Document:

EXHIBIT 10.7

                                QUOTEMEDIA, INC.

                     2003 EQUITY INCENTIVE COMPENSATION PLAN

<PAGE>
                                QUOTEMEDIA, INC.

                     2003 EQUITY INCENTIVE COMPENSATION PLAN

1.   PURPOSE...................................................................1

2.   DEFINITIONS...............................................................1

3.   ADMINISTRATION............................................................5

     (a)  Authority of the Committee...........................................5

     (b)  Manner of Exercise of Committee Authority............................5

     (c)  Limitation of Liability..............................................6

4.   STOCK SUBJECT TO PLAN.....................................................6

     (a)  Limitation on Overall Number of Shares Subject to Awards.............6

     (b)  Application of Limitations...........................................6

5.   ELIGIBILITY; PER-PERSON AWARD LIMITATIONS.................................6

6.   SPECIFIC TERMS OF AWARDS..................................................7

     (a)  General..............................................................7

     (b)  Options..............................................................7

     (c)  Stock Appreciation Rights............................................8

     (d)  Restricted Stock.....................................................9

     (e)  Deferred Stock......................................................10

     (f)  Bonus Stock and Awards in Lieu of Obligations.......................11

     (g)  Dividend Equivalents................................................11

     (h)  Other Stock-Based Awards............................................11

7.   CERTAIN PROVISIONS APPLICABLE TO AWARDS..................................12

     (a)  Stand-Alone, Additional, Tandem, and Substitute Awards..............12

     (b)  Term of Awards......................................................12

     (c)  Form and Timing of Payment Under Awards; Deferrals..................12

     (d)  Exemptions from Section 16(b) Liability.............................13

8.   PERFORMANCE AND ANNUAL INCENTIVE AWARDS..................................13

     (a)  Performance Conditions..............................................13

     (b)  Performance Awards Granted to Designated Covered Employees..........13

     (c)  Annual Incentive Awards Granted to Designated Covered Employees.....15

     (d)  Written Determinations..............................................16

                                       i
<PAGE>
     (e)  Status of Section 8(b) and Section 8(c) Awards under Code
          Section 162(m)......................................................16

9.   CHANGE IN CONTROL........................................................16

     (a)  Effect of "Change in Control."......................................16

     (b)  Definition of "Change in Control."..................................17

     (c)  Definition of "Change in Control Price."............................18

10.  GENERAL PROVISIONS.......................................................18

     (a)  Compliance With Legal and Other Requirements........................18

     (b)  Limits on Transferability; Beneficiaries............................18

     (c)  Adjustments.........................................................19

     (d)  Taxes...............................................................20

     (e)  Changes to the Plan and Awards......................................21

     (f)  Limitation on Rights Conferred Under Plan...........................21

     (g)  Unfunded Status of Awards; Creation of Trusts.......................21

     (h)  Nonexclusivity of the Plan..........................................22

     (i)  Payments in the Event of Forfeitures; Fractional Shares.............22

     (j)  Governing Law.......................................................22

     (k)  Plan Effective Date and Stockholder Approval; Termination of Plan...22

                                       ii
<PAGE>
                                QUOTEMEDIA, INC.

                     2003 EQUITY INCENTIVE COMPENSATION PLAN

     1. PURPOSE.  The purpose of this 2003 EQUITY  INCENTIVE  COMPENSATION  PLAN
(the "Plan") is to assist QuoteMedia, Inc., a Nevada corporation (the "Company")
and  its  subsidiaries  in  attracting,   motivating,  retaining  and  rewarding
high-quality executives and other employees, officers, directors and independent
contractors  by  enabling  such  persons to acquire  or  increase a  proprietary
interest  in the  Company in order to  strengthen  the  mutuality  of  interests
between such persons and the Company's stockholders,  and providing such persons
with annual and long term performance incentives to expend their maximum efforts
in the  creation  of  shareholder  value.  In the event  that the  Company is or
becomes a  Publicly  Held  Corporation  (as  hereinafter  defined),  the Plan is
intended  to  qualify  certain  compensation  awarded  under  the  Plan  for tax
deductibility  under Section  162(m) of the Code (as  hereafter  defined) to the
extent deemed  appropriate by the Committee (or any successor  committee) of the
Board of Directors of the Company.

     2.  DEFINITIONS.  For purposes of the Plan,  the  following  terms shall be
defined as set forth  below,  in  addition  to such  terms  defined in Section 1
hereof.

          (a) "Annual  Incentive  Award" means a conditional  right granted to a
Participant under Section 8(c) hereof to receive a cash payment,  Stock or other
Award,  unless  otherwise  determined  by  the  Committee,  after  the  end of a
specified fiscal year.

