    this Agreement to be performed by it at or prior to the Closing;
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (d)&#160;<I><U>Consents Obtained</U>.</I>&#160;&#160;All
    consents and approvals of any Person necessary to the
    consummation of the Closing and the other Transactions,
    including consents and approvals from parties to loans,
    contracts, leases, licenses or other agreements and consents and
    approvals from governmental agencies, whether federal, state or
    local shall have been obtained, and a copy of each such consent
    or approval shall have been provided to Purchaser at or prior to
    the Closing;
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (e)&#160;<I><U>Material Adverse Change</U>.</I>&#160;&#160;There
    shall not have occurred any material adverse change (or any
    development that, insofar as reasonably can be foreseen, is
    reasonably likely to result in any material adverse change) in
    the consolidated financial condition, businesses, results of
    operations or prospects of Seller and Seller Subsidiary taken as
    a whole or on Purchaser&#146;s or Purchaser Subsidiary&#146;s
    ability to exploit the Purchased Assets;
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (f)&#160;Intentionally Omitted.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (g)&#160;<I><U>Material Liabilities</U>.</I>&#160;&#160;No facts
    or circumstances shall exist which, in the good faith but sole
    and exclusive judgment of Purchaser, could result in Purchaser
    or Purchaser Subsidiary becoming liable for any
</DIV>

<P align="center" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <BR>
    A-15
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Liabilities of Seller or Seller Subsidiary other than those to
    be assumed pursuant to the Assumption Agreement.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (h)&#160;<I><U>Representations and
    Warranties</U>.</I>&#160;&#160;All of the representations and
    warranties of Seller set forth in this Agreement that are
    qualified as to materiality shall be true and complete in all
    respects and any such representations and warranties that are
    not so qualified shall be true and complete in all material
    respects, in each case as of the date of this Agreement and as
    of the Closing Date;
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (i)&#160;<I><U>Confirming Inspection</U>.</I>&#160;&#160;Seller
    shall have made available to Purchaser at Purchaser&#146;s
    offices, immediately prior to the Closing the hard drive
    resident in Phil Brown&#146;s computer located at 2025 Gateway
    Place, Suite&#160;365, San&#160;Jose, California 95110 as of
    April&#160;13, 2006 and the DVDs containing the source code for
    the algorithms, development platforms and Software specified in
    the Disclosure Schedules together with the passwords and other
    information necessary to access the data on such mediums and
    Purchaser shall be capable of accessing the data on such mediums
    and be able to confirm that such data conforms in all material
    respects to the data thereon examined by Purchaser during its
    site visit to Seller&#146;s San&#160;Jose offices on
    April&#160;13, 2006.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (j)&#160;<I><U>Breach</U>.</I>&#160;&#160;Neither Seller nor
    Seller Subsidiary shall have failed to perform in any material
    respect any material obligation or to comply in any material
    respect with any agreement or covenant of Seller or Seller
    Subsidiary to be performed or complied with by it under this
    Agreement.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    The foregoing conditions are for the sole benefit of Purchaser
    and may be waived by Purchaser, in whole or in part, at any time
    and from time to time in the sole discretion of Purchaser.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;6.3&#160;&#160;<I><U>Conditions
    to Obligations of Seller to Effect the
    Closing</U>.</I>&#160;&#160;The obligations of Seller to
    consummate the Closing shall be subject to the satisfaction on
    or prior to the Closing Date of each of the following conditions:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (a)&#160;<I><U>Representations and
    Warranties</U>.</I>&#160;&#160;All of the representations and
    warranties of Purchaser set forth in this Agreement that are
    qualified as to materiality shall be true and complete in all
    respects and any such representations and warranties that are
    not so qualified shall be true and complete in all material
    respects, in each case as of the date of this Agreement and as
    of the Closing Date;
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (b)&#160;<I><U>Breach</U>.</I>&#160;&#160;Purchaser shall not
    have failed to perform in any material respect any material
    obligation or to comply in any material respect with any
    agreement or covenant of Purchaser to be performed or complied
    with by it under this Agreement;&#160;and
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (c)&#160;<I><U>Officer&#146;s
    Certificate</U>.</I>&#160;&#160;Purchaser shall have delivered
    to Seller at the Closing a certificate signed by the chief
    executive officer of Purchaser, dated the Closing Date, in form
    and substance satisfactory to Seller, to the effect that, as of
    the Closing Date, (x)&#160;all of the representations and
    warranties of Purchaser set forth in this Agreement that are
    qualified as to materiality are true and complete, (y)&#160;all
    such representations and warranties that are not so qualified
    are true and complete in all material respects, and
    (z)&#160;Purchaser has performed all obligations required under
    this Agreement to be performed by it at or prior to the Closing.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    The foregoing conditions are for the sole benefit of Seller and
    may be waived by Seller, in whole or in part, at any time and
    from time to time in the sole discretion of Seller.
</DIV>

<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <FONT style="font-family: 'Times New Roman', Times">ARTICLE&#160;VII<BR>
    </FONT>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <FONT style="font-family: 'Times New Roman', Times">TERMINATION
    </FONT>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;7.1&#160;&#160;<I><U>Termination</U>.</I>&#160;&#160;The
    Transactions may be terminated or abandoned at any time prior to
    the Closing Date:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (a)&#160;By the mutual written consent of Purchaser and Seller;
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (b)&#160;By either Purchaser or Seller if any Governmental
    Entity shall have issued an order, decree or ruling or taken any
    other action (which order, decree, ruling or other action the
    parties hereto shall use their reasonable efforts to lift),
    which permanently restrains, enjoins or otherwise prohibits the
    Transactions and such order, decree, ruling or other action
    shall have become final and non-appealable;
</DIV>

<P align="center" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <BR>
    A-16
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (c)&#160;By Seller:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 8%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    if Purchaser or Purchaser Subsidiary shall have breached in any
    material respect any of its representations, warranties,
    covenants or other agreements contained in this Agreement, which
    breach cannot be or has not been cured within 30&#160;days after
    the giving of written notice by Seller to Purchaser specifying
    such breach;&#160;or
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 8%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    on or after June&#160;30, 2007, if the Closing shall not have
    theretofore occurred and if the failure of the Closing to occur
    is not the result of a breach of a representation, warranty or
    covenant by Seller or Seller Subsidiary;
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (d)&#160;By Purchaser:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 8%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    if Seller or Seller Subsidiary shall have breached any
    representation, warranty, covenant or other agreement contained
    in this Agreement, which breach cannot be or has not been cured
    within 30&#160;days after the giving of written notice by
    Purchaser to Seller specifying such breach;&#160;or
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 8%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    on or after June&#160;30, 2007, if the Closing shall not have
    theretofore occurred and if the failure of the Closing to occur
    is not the result of a breach of a representation, warranty or
    covenant by Purchaser.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;7.2&#160;&#160;<I><U>Effect
    of Termination</U>.</I>&#160;&#160;In the event of the
    termination or abandonment of the Transactions by any party
    hereto pursuant to the terms of this Agreement, written notice
    thereof shall forthwith be given to the other party or parties
    specifying the provision hereof pursuant to which such
    termination or abandonment of the Transactions is made, and
    there shall be no liability or obligation thereafter on the part
    of Purchaser, Purchaser Subsidiary, Seller or Seller Subsidiary
    except (A)&#160;for fraud, (B)&#160;for breach of this Agreement
    prior to such termination or abandonment of the Transactions and
    (C)&#160;as set forth in Section&#160;10.1; <U>provided</U>,
    <U>that</U>, if this Agreement is terminated subsequent to the
    Stockholders Meeting and Stockholder Approval is not obtained
    thereat, then, unless Seller shall have complied in all respects
    with its obligations pursuant to Section&#160;5.15, Seller shall
    reimburse Purchaser for all
    <FONT style="white-space: nowrap">out-of-pocket</FONT>
    expenses incurred by Purchaser in connection with the
    Transactions.
</DIV>