          (b) "Award" means any Option, SAR (including Limited SAR),  Restricted
Stock,  Deferred  Stock,  Stock granted as a bonus or in lieu of another  award,
Dividend  Equivalent,  Other  Stock-Based  Award,  Performance  Award or  Annual
Incentive  Award,  together  with any  other  right or  interest,  granted  to a
Participant under the Plan.

          (c)  "Beneficiary"  means the person,  persons,  trust or trusts which
have  been  designated  by a  Participant  in  his or her  most  recent  written
beneficiary  designation  filed  with the  Committee  to  receive  the  benefits
specified  under the Plan upon such  Participant's  death or to which  Awards or
other rights are transferred if and to the extent  permitted under Section 10(b)
hereof. If, upon a Participant's  death,  there is no designated  Beneficiary or
surviving  designated  Beneficiary,  then the term Beneficiary means the person,
persons,  trust  or  trusts  entitled  by  will  or  the  laws  of  descent  and
distribution to receive such benefits.

          (d)  "Beneficial   Owner",   "Beneficially   Owning"  and  "Beneficial
Ownership" shall have the meanings ascribed to such terms in Rule 13d3 under the
Exchange Act and any successor to such Rule.

          (e) "Board" means the Company's Board of Directors.
<PAGE>
          (f)  "Cause"  shall,  with  respect  to  any  Participant,   have  the
equivalent  meaning (or the same meaning as "cause" or "for cause") set forth in
any  employment  agreement  between  the  Participant  and the Company or Parent
Corporation  or Subsidiary or, in the absence of any such  agreement,  such term
shall mean (i) the  failure by the  Participant  to perform his or her duties as
assigned by the Company (or Parent  Corporation  or  Subsidiary) in a reasonable
manner, (ii) any violation or breach by the Participant of his or her employment
agreement with the Company (or Parent Corporation or Subsidiary),  if any, (iii)
any violation or breach by the Participant of his or her non-competition  and/or
non-disclosure agreement with the Company (or Parent Corporation or Subsidiary),
if any, (iv) any act by the  Participant of dishonesty or bad faith with respect
to the Company (or Parent  Corporation or Subsidiary),  (v) chronic  addition to
alcohol,  drugs or other similar  substances  affecting the  Participant's  work
performance,  or (vi) the commission by the Participant of any act, misdemeanor,
or crime reflecting  unfavorably  upon the Participant or the Company.  The good
faith determination by the Committee of whether the Participant's employment was
terminated  by the  Company  for  "Cause"  shall be final  and  binding  for all
purposes hereunder.

          (g)  "Change in  Control"  means a Change in  Control as defined  with
related terms in Section 9 of the Plan.

          (h)  "Change  in  Control  Price"  means  the  amount   calculated  in
accordance with Section 9(c) of the Plan.

          (i) "Code"  means the Internal  Revenue Code of 1986,  as amended from
time to time,  including  regulations  thereunder  and successor  provisions and
regulations thereto.

          (j)  "Committee"  means  a  committee   designated  by  the  Board  to
administer the Plan; provided,  however,  that the Committee shall consist of at
least two directors, and, in the event the Company is or becomes a Publicly Held
Corporation  (as  hereinafter  defined),  each  member  of which  shall be (i) a
"non-employee director" within the meaning of Rule 16b-3 under the Exchange Act,
unless  administration  of the  Plan by  "non-employee  directors"  is not  then
required in order for exemptions under Rule 16b-3 to apply to transactions under
the Plan, and (ii) an "outside director" within the meaning of Section 162(m) of
the Code, unless  administration of the Plan by "outside  directors" is not then
required in order to qualify for tax  deductibility  under Section 162(m) of the
Code.

          (k) "Corporate  Transaction" means a Corporate  Transaction as defined
in Section 9(b)(i) of the Plan.

          (l)  "Covered  Employee"  means an  Eligible  Person  who is a Covered
Employee as specified in Section 8(e) of the Plan.

          (m) "Deferred  Stock" means a right,  granted to a  Participant  under
Section 6(e) hereof, to receive Stock, cash or a combination  thereof at the end
of a specified deferral period.

          (n) "Director" means a member of the Board.

                                       2
<PAGE>
          (o) "Disability"  means a permanent and total  disability  (within the
meaning  of  Section  22(e) of the  Code),  as  determined  by a medical  doctor
satisfactory to the Committee.

          (p)  "Dividend  Equivalent"  means a right,  granted to a  Participant
under  Section  6(g)  hereof,  to receive  cash,  Stock,  other  Awards or other
property equal in value to dividends paid with respect to a specified  number of
shares of Stock, or other periodic payments.

          (q) "Effective Date" means the effective date of the Plan, which shall
be November 22, 2002.