<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <FONT style="font-family: 'Times New Roman', Times">ARTICLE&#160;VIII<BR>
    </FONT>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <FONT style="font-family: 'Times New Roman', Times">INDEMNIFICATION
    </FONT>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;8.1&#160;&#160;<I><U>Indemnification;
    Remedies</U>.</I>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (a)&#160;Seller and Seller Subsidiary shall jointly and
    severally indemnify, defend and hold harmless the Purchaser
    Indemnified Persons from and against and in respect of all
    Losses that arise out of any breach by Seller or Seller
    Subsidiary of its representations and warranties contained in or
    made pursuant to this Agreement;&#160;and
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (b)&#160;Seller and Seller Subsidiary shall jointly and
    severally indemnify, defend and hold harmless the Purchaser
    Indemnified Persons from and against and in respect of all
    Losses that arise out of any breach by Seller or Seller
    Subsidiary of its covenants or agreements contained in or made
    pursuant to this Agreement;
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (c)&#160;Seller and Seller Subsidiary shall jointly and
    severally indemnify, defend and hold harmless the Purchaser
    Indemnified Persons from and against and in respect of all
    Losses related to Excluded Liabilities;&#160;and
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (d)&#160;Seller and Seller Subsidiary shall jointly and
    severally indemnify, defend and hold harmless the Purchaser
    Indemnified Persons from and against and in respect of all
    Losses that arise from the failure to obtain any required
    consent (with respect to the assignment of the Assumed
    Contracts) in connection with the Transactions.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;8.2&#160;&#160;<I><U>Limitations</U>.</I>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (a)&#160;No claim for the recovery of any Losses pursuant to
    section&#160;8.1(a) may be asserted by any Purchaser Indemnified
    Person more than 183&#160;days after the Closing Date;
    <U>provided</U>, <U>however</U>, that claims first asserted in
    writing by any Purchaser Indemnified Person with reasonable
    specificity prior to such date shall not thereafter be barred by
    the expiration of such indemnification period.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (b)&#160;Seller shall have no liability for indemnification
    until the total of all Losses exceeds $50,000 U.S., but once
    such amount has been exceeded, Seller shall be liable for all
    Losses in excess of the first $15,000 U.S.&#160;of Losses.
</DIV>

<P align="center" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <BR>
    A-17
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;8.3&#160;&#160;<I><U>Notice
    of Claim; Defense</U>.</I>&#160;&#160;Purchaser shall give
    Seller prompt (and in any event within 183&#160;days after the
    Closing Date for a claim made pursuant to Section&#160;8.1(a)
    above) notice of any third-party claim that may give rise to any
    indemnification obligation under this Article&#160;VIII,
    together with the estimated amount of such claim, and Seller
    shall, with the approval of Purchaser which shall not be
    unreasonably withheld, have the right to assume the defense at
    Seller&#146;s expense of any such claim through counsel of
    Seller&#146; own choosing by so notifying Purchaser within
    30&#160;days of the first receipt by Seller of such notice from
    Purchaser; <U>provided</U>, <U>however</U>, that any such
    counsel shall be reasonably satisfactory to Purchaser. Failure
    to give such notice shall not affect the indemnification
    obligations hereunder in the absence of, and then only to the
    extent of, actual and material prejudice. If, under applicable
    standards of professional conduct, a conflict with respect to
    any significant issue between any Purchaser Indemnified Person
    and Seller exists in respect of such third-party claim, Seller
    shall pay the reasonable fees and expenses of such additional
    counsel as may be required to be retained in order to eliminate
    such conflict. Seller shall be liable for the fees and expenses
    of counsel employed by Purchaser for any period during which
    Seller has not assumed the defense of any such third-party claim
    (other than during any period in which Purchaser will have
    failed to give notice of the third-party claim as provided
    above). If Seller assumes such defense, Purchaser shall have the
    right to participate in the defense thereof and to employ
    counsel, at its own expense, separate from the counsel employed
    by Seller, it being understood that Seller shall control such
    defense. If Seller chooses to defend or prosecute any
    third-party claim, Purchaser shall agree to any reasonable
    settlement, compromise or discharge of such third-party claim
    that Seller may recommend and that, by its terms, discharges
    Purchaser and the Purchaser Indemnified Persons from the full
    amount of liability in connection with such
    <FONT style="white-space: nowrap">third-party</FONT>
    claim; provided, however, that, Seller shall not consent to, and
    Purchaser shall not be required to agree to, the entry of any
    judgment or enter into any settlement that (i)&#160;provides for
    injunctive or other non-monetary relief affecting Purchaser or
    any Affiliate of Purchaser or (ii)&#160;does not include as an
    unconditional term thereof the giving of a release from all
    liability with respect to such claim by each claimant or
    plaintiff to each Purchaser Indemnified Person that is the
    subject of such third-party claim.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;8.4&#160;&#160;<I><U>Survival
    of Indemnification Claims</U>.</I>&#160;&#160;The
    indemnification obligations set forth in this Article&#160;VIII
    shall survive the Closing.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;8.5&#160;&#160;<I><U>Tax
    Effect of Indemnification Payments</U>.</I>&#160;&#160;All
    indemnity payments made by Seller or Seller Subsidiary to
    Purchaser Indemnified Persons pursuant to this Agreement shall
    be treated for all Tax purposes as adjustments to the Purchase
    Price.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;8.6&#160;&#160;<I><U>Survival
    of Covenants, Representations and
    Warranties</U>.</I>&#160;&#160;Each of the covenants,
    representations and warranties of Seller in this Agreement or in
    any schedule, instrument or other document delivered pursuant to
    this Agreement shall survive the Closing Date and shall continue
    in force thereafter except as limited by Section&#160;8.2(a);
    provided, that, the covenants in Section&#160;5.9,
    Section&#160;5.12 and Section&#160;5.16 shall terminate on the
    275<SUP style="font-size: 85%; vertical-align: text-top">th</SUP>&#160;day
    following the Closing Date; and provided further, that,
    notwithstanding the termination of any covenant, Seller and
    Seller Subsidiary shall remain liable for any breach thereof
    that occurred prior to such termination.
</DIV>

<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <FONT style="font-family: 'Times New Roman', Times">ARTICLE&#160;IX<BR>
    </FONT>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <FONT style="font-family: 'Times New Roman', Times">DEFINITIONS
    AND INTERPRETATION
    </FONT>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;9.1&#160;&#160;<I><U>Definitions</U>.</I>&#160;&#160;For
    all purposes of this Agreement, except as otherwise expressly
    provided or unless the context clearly requires otherwise:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <I>&#147;<U>Acquisition Proposal</U>&#148;</I> shall mean any
    proposal or offer made by any Person other than Purchaser to
    acquire all or any portion of the Purchased Assets or any
    capital stock of Seller or Seller Subsidiary, whether by merger,
    tender offer, exchange offer, sale of assets, license or similar
    transactions involving the Seller or Seller Subsidiary.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <I>&#147;<U>Affiliate</U>&#148;</I> shall have the meaning set
    forth in
    <FONT style="white-space: nowrap">Rule&#160;12b-2</FONT>
    promulgated under the Exchange Act.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <I>&#147;<U>Agreement</U>&#148;</I> or <I>&#147;<U>this
    Agreement</U>&#148;</I> shall mean this Asset Purchase
    Agreement, together with the Exhibits hereto and the Disclosure
    Schedule.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <I>&#147;<U>Associate</U>&#148;</I> shall have the meaning set
    forth in
    <FONT style="white-space: nowrap">Rule&#160;12b-2</FONT>
    promulgated under the Exchange Act.
</DIV>