          (r) "Eligible  Person" means each Executive Officer of the Company (as
defined under the Exchange Act) and other  officers,  Directors and employees of
the Company or of any Subsidiary,  and independent  contractors with the Company
or any Subsidiary. The foregoing notwithstanding,  only employees of the Company
or any  Subsidiary  shall be Eligible  Persons for  purposes  of  receiving  any
Incentive  Stock  Options.  An employee on leave of absence may be considered as
still in the employ of the Company or a Subsidiary  for purposes of  eligibility
for participation in the Plan.

          (s)  "Exchange  Act" means the  Securities  Exchange  Act of 1934,  as
amended from time to time,  including rules thereunder and successor  provisions
and rules thereto.

          (t) "Executive  Officer" means an executive  officer of the Company as
defined under the Exchange Act.

          (u) "Fair Market  Value" means the fair market value of Stock,  Awards
or  other  property  as  determined  by the  Committee  or the  Board,  or under
procedures   established  by  the  Committee  or  the  Board.  Unless  otherwise
determined by the  Committee or the Board,  the Fair Market Value of Stock as of
any  given  date  shall be the  closing  sale  price  per  share  reported  on a
consolidated basis for stock listed on the principal stock exchange or market on
which Stock is traded on the date as of which such value is being determined or,
if there is no sale on that date,  then on the last previous day on which a sale
was reported.

          (v) "Good Reason"  shall,  with respect to any  Participant,  have the
equivalent  meaning (or the same meaning as "good  reason" or "for good reason")
set forth in any employment agreement between the Participant and the Company or
Parent Corporation or Subsidiary or, in the absence of any such agreement,  such
term shall mean (i) the assignment to the Participant of any duties inconsistent
in any respect  with the  Participant's  position  (including  status,  offices,
titles and reporting  requirements),  authority,  duties or  responsibilities as
assigned by the  Company (or Parent  Corporation  or  Subsidiary),  or any other
action by the Company (or Parent  Corporation or Subsidiary)  which results in a
diminution in such position,  authority,  duties or responsibilities,  excluding
for this purpose an isolated,  insubstantial and inadvertent action not taken in
bad faith  and which is  remedied  by the  Company  (or  Parent  Corporation  or
Subsidiary)  promptly after receipt of notice thereof given by the  Participant;
(ii) any failure by the Company (or Parent  Corporation or Subsidiary) to comply
with its obligations to the Participant as agreed upon,  other than an isolated,
insubstantial  and  inadvertent  failure not occurring in bad faith and which is
remedied by the Company (or Parent  Corporation  or  Subsidiary)  promptly after
receipt of notice  thereof  given by the  Participant;  (iii) the  Company's (or

                                       3
<PAGE>
Parent  Corporation's or Subsidiary's)  requiring the Participant to be based at
any office or location outside of fifty miles from the location of employment as
of the date of Award,  except for travel reasonably  required in the performance
of the  Participant's  responsibilities;  (iv) any purported  termination by the
Company (or Parent  Corporation or Subsidiary) of the  Participant's  employment
otherwise  than for  Cause as  defined  in  Section  2(f),  or by  reason of the
Participant's  Disability  as defined in Section 2(o),  prior to the  Expiration
Date.

          (w) "Incentive  Stock Option" or "ISO" means any Option intended to be
designated as an incentive stock option within the meaning of Section 422 of the
Code or any successor provision thereto.

          (x) "Incumbent  Board" means the Incumbent Board as defined in Section
9(b)(ii) of the Plan.

          (y) "Limited SAR" means a right granted to a Participant under Section
6(c) hereof.

          (z) "Option" means a right granted to a Participant under Section 6(b)
hereof,  to purchase Stock or other Awards at a specified price during specified
time periods.

          (aa) "Other Stock-Based  Awards" means Awards granted to a Participant
under Section 6(h) hereof.

          (bb)  "Parent  Corporation"  means  any  corporation  (other  than the
Company) in an unbroken chain of corporations  ending with the Company,  if each
of the  corporations in the chain (other than the Company) owns stock possessing
50% or more of the  combined  voting power of all classes of stock in one of the
other corporations in the chain.

          (cc) "Participant"  means a person who has been granted an Award under
the Plan  which  remains  outstanding,  including  a person  who is no longer an
Eligible Person.

          (dd) "Performance Award" means a right,  granted to an Eligible Person
under  Section 8 hereof,  to  receive  Awards  based upon  performance  criteria
specified by the Committee or the Board.

          (ee) "Person" shall have the meaning  ascribed to such term in Section
3(a)(9) of the Exchange Act and used in Sections  13(d) and 14(d)  thereof,  and
shall include a "group" as defined in Section 13(d) thereof.

          (ff)   "Publicly  Held   Corporation"   shall  mean  a  publicly  held
corporation as that term is used under Section 162(m)(2) of the Code.

          (gg)  "Restricted  Stock" means Stock granted to a  Participant  under
Section 6(d) hereof,  that is subject to certain  restrictions  and to a risk of
forfeiture.