<P align="center" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <BR>
    A-18
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <I>&#147;<U>Assumed Contracts</U>&#148;</I> shall mean
    (x)&#160;all contracts, Licenses and other agreements of Seller
    or Seller Subsidiary set forth on <U>Exhibit&#160;E</U> (as may
    be supplemented from time to time by Purchaser in its sole
    discretion prior to the Closing solely to add additional
    contracts, Licenses and other agreements), (y)&#160;such
    additional contracts or licenses of Seller or Seller Subsidiary
    as are selected by Purchaser by written notice to Seller and
    (z)&#160;such additional contracts, Licenses and other
    agreements as are assigned to Purchaser pursuant to
    Section&#160;5.16.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <I>&#147;<U>Assumed Liabilities</U>&#148;</I> shall have the
    meaning ascribed thereto in Section&#160;1.2.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <I>&#147;<U>Assumption Agreement</U>&#148;</I> shall have the
    meaning ascribed thereto in Section&#160;1.1.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <I>&#147;<U>Balance Sheet</U>&#148;</I> shall mean the most
    recent audited balance sheet of the Seller and Seller Subsidiary
    in the Seller SEC Documents.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <I>&#147;<U>Balance Sheet Date</U>&#148;</I> shall mean
    December&#160;31, 2005.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <I>&#147;<U>Business</U>&#148;</I> shall mean the research,
    development, marketing, sale, service and licensing of audio and
    optical disc technologies, products and services.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <I>&#147;<U>Closing</U>&#148;</I> shall mean the closing
    referred to in Section&#160;2.1.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <I>&#147;<U>Closing Date</U>&#148;</I> shall mean the date on
    which the Closing occurs.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <I>&#147;<U>Closing Quarter Royalty Payment</U>&#148;</I> shall
    have the meaning ascribed thereto in Section&#160;5.14.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <I>&#147;<U>Code</U>&#148;</I> shall mean the Internal Revenue
    Code of 1986, as amended.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <I>&#147;<U>Copyrights</U>&#148;</I> shall mean U.S. and foreign
    registered and unregistered copyrights (including those in
    computer software and databases), rights of publicity and all
    registrations and applications to register the same.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <I>&#147;<U>DGCL</U>&#148;</I> shall mean the Delaware General
    Corporation Law.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <I>&#147;<U>Disclosure Schedule</U>&#148;</I> shall mean the
    disclosure schedule of even date herewith prepared and signed by
    the Seller and delivered to Purchaser simultaneously with the
    execution hereof.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <I>&#147;<U>Effective Time</U>&#148;</I> shall mean
    10:00&#160;a.m. local time on the Closing Date.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <I>&#147;<U>Encumbrances</U>&#148;</I> shall mean any and all
    liens, charges, security interests, options, claims, mortgages,
    pledges, proxies, voting trusts or agreements, obligations,
    understandings or arrangements or other restrictions on title,
    transfer or use of any nature whatsoever other than liens for
    taxes, assessments or other governmental charges which were
    incurred in the ordinary course of business and are not due and
    payable.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <I>&#147;<U>Environmental Claim</U>&#148;</I> shall mean any
    claim, action, cause of action, investigation or notice (written
    or oral) by any Person alleging actual or potential liability
    for investigatory, cleanup or governmental response costs, or
    natural resources or property damages, or personal injuries,
    attorney&#146;s fees or penalties relating to (i)&#160;the
    presence, or release into the environment, of any Materials of
    Environmental Concern at any location owned or operated by the
    Seller or Seller Subsidiary, now or in the past, or
    (ii)&#160;circumstances forming the basis of any violation, or
    alleged violation, of any Environmental Law.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <I>&#147;<U>Environmental Law</U>&#148;</I> shall mean each
    federal, state, local and foreign law and regulation relating to
    pollution, protection or preservation of human health or the
    environment including ambient air, surface water, ground water,
    land surface or subsurface strata, and natural resources, and
    including each law and regulation relating to emissions,
    discharges, releases or threatened releases of Materials of
    Environmental Concern, or otherwise relating to the
    manufacturing, processing, distribution, use, treatment,
    generation, storage, containment (whether above ground or
    underground), disposal, transport or handling of Materials of
    Environmental Concern, or the preservation of the environment or
    mitigation of adverse effects thereon and each law and
    regulation with regard to record keeping, notification,
    disclosure and reporting requirements respecting Materials of
    Environmental Concern.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <I>&#147;<U>ERISA</U>&#148;</I> shall mean the Employee
    Retirement Income Security Act of 1974, as amended.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <I>&#147;<U>Exchange Act</U>&#148;</I> shall mean the Securities
    Exchange Act of 1934, as amended.
</DIV>

<P align="center" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <BR>
    A-19
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <I>&#147;<U>Excluded Liabilities</U>&#148;</I> shall have the
    meaning ascribed thereto in Section&#160;1.3.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <I>&#147;<U>GAAP</U>&#148;</I> shall mean United States
    generally accepted accounting principles.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <I>&#147;<U>Governmental Entity</U>&#148;</I> shall mean a
    court, arbitral tribunal, administrative agency or commission or
    other governmental or other regulatory authority or agency.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <I>&#147;<U>Intellectual Property</U>&#148;</I> shall mean all
    of the following: Trademarks, Patents, ideas, Copyrights, domain
    names, Trade Secrets, know-how and Licenses.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <I>&#147;<U>Liabilities</U>&#148;</I> shall mean all liabilities
    and obligations, secured or unsecured, whether absolute,
    accrued, contingent, fixed or otherwise, whether known or
    unknown and whether or not due.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <I>&#147;<U>Licenses</U>&#148;</I> shall mean all licenses and
    agreements pursuant to which Seller or Seller Subsidiary has
    acquired rights in or to any Trademarks, Patents or Copyrights
    used by or for the benefit of Seller or Seller Subsidiary, or
    licenses and agreements pursuant to which Seller or Seller
    Subsidiary has licensed or transferred the right to use any
    Trademark, Patent or Copyright.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <I>&#147;<U>Losses</U>&#148;</I> shall mean any and all losses,
    Liabilities, claims, diminution of value, damages, judgments,
    settlements and expenses (including interest and penalties
    recovered by a third party with respect thereto and reasonable
    attorneys&#146; fees and expenses and reasonable
    accountants&#146; fees and expenses incurred in the
    investigation or defense of any of the same or in asserting,
    preserving or enforcing any of the rights of Purchaser arising
    under ARTICLE&#160;VIII)&#160;incurred by any of the Purchaser
    Indemnified Persons.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <I>&#147;<U>Materials of Environmental Concern</U>&#148;</I>
    shall mean chemicals; pollutants; contaminants; wastes; toxic or
    hazardous substances, materials and wastes; petroleum and
    petroleum products; asbestos and asbestos-containing materials;
    polychlorinated biphenyls; lead and lead-based paints and
    materials; and radon.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <I>&#147;<U>Patents</U>&#148;</I> shall mean issued U.S. and
    foreign patents and pending patent applications, patent
    disclosures, and any and all divisions, continuations,
    <FONT style="white-space: nowrap">continuations-in-part,</FONT>
    reissues, reexaminations, and extension thereof, any
    counterparts claiming priority there from, utility models,
    patents of importation/confirmation, certificates of invention
    and like statutory rights.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <I>&#147;<U>Person</U>&#148;</I> shall mean a natural person,
    partnership, corporation, limited liability company, business
    trust, joint stock company, trust, unincorporated association,
    joint venture, Governmental Entity or other entity or
    organization.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <I>&#147;<U>Plan</U>&#148;</I> shall have the meaning set forth
    in ERISA Section&#160;3(3).
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <I>&#147;<U>Proxy Statement</U>&#148;</I> shall have the meaning
    ascribed thereto in Section&#160;3.6.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <I>&#147;<U>Purchased Assets</U>&#148;</I> shall have the
    meaning ascribed thereto in Section&#160;1.1.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <I>&#147;<U>Purchaser</U>&#148;</I> shall have the meaning
    ascribed thereto in the Preamble.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <I>&#147;<U>Purchaser Subsidiary</U>&#148;</I> shall have the
    meaning ascribed thereto in the Preamble.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <I>&#147;<U>Purchaser Indemnified Persons</U>&#148;</I> shall
    mean Purchaser, Purchaser Subsidiary, each of their Affiliates
    and each of their officers, directors, employees, agents and
    representatives.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <I>&#147;<U>Securities Act</U>&#148;</I> shall mean the
    Securities Act of 1933, as amended.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <I>&#147;<U>SEC</U>&#148;</I> shall mean the United States
    Securities and Exchange Commission.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <I>&#147;<U>Seller</U>&#148;</I> shall have the meaning ascribed
    thereto in the Preamble.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <I>&#147;<U>Seller Common Stock</U>&#148;</I> shall mean the
    common stock of Seller.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <I>&#147;<U>Seller Intellectual Property</U>&#148;</I> shall
    mean all Intellectual Property of Seller or Seller Subsidiary or
    used in connection with the Business.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <I>&#147;<U>Seller Software</U>&#148;</I> means all material
    computer programs and computer databases, other than
    <FONT style="white-space: nowrap">off-the-shelf</FONT>
    applications, which are owned or otherwise used by Seller or
    Seller Subsidiary.
</DIV>

<P align="center" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <BR>
    A-20
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <I>&#147;<U>Seller SEC Documents</U>&#148;</I> shall have the
    meaning ascribed thereto in Section&#160;3.7.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <I>&#147;<U>Seller Subsidiary</U>&#148;</I> shall have the
    meaning ascribed thereto in the Preamble.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <I>&#147;<U>Stockholder Approval</U>&#148;</I> shall have the
    meaning ascribed thereto in Section&#160;3.1.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <I>&#147;<U>Subsidiary</U>&#148;</I> shall mean, with respect to
    any Person, any corporation or other organization, whether
    incorporated or unincorporated, of which (a)&#160;at least a
    majority of the securities or other interests having by their
    terms ordinary voting power to elect a majority of the Board of
    Directors or others performing similar functions with respect to
    such corporation or other organization is directly or indirectly
    owned or controlled by such Person or by any one or more of its
    Subsidiaries, or by such Person and one or more of its
    Subsidiaries or (b)&#160;such Person or any other Subsidiary of
    such Person is a general partner (excluding any such partnership
    where such Person or any Subsidiary of such party does not have
    a majority of the voting interest in such partnership).
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <I>&#147;<U>Tax</U>&#148;</I> or <I>&#147;<U>Taxes</U>&#148;</I>
    shall mean all taxes, charges, fees, duties, levies, penalties
    or other assessments imposed by any federal, state, local or
    foreign governmental authority, including income, gross
    receipts, excise, property, sales, gain, use, license, custom
    duty, unemployment, capital stock, transfer, franchise, payroll,
    withholding, social security, minimum estimated, profit, gift,
    severance, value added, disability, premium, recapture, credit,
    occupation, service, leasing, employment, stamp and other taxes,
    and shall include interest, penalties or additions attributable
    thereto or attributable to any failure to comply with any
    requirement regarding Tax Returns.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <I>&#147;<U>Tax Return</U>&#148;</I> shall mean any return,
    declaration, report, claim for refund, or information return or
    statement relating to Taxes, including any such document
    prepared on a consolidated, combined or unitary basis and also
    including any schedule or attachment thereto, and including any
    amendment thereof.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <I>&#147;<U>Trademarks</U>&#148;</I> shall mean U.S. and foreign
    registered and unregistered trademarks, trade dress, service
    marks, logos, trade names, corporate names and all registrations
    and applications to register the same including all common law
    rights and common law rights therein.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <I>&#147;<U>Trade Secrets</U>&#148;</I> shall have the meaning
    ascribed thereto in Section&#160;3.18.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <I>&#147;<U>Transactions</U>&#148;</I> shall mean all the
    transactions provided for or contemplated by this Agreement.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <I>&#147;<U>Transfer Taxes</U>&#148;</I> shall mean all sales
    (including, without limitation, bulk sales), use, transfer,
    recording, ad valorem, privilege, documentary, gains, gross
    receipts, registration, conveyance, excise, license, stamp,
    duties or similar Taxes and fees.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <I>&#147;<U>Transfer Tax Payor</U>&#148;</I> shall mean the
    party which has primary legal responsibility for the payment of
    any particular Transfer Tax.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;9.2&#160;&#160;<I><U>Interpretation</U>.</I>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (a)&#160;When a reference is made in this Agreement to a section
    or article, such reference shall be to a section or article of
    this Agreement unless otherwise clearly indicated to the
    contrary.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (b)&#160;Whenever the words &#147;include&#148;,
    &#147;includes&#148; or &#147;including&#148; are used in this
    Agreement they shall be deemed to be followed by the words
    &#147;without limitation.&#148;
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (c)&#160;The words &#147;hereof&#148;, &#147;herein&#148; and
    &#147;herewith&#148; and words of similar import shall, unless
    otherwise stated, be construed to refer to this Agreement as a
    whole and not to any particular provision of this Agreement, and
    article, section, paragraph, exhibit and schedule references are
    to the articles, sections, paragraphs, exhibits and schedules of
    this Agreement unless otherwise specified.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (d)&#160;The meaning assigned to each term defined herein shall
    be equally applicable to both the singular and the plural forms
    of such term, and words denoting any gender shall include all
    genders. Where a word or phrase is defined herein, each of its
    other grammatical forms shall have a corresponding meaning.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (e)&#160;A reference to any party to this Agreement or any other
    agreement or document shall include such party&#146;s successors
    and permitted assigns.
</DIV>

<P align="center" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <BR>
    A-21
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (f)&#160;A reference to any legislation or to any provision of
    any legislation shall include any amendment to, and any
    modification or re-enactment thereof, any legislative provision
    substituted therefor and all regulations and statutory
    instruments issued thereunder or pursuant thereto.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    (g)&#160;The parties have participated jointly in the
    negotiation and drafting of this Agreement. In the event an
    ambiguity or question of intent or interpretation arises, this
    Agreement shall be construed as if drafted jointly by the
    parties, and no presumption or burden of proof shall arise
    favoring or disfavoring any party by virtue of the authorship of
    any provisions of this Agreement.
</DIV>

<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <FONT style="font-family: 'Times New Roman', Times">ARTICLE&#160;X<BR>
    </FONT>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <FONT style="font-family: 'Times New Roman', Times">MISCELLANEOUS
    </FONT>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;10.1&#160;&#160;<I><U>Fees
    and Expenses</U>.</I>&#160;&#160;All costs and expenses incurred
    in connection with this Agreement and the consummation of the
    Transactions shall be paid by the party incurring such expenses,
    except as specifically provided to the contrary in this
    Agreement (including in the proviso of Section&#160;2.2 and in
    Section&#160;7.2) and except that all Transfer Taxes arising out
    of, in connection with or attributable to the transactions
    effected pursuant to this Agreement shall be borne and paid by
    Seller. The Transfer Tax Payor shall prepare and timely file all
    relevant Tax Returns required to be filed in respect of such
    Transfer Tax, pay the Transfer Tax shown on such Tax Return, and
    notify the other parties in writing of the Transfer Tax shown on
    such Tax Return and how such Transfer Tax was calculated, and if
    the Transfer Tax Payor is Purchaser or its Affiliates, Seller
    shall, except as set forth in the following sentence, reimburse
    the Transfer Tax Payor for the amount of such Transfer Tax in
    immediately available funds within ten (10)&#160;business days
    of receipt of such notice. Notwithstanding the preceding
    sentence, Purchaser shall be responsible for Transfer Taxes
    incurred with respect to the transfer by Seller to Purchaser of
    tangible personal property having a fair market value of up to
    $20,000 U.S. and, to the extent Transfer Taxes with respect to
    the transfer by Seller to Purchaser of tangible personal
    property having a fair market value of up to $20,000
    U.S.&#160;are paid by Seller, Purchaser shall reimburse Seller
    in respect of such Transfer Taxes by wire transfer of
    immediately available funds within ten (10)&#160;business days
    of receipt of notice and proof of payment from Seller.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;10.2&#160;&#160;<I><U>Amendment
    and Modification</U>.</I>&#160;&#160;Subject to the revision of
    <U>Schedule&#160;E</U> by Purchaser as contemplated by the
    definition of &#147;Assumed Contracts,&#148; this Agreement may
    be amended, modified and supplemented in any and all respects,
    but only by a written instrument signed by all of the parties
    hereto expressly stating that such instrument is intended to
    amend, modify or supplement this Agreement.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;10.3&#160;&#160;<I><U>Notices</U>.</I>&#160;&#160;All
    notices and other communications hereunder shall be in writing
    and shall be deemed given when mailed, delivered personally,
    telecopied (which is confirmed) or sent by an overnight courier
    service, such as Federal Express, to the parties at the
    following addresses (or at such other address for a party as
    shall be specified by such party by like notice):
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    if to Purchaser or Purchaser Subsidiary, to:
</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    DTS, Inc.<BR>
    5171 Clareton Drive<BR>
    Agoura Hills, CA 91301<BR>
    Attention: General Counsel<BR>
    Telephone:
    <FONT style="white-space: nowrap">(818)&#160;706-3525</FONT><BR>
    Telecopy:
    <FONT style="white-space: nowrap">(818)&#160;824-2470</FONT>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    with a copy to:
</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Heller Ehrman<BR>
    4350 La&#160;Jolla Village<BR>
    Seventh Floor<BR>
    San&#160;Diego, CA 92122<BR>
    Attention: Kirt Shuldberg,&#160;Esq.<BR>
    Telephone:
    <FONT style="white-space: nowrap">(858)&#160;450-5766</FONT><BR>
    Telecopy:
    <FONT style="white-space: nowrap">(858)&#160;587-5928</FONT>
</DIV>

<P align="center" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <BR>
    A-22
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    And
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    if to Seller or Seller Subsidiary, to:
</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Spatializer Audio Laboratories, Inc.<BR>
    4215 Tierra Rejada Rd.<BR>
    PMB 159<BR>
    Moorpark, CA 93021<BR>
    Attention: Henry Mandell, CEO<BR>
    Telephone:<BR>
    Telecopy:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    With a copy to:
</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 4%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Reed Smith LLP<BR>
    1901 Avenue of the Stars<BR>
    Suite&#160;700<BR>
    Los Angeles, California 90062<BR>
    Attention: John Iino,&#160;Esq.<BR>
    Telephone:
    <FONT style="white-space: nowrap">(310)&#160;734-5200</FONT><BR>
    Telecopy:
    <FONT style="white-space: nowrap">(310)&#160;734-5299</FONT>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;10.4&#160;&#160;<I><U>Counterparts</U>.</I>&#160;&#160;This
    Agreement may be executed in one or more counterparts, all of
    which shall be considered one and the same agreement and shall
    become effective when two or more counterparts have been signed
    by each of the parties and delivered to the other parties.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;10.5&#160;&#160;<I><U>Entire
    Agreement; No Third Party Beneficiaries</U>.</I>&#160;&#160;This
    Agreement (a)&#160;constitutes the entire agreement and
    supersede all prior agreements and understandings, both written
    and oral, among the parties with respect to the subject matter
    hereof and thereof and (b)&#160;are not intended to confer upon
    any Person other than the parties hereto and the Purchaser
    Indemnified Persons any rights or remedies hereunder.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;10.6&#160;&#160;<I><U>Severability</U>.</I>&#160;&#160;Any
    term or provision of this Agreement that is held by a court of
    competent jurisdiction or other authority to be invalid, void or
    unenforceable in any situation in any jurisdiction shall not
    affect the validity or enforceability of the remaining terms and
    provisions hereof or the validity or enforceability of the
    offending term or provision in any other situation or in any
    other jurisdiction. If the final judgment of a court of
    competent jurisdiction or other authority declares that any term
    or provision hereof is invalid, void or unenforceable, the
    parties agree that the court making such determination shall
    have the power to reduce the scope, duration, area or
    applicability of the term or provision, to delete specific words
    or phrases, or to replace any invalid, void or unenforceable
    term or provision with a term or provision that is valid and
    enforceable and that comes closest to expressing the intention
    of the invalid or unenforceable term or provision.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;10.7&#160;&#160;<I><U>Governing
    Law</U>.</I>&#160;&#160;This Agreement shall be governed by and
    construed in accordance with the laws of the State of California
    without giving effect to the principles of conflicts of law
    thereof; provided, that, the General Corporation Law of the
    State of Delaware shall apply to the extent applicable.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;10.8&#160;&#160;<I><U>Enforcement;
    Venue</U>.</I>&#160;&#160;The parties agree that irreparable
    damage would occur in the event that any of the provisions of
    this Agreement were not performed in accordance with their
    specific terms or were otherwise breached. It is accordingly
    agreed that the parties shall be entitled to an injunction or
    injunctions to prevent breaches of this Agreement and to enforce
    specifically the terms and provisions of this Agreement in any
    court of the United States located in the State of California or
    in California state court, this being in addition to any other
    remedy to which they are entitled at law or in equity. In
    addition, each of the parties hereto (a)&#160;consents to submit
    itself to the personal jurisdiction of any Federal or state
    court located in the County of Los Angeles, California in the
    event any dispute arises out of this Agreement or any of the
    Transactions, (b)&#160;agrees that it shall not attempt to deny
    or defeat such personal jurisdiction by motion or other request
    for leave from any such court and (c)&#160;agrees that it shall
    not bring any action relating to this Agreement or any of the
    Transactions in any court other than a Federal or state court
    sitting in the County of Los Angeles, California.
</DIV>

<P align="center" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <BR>
    A-23
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;10.9&#160;&#160;<I><U>Time
    of Essence</U>.</I>&#160;&#160;Each of the parties hereto hereby
    agrees that, with regard to all dates and time periods set forth
    or referred to in this Agreement, time is of the essence.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;10.10&#160;&#160;<I><U>Extension;
    Waiver</U>.</I>&#160;&#160;At any time prior to the Closing
    Date, the parties may (a)&#160;extend the time for the
    performance of any of the obligations or other acts of the other
    parties, (b)&#160;waive any inaccuracies in the representations
    and warranties of the other parties contained in this Agreement
    or in any document delivered pursuant to this Agreement or
    (c)&#160;waive compliance by the other parties with any of the
    agreements or conditions contained in this Agreement. Any
    agreement on the part of a party to any such extension or waiver
    shall be valid only if set forth in an instrument in writing
    signed on behalf of such party. The failure of any party to this
    Agreement to assert any of its rights under this Agreement or
    otherwise shall not constitute a waiver of those rights.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;10.11&#160;&#160;<I><U>Election
    of Remedies</U>.</I>&#160;&#160;Neither the exercise of nor the
    failure to exercise a right or to give notice of a claim under
    this Agreement will constitute an election of remedies or limit
    Purchaser or any of the Purchaser Indemnified Persons in any
    manner in the enforcement of any other remedies that may be
    available to any of them, whether at law or in equity.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;10.12&#160;&#160;<I><U>Assignment</U>.</I>&#160;&#160;Neither
    this Agreement not any of the rights, interests or obligations
    hereunder shall be assigned by any of the parties hereto
    (whether by operation of law or otherwise) without the prior
    written content of the other parties, except that Purchaser may
    assign, in its sole discretion, any or all of its rights and
    interests hereunder to any direct or indirect wholly owned
    Subsidiary of Purchaser. Subject to the preceding sentence, this
    Agreement shall be binding upon, inure to the benefit of and be
    enforceable by the parties and their respective successors and
    assigns.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <FONT style="font-variant: SMALL-CAPS">Section</FONT>&#160;10.13&#160;&#160;<I><U>Joint
    and Several Liability</U>.</I>&#160;&#160;Purchaser and
    Purchaser Subsidiary shall be jointly and severally liable for
    all obligations of Purchaser Subsidiary hereunder or under any
    agreement executed by Purchaser Subsidiary and delivered to
    Seller at the Closing, including without limitation the
    Assumption Agreement.
</DIV>

<P align="center" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <BR>
    A-24
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 4%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    IN WITNESS WHEREOF, Purchaser, Purchaser Subsidiary, Seller and
    Seller Subsidiary have executed this Agreement or caused this
    Agreement to be executed by their respective officers thereunto
    duly authorized as of the date first written above.
</DIV>

<DIV style="margin-top: 24pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 49%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    DTS, INC.
</DIV>

<DIV style="margin-top: 48pt; font-size: 1pt">&nbsp;</DIV>

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

<TR>
    <TD width="49%"></TD>
    <TD width="3%"></TD>
    <TD width="48%"></TD>
</TR>

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    By:&#160;
</TD>
    <TD align="left">
    <DIV style="display: inline; text-align: left; width: 90%">/s/&#160;&#160;<FONT style="font-variant: SMALL-CAPS">JON
    E. KIRCHNER</FONT></DIV>
</TD>
</TR>

</TABLE>

<DIV style="font-size: 2pt; margin-left: 53%; width: 100%; align: left; border-bottom: 1pt solid #000000"></DIV><!-- callerid=999 iwidth=455 length=0 -->

<DIV align="left" style="margin-left: 53%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Name:&#160;Jon Kirchner
</DIV>

<DIV align="left" style="margin-left: 53%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">

</DIV>

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

<TR>
    <TD width="53%"></TD>
    <TD width="7%"></TD>
    <TD width="40%"></TD>
</TR>

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    Title:&#160;
</TD>
    <TD align="left">
    President&#160;&#38; Chief Executive Officer
</TD>
</TR>

</TABLE>

<DIV style="margin-top: 24pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 49%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    DTS BVI LIMITED
</DIV>

<DIV style="margin-top: 48pt; font-size: 1pt">&nbsp;</DIV>

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

<TR>
    <TD width="49%"></TD>
    <TD width="3%"></TD>
    <TD width="48%"></TD>
</TR>

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    By:&#160;
</TD>
    <TD align="left">
    <DIV style="display: inline; text-align: left; width: 90%">/s/&#160;&#160;<FONT style="font-variant: SMALL-CAPS">JON
    E. KIRCHNER</FONT></DIV>
</TD>
</TR>

</TABLE>

<DIV style="font-size: 2pt; margin-left: 53%; width: 100%; align: left; border-bottom: 1pt solid #000000"></DIV><!-- callerid=999 iwidth=455 length=0 -->

<DIV align="left" style="margin-left: 53%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Name:&#160;Jon E. Kirchner
</DIV>

<DIV align="left" style="margin-left: 53%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">

</DIV>

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

<TR>
    <TD width="53%"></TD>
    <TD width="7%"></TD>
    <TD width="40%"></TD>
</TR>

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    Title:&#160;
</TD>
    <TD align="left">
    Chairman
</TD>
</TR>

</TABLE>

<DIV style="margin-top: 24pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 49%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    SPATIALIZER AUDIO LABORATORIES, INC.
</DIV>

<DIV style="margin-top: 48pt; font-size: 1pt">&nbsp;</DIV>

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

<TR>
    <TD width="49%"></TD>
    <TD width="3%"></TD>
    <TD width="48%"></TD>
</TR>

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    By:&#160;
</TD>
    <TD align="left">
    <DIV style="display: inline; text-align: left; width: 90%">/s/&#160;&#160;<FONT style="font-variant: SMALL-CAPS">HENRY
    R. MANDELL</FONT></DIV>
</TD>
</TR>

</TABLE>

<DIV style="font-size: 2pt; margin-left: 53%; width: 100%; align: left; border-bottom: 1pt solid #000000"></DIV><!-- callerid=999 iwidth=455 length=0 -->

<DIV align="left" style="margin-left: 53%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Name:&#160;Henry R. Mandell
</DIV>

<DIV align="left" style="margin-left: 53%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">

</DIV>

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

<TR>
    <TD width="53%"></TD>
    <TD width="7%"></TD>
    <TD width="40%"></TD>
</TR>

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    Title:&#160;
</TD>
    <TD align="left">
    Chairman
</TD>
</TR>

</TABLE>

<DIV style="margin-top: 24pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 49%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    DESPER PRODUCTS, INC.
</DIV>

<DIV style="margin-top: 48pt; font-size: 1pt">&nbsp;</DIV>

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

<TR>
    <TD width="49%"></TD>
    <TD width="3%"></TD>
    <TD width="48%"></TD>
</TR>

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    By:&#160;
</TD>
    <TD align="left">
    <DIV style="display: inline; text-align: left; width: 90%">/s/&#160;&#160;<FONT style="font-variant: SMALL-CAPS">HENRY
    R. MANDELL</FONT></DIV>
</TD>
</TR>

</TABLE>

<DIV style="font-size: 2pt; margin-left: 53%; width: 100%; align: left; border-bottom: 1pt solid #000000"></DIV><!-- callerid=999 iwidth=455 length=0 -->

<DIV align="left" style="margin-left: 53%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    Name:&#160;Henry R. Mandell
</DIV>

<DIV align="left" style="margin-left: 53%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">

</DIV>

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

<TR>
    <TD width="53%"></TD>
    <TD width="7%"></TD>
    <TD width="40%"></TD>
</TR>

<TR valign="top" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    Title:&#160;
</TD>
    <TD align="left">
    President
</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt; font-family: 'Times New Roman', Times; color: #000000; background: #FFFFFF">
    <BR>
    A-25
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="47%"></TD>
    <TD width="5%"></TD>
    <TD width="47%"></TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="left" valign="top">PROXY
</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">PROXY</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">SPATIALIZER AUDIO LABORATORIES, INC.
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">ANNUAL MEETING OF STOCKHOLDERS TO BE HELD <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U> &#95;&#95;&#95;, 2006<BR>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The undersigned hereby appoints Henry R. Mandell as proxy and attorney-in-fact of the
undersigned, with full power of substitution, to represent and vote, as designated below, all
shares of common stock of Spatializer Audio Laboratories, Inc. (&#147;Spatializer&#148;) which the
undersigned is entitled to vote at the Annual Meeting of Stockholders of Spatializer to be held on
<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>, <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U> &#95;&#95;&#95;, 2006 at <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U> p.m. at <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbs
p;&nbsp;&nbsp;&nbsp;&nbsp;</U>, and at any
adjournments or postponements thereof.
</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">(Continued on reverse side)

</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">FOLD AND DETACH HERE
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

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

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="48%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><B>For planning purposes, please indicate if you
plan to attend the Annual Meeting:</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><B>YES&nbsp;&#95;&#95;&#95;</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><B>NO</B>&nbsp;&#95;&#95;&#95;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">SPATIALIZER AUDIO LABORATORIES, INC.<BR>
PLEASE MARK VOTE IN BOX IN THE FOLLOWING MANNER USING DARK INK ONLY.

</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 5%">The board of directors recommends a vote FOR the proposal described under proposal 1, proposal
2 and Proposal 4 below and FOR the nominee listed in Proposal 3.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD nowrap align="left">PROPOSAL 1</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">FOR</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">AGAINST</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">ABSTAIN</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="middle">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="middle">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="middle">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">To approve the sale of all or substantially
all of the assets of Spatializer and Desper
Products, Inc., a wholly owned subsidiary of
Spatializer, to DTS, Inc. and DTS BVI,
Limited pursuant to the Asset Purchase
Agreement.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="middle"><FONT face="Wingdings">&#111;</FONT>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="middle"><FONT face="Wingdings">&#111;</FONT>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="middle"><FONT face="Wingdings">&#111;</FONT></TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD nowrap align="left">PROPOSAL 2</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">FOR</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">AGAINST</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">ABSTAIN</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="middle">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="middle">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="middle">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">To approve of the dissolution of Spatializer.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="middle"><FONT face="Wingdings">&#111;</FONT>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="middle"><FONT face="Wingdings">&#111;</FONT>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="middle"><FONT face="Wingdings">&#111;</FONT></TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="middle">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="middle">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="middle">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD nowrap align="left">PROPOSAL 3</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">FOR</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">WITHHOLD</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="middle">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="middle">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="middle">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">To elect Henry R. Mandell as a Director of
Spatializer to serve until the Annual
Meeting of Stockholders to be held in 2007.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="middle"><FONT face="Wingdings">&#111;</FONT>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="middle"><FONT face="Wingdings">&#111;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="middle">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="middle">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="middle">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="middle">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD nowrap align="left">PROPOSAL 4</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">FOR</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">AGAINST</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">ABSTAIN</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="middle">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="middle">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="middle">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">To ratify the selection of Farber &#038; Hass LLP
as independent auditors of Spatializer for
its fiscal year ending December&nbsp;31, 2006.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="middle"><FONT face="Wingdings">&#111;</FONT>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="middle"><FONT face="Wingdings">&#111;</FONT>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="middle"><FONT face="Wingdings">&#111;</FONT></TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="middle">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="middle">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="middle">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 5%"><B>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 &#147;FOR&#148; EACH OF PROPOSAL
1, PROPOSAL 2 AND PROPOSAL 4 AND &#147;FOR&#148; THE NOMINEE LISTED IN PROPOSAL 3, AND IN THE DISCRETION OF
THE PROXY HOLDER WITH RESPECT TO ANY OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 5%">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.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">Signature
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">(Stockholder(s) sign above)

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Dated: <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>, 200__
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">PLEASE RETURN PROMPTLY IN ENCLOSED ENVELOPE WHICH<BR>
REQUIRES NO POSTAGE IF MAILED IN THE U.S.

</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">X FOLD AND DETACH HERE X
</DIV>



<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>GRAPHIC
<SEQUENCE>2
<FILENAME>v24256prv2425602.gif
<DESCRIPTION>GRAPHIC
<TEXT>
begin 644 v24256prv2425602.gif
M1TE&.#EALP`@`,0```\/#Q\?']_?WR\O+\_/SU]?7^_O[Y^?GZ^OKT]/3X^/
MCV]O;W]_?[^_OS\_/____P``````````````````````````````````````
M`````````````````````````"'Y!```````+`````"S`"````7_("2.9&F>
M:*JN;.N^<"ROS&/?]C&(3K\#!YQP1BP:C\AB38@(!!0"X:.Q&`2ER:QVRWTM
M;X4`0BHT,!)17,EQ:#04`0``XF#8[XQ%P`1HE`X(>()V"`=T@@Y\?B8%@GN,
MCB.#>(F-DW8D=PAN!PP[+E\&`P4&9&0$#@UJ(PH/"R(+#P*)=#8(<F@/!20!
M4;0B!@:_JHMT!@(\40*?O`0/"7Q+!X]\";;4U@8)<R+.!G,!2[0!"<[0(KVR
M<^53W#0W#@6F\Z)7#R,.#PHDL;\V#",&V/@%(,>(`,]($"-AC=O"$[9.Y'OP
M"\5`$@A$D6B5D,?%$0`(&!KQ$`*`*,54_RQ9(&\>/0?.[HD(4A&"L!'_2#A#
M,*)`3&X%1I*<4@(!K9(D"J2AAN]C"J<%*T[<UY1BB5X*B4JRT:)&`X$N71((
M4&KHN1$'_#T`.+08@0&E7D&(4P*I28=:ZY)=:V)B31-.$^P"68J`NUI6>9Q`
MNJ3K@P`QP\[+(Q-"D+>\W.5LB\Y/$&0H[&9-B8X`A%:@2?A=X=2$J@?,/":&
M8-IU7LL/#'0]T%(RO9,CK-D@H`<P7Q$%=8E0L`OA[+JWH9,^W=S&6=E_2[3F
M9T.NZHL`8BW."]:[R@"O?<];0%7$EQR'-[-C"T$`7J'24XC^)D(5S^_/012@
M"&#]M\9PD8U'0/\CGUVG0ASJA=7`87,QD,8#AN$D"R?%B:#4':]1V%]THY7P
MH1VO,;6:"MN9%`5_?7TDCX(6VC"8"\)%.$\*`XSABH;TU55`#SW$-=YTG&&T
M`)$.E!+DBD\->$5VB`US9#<MIO">CE)\,H!Y(HQ!WV97I3:3+%>&=AM6&Z%9
M57;,B;"=<.V-4!N4M`!`S4,`E`(C"UMRB0,M,)E0PYC'E:``F&#])5J2[@4Y
MEW5OFB#0(ZWM5=M&_T&)EG<E382?2H*:0FB`8]Q()@D",(6E@9#:EE*K)NQ4
M*0DGI=::-[%!(,]@GOHZ&U)3.E:J%*?>!,L#0CEW2PDU]`J`C^:E0ZO_"=8^
M4D--TW;G(9D`L#/21,]"L!*NL3S`3;HW`M`8<L[81QB&O9X0Z+%>*L"&&P(@
M<&,!;@3,#,!NW#A`P&Y\0G#`-WJ(<`,%+&SPPP,H\/#%T%B,\`#H78PP51I[
M_`:!#]^8`,,K3'3L*EVT[/++1SB0W,H1P6SSS3BCP(`#/M)<`)A9R'&5#Y;B
M0^1A`_1`X-$E>,FDS'/U``Z1CR3]M-00),UQ"0`\/4?7#NP!]@#UVMN`RL<B
M8Z8(M(K!+!T$$,#`,0V(I.<830P@P`$'+'-0`W[S`J,U#<P-4!]&(6!8/F\8
MT*Y&;ZC"`"H*$)#`W!P+(("%/.EME.9VH#)Y_SF2NKN6-3RYVRI<"B0PAF.I
M^"P>0\?E(TDBA9L4=]<4]2G7W.XP,)T"CN,$T(Q0D&0(7W/W9(`AN]20=2S:
M(N-&+3OD?OU<Z.T33HR)&%E'G_2MK?,Q<!W;0"^Z891\+;=#D/ND0U(4"S<%
MW2A\K>]#L-:T:FN/]/B"@-00!T;2L\RF\I$*/U!/?@"Y7A].PQ=7U0)WK4C:
M&1YSD*Y,[@`YTM%8B),2,>0/?N[!7?EV1I$$RHD^^TN*'A*S(;XD:D88,@`"
MO&0(`_Q.)MN34RHT9[G^1-``=?,#`%J!F0/ACC8"N)P+O<``LD2,2V/AF_PR
M$0@!^,%V*82@\1@XQ?]$Q=!."N#<"R%@#;T)\!YKV=U,TD@`T"3P``NDB!N(
M]PGM+0(@>V@2K#SRQ#Z9H8TQP`1<"J`W]32A`2-)26W:>*DPSL\:`6"@0$[%
MC#/J8"3RV`-?R&C`Y57Q>;HC4$(2F(_JR<\/<O0C<C;A'C_$AH%;K`4#^M0>
M!^F,+:QS5RGF$44'"*`]Q5B`4![`$Y$XH!S=,,K<=F$-:."1;`1H#V0V)SP\
MC@1UA+.0$AN``-<MCIGA6@L@P$&O,9P#"HT012]:19:S"0`5H+/0Y,HIMWP,
MQG0;I`4F2-&)`RQJ4[\$2=UD5H`"XD`D"0C``;2A$$E4\1!5#$\>YF"),X!-
MXPZ!M$-%,LDDJRWM:4PQ:=:P9C6HD;2E!\$:2?=`TJM)C6P.^`0(D?,T9CP"
B;&(K6U)$!H<3`&%'.4LJSNJDU*8Z]:E0C:I4IXJS$```.S\_
`
end
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>GRAPHIC
<SEQUENCE>3
<FILENAME>v24256prv2425601.gif
<DESCRIPTION>GRAPHIC
<TEXT>
begin 644 v24256prv2425601.gif
M1TE&.#EAX0`X`/?_````````,P``9@``F0``S```_P`S```S,P`S9@`SF0`S
MS``S_P!F``!F,P!F9@!FF0!FS`!F_P"9``"9,P"99@"9F0"9S`"9_P#,``#,
M,P#,9@#,F0#,S`#,_P#_``#_,P#_9@#_F0#_S`#__S,``#,`,S,`9C,`F3,`
MS#,`_S,S`#,S,S,S9C,SF3,SS#,S_S-F`#-F,S-F9C-FF3-FS#-F_S.9`#.9
M,S.99C.9F3.9S#.9_S/,`#/,,S/,9C/,F3/,S#/,_S/_`#/_,S/_9C/_F3/_
MS#/__V8``&8`,V8`9F8`F68`S&8`_V8S`&8S,V8S9F8SF68SS&8S_V9F`&9F
M,V9F9F9FF69FS&9F_V:9`&:9,V:99F:9F6:9S&:9_V;,`&;,,V;,9F;,F6;,
MS&;,_V;_`&;_,V;_9F;_F6;_S&;__YD``)D`,YD`9ID`F9D`S)D`_YDS`)DS
M,YDS9IDSF9DSS)DS_YEF`)EF,YEF9IEFF9EFS)EF_YF9`)F9,YF99IF9F9F9
MS)F9_YG,`)G,,YG,9IG,F9G,S)G,_YG_`)G_,YG_9IG_F9G_S)G__\P``,P`
M,\P`9LP`F<P`S,P`_\PS`,PS,\PS9LPSF<PSS,PS_\QF`,QF,\QF9LQFF<QF
MS,QF_\R9`,R9,\R99LR9F<R9S,R9_\S,`,S,,\S,9LS,F<S,S,S,_\S_`,S_
M,\S_9LS_F<S_S,S___\``/\`,_\`9O\`F?\`S/\`__\S`/\S,_\S9O\SF?\S
MS/\S__]F`/]F,_]F9O]FF?]FS/]F__^9`/^9,_^99O^9F?^9S/^9___,`/_,
M,__,9O_,F?_,S/_,____`/__,___9O__F?__S/___P``````````````````
M````````````````````````````````````````````````````````````
M````````````````````````````````````````````````````````````
M`````````````````````"P`````X0`X```(_P"O"1Q(L*"50`43*ES(L*'#
MAQ`C-K0BL:+%BQ@;LK+"\>(*`!E#BAQYT0I(DBA36@P$H.7'DQ);JIQYC97*
MCA59M:1(LZ=%G`U?\M2),"9,GR%EHM1Y%*))EDBC+MS8$H"5%3P3LK1:,%!6
MB`!62,WXL2A)DTT??KR6=NS4JRUMYG0Y=(78KF'E&JP8UNW%OBE=6N1ZUR_#
MK5BA\@5@=N"*QB97Z"U8&*SAN5]'[AQ,$>AE@FCULIKLL.Q"F%L;MEUHDO1G
MUJL)-F[($FM"UP-U4O3Z6K92T!&?,GQ<\_=IB:U[.S2N4&?PO`9CLT2X4?FU
MV@HS3P7\ENG#K*,GQO^VSG;\-9,16\[V#EL@J]F7[>+6KO`C;H(OX7?-:E<\
M>89<^0<6`*2A-=Q=!REG6G;?!:B:@P#J!6%"Z/UWVX0)V?802]H9>!I/E5VF
M&VNB"440<]EAJ-51*@Y4H84$C:B:?A0REI!5L05H'E(H#@332U6=Q.%#/=XX
M68L"705C=`[I=!^3>+UX(T7.%<3*1_0MQ5U7"*%EA5Z2G;?CD`XI>6*6`FFX
M9)+F22D@:%:A::-GQ86%YDC)*0129*3Q5F1N?[J8%I)LW:F<FS5&M%9T=)Z(
M4)CXV0B<2D4&,AIT^TU7)H&;ND8HH8?&9A.B']8(Z86!!!*BC((^^9.*3L;_
MI:>836Z9(FZ?&MH;DA0M6FN'F%ZX46:R`BKJJ[@]IIY"JI97&J'VE;J=KJ_9
M&F.A3DD*9VQ/A>CLMNU51.IC[%D)DD[>#H080^@^R2NHNV8I%JMOPIDNF\3Y
M-MN"YGK+6XQR64N<<%:&2:]O_$9WKX]HFD3?5:<:1F:&8M(():,`6HOH9C7.
M-C%55DV<YETH7LF3P[>UEB?&&KV;&6+%&K;RI#,S1"JI/G):D+76"F2KJD"Y
M9)/(^8I\G;8'R^BKNCVOV+"WRYZ7+LYXKH;@CFD^/!Z*!`.:Y81B!8BR>P&B
MV^J)VOH,TY4Z7[,TVPN;VW!3,Z?UDD^D_KNT:MJ9_[U=6HC6G*:#&UT:<&:+
M;OGB5O"UQG9F%:H:;(-SBV9K4TR-%UY);4$*;W':536<QG:WY6&:-BV:L)AC
M"RIUTUO%+"A'LF>[L)0S*R9HTUEC=#/#$!WLY4+Y91BBT746EJ^.:67>&-M5
M90GRY#6A]7F-+4JYY<%8HDE4F=YN?&:V7SFG(GII^_S5\'!BR]9=BK7N6)#T
M1P_;3M;77Y7%FT:;*-G@X5F@X,6UIC2+;/SS&GX0@B&6&&Y*@A*9<`B3E0JY
MB2ER495=#@*].'$$2&U[756P<BFLU0<D\J%08<;VD70)!D"&PL[%BM,^B$RL
M/V[+S(A()1.X,/`N5_+<"_][1ROW8.D[^;,3M?:#D;X$<39`<1A::,2QYJ3/
M2O)C$V@@$S<X%<5_9@(@FUQC/4AU+V9"<Q2;O!*9!*[I6TSYDHLJ.$)W16QG
M;>J:ZXRXLR6B['M:)-L*0T@ECLB133N93*/$%J0EKDEQC=1?%P\&+IO1+D4"
MT=3X;!@R""4G,CN#7Q=3A9RL6.J-?`%6_>ZVG!9);CR=,=U)U`2\X`4I.O;#
M)0Y1N21"A9%W@X,5@?YTRAZAYX!]1`XM<\.1^QB2EV_T96&`B24,F>U/\^J9
MPT)82VAZ,RJ^Y`^W"'0P&1;)8-S,9!63^<UVTH22H*$C?8KE2>[TB)1%+(DC
MW<FWSU^]27AHY,E6OE*R06:D2OU,Z$%]>10IT@YL0;HC<ZZD%ZJIY8X*S2B1
M[N0F$.8K1H:<YU$H6D.,5$>C*`4+1].YSQNQB%A=3*E,10),>(I$.*GQ34MG
MRE.UQ&E:/6ED@:[7TZ+ZU&*N"LFPYI-.HSJUJ!9]JE0U2M2I6M6;5;VJ5A^Y
MTZUZ53E.^JI8VQG5L9I503$]JUH-D]6UNI4F;7VK7$D2%C?.]:XHJ1U>]SJ3
(]_"UJ`$!`#L_
`
end
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