          (hh)  "Rule  16b-3" and "Rule  16a-1(c)(3)"  means Rule 16b-3 and Rule
16al  (c)(3),  as from time to time in  effect  and  applicable  to the Plan and
Participants,  promulgated  by the  Securities  and  Exchange  Commission  under
Section 16 of the Exchange Act.

                                       4
<PAGE>
          (ii)  "Stock"  means  the  Company's  Common  Stock,  and  such  other
securities  as may be  substituted  (or  resubstituted)  for Stock  pursuant  to
Section 10(c) hereof.

          (jj) "Stock  Appreciation  Rights" or "SAR" means a right granted to a
Participant under Section 6(c) hereof.

          (kk)  "Subsidiary"  means any corporation or other entity in which the
Company has a direct or indirect  ownership interest of 50% or more of the total
combined  voting power of the then  outstanding  securities or interests of such
corporation  or other  entity,  entitled to vote  generally  in the  election of
directors  or in which the  Company  has the right to receive 50% or more of the
distribution  of  profits  or 50%  or  more  of the  assets  on  liquidation  or
dissolution.

     3. ADMINISTRATION.

          (a) AUTHORITY OF THE COMMITTEE.  The Plan shall be administered by the
Committee;  provided,  however,  that except as otherwise  expressly provided in
this Plan or, during the period that the Company is a Publicly Held Corporation,
in order to comply with Code  Section  162(m) or Rule 16b-3  under the  Exchange
Act,  the Board may exercise  any power or  authority  granted to the  Committee
under this Plan. The Committee or the Board shall have full and final authority,
in each case  subject to and  consistent  with the  provisions  of the Plan,  to
select  Eligible  Persons to become  Participants,  grant Awards,  determine the
type,  number and other terms and conditions of, and all other matters  relating
to, Awards,  prescribe  Award  agreements  (which need not be identical for each
Participant)  and  rules and  regulations  for the  administration  of the Plan,
construe and interpret the Plan and Award agreements and correct defects, supply
omissions or reconcile  inconsistencies therein, and to make all other decisions
and determinations as the Committee or the Board may deem necessary or advisable
for the  administration of the Plan. In exercising any discretion granted to the
Committee or the Board under the Plan or pursuant to any Award, the Committee or
the  Board  shall not be  required  to follow  past  practices,  act in a manner
consistent  with  past  practices,  or treat  any  Eligible  Person  in a manner
consistent with the treatment of other Eligible Persons.

          (b) MANNER OF EXERCISE OF COMMITTEE  AUTHORITY.  In the event that the
Company is or becomes a Publicly Held  Corporation,  the Committee,  and not the
Board, shall exercise sole and exclusive  discretion on any matter relating to a
Participant  then  subject to Section 16 of the Exchange Act with respect to the
Company to the extent  necessary in order that  transactions by such Participant
shall be exempt  under  Rule 16b-3  under the  Exchange  Act.  Any action of the
Committee  or the Board shall be final,  conclusive  and binding on all persons,
including   the  Company,   its   subsidiaries,   Participants,   Beneficiaries,
transferees  under Section 10(b) hereof or other persons claiming rights from or
through a Participant, and stockholders. The express grant of any specific power
to the Committee or the Board,  and the taking of any action by the Committee or
the Board,  shall not be  construed  as limiting  any power or  authority of the
Committee or the Board.  The  Committee or the Board may delegate to officers or
managers of the Company or any subsidiary, or committees thereof, the authority,
subject to such terms as the  Committee  or the Board  shall  determine,  (i) to
perform administrative  functions, (ii) with respect to Participants not subject
to Section  16 of the  Exchange  Act,  to perform  such other  functions  as the
Committee or the Board may  determine,  and (iii) with  respect to  Participants
subject to Section 16, to perform such other  functions of the  Committee or the
Board as the Committee or the Board may determine to the extent  performance  of

                                       5
<PAGE>
such  functions  will not  result in the loss of an  exemption  under Rule 16b-3
otherwise available for transactions by such persons, in each case to the extent
permitted  under  applicable  law and subject to the  requirements  set forth in
Section  8(d).  The  Committee  or the Board may appoint  agents to assist it in
administering the Plan.

          (c)  LIMITATION  OF LIABILITY.  The Committee and the Board,  and each
member thereof, shall be entitled to, in good faith, rely or act upon any report
or other  information  furnished to him or her by any executive  officer,  other
officer or employee of the Company or a Subsidiary,  the  Company's  independent
auditors, consultants or any other agents assisting in the administration of the
Plan. Members of the Committee and the Board, and any officer or employee of the
Company or a subsidiary acting at the direction or on behalf of the Committee or
the Board, shall not be personally liable for any action or determination  taken
or made in good  faith  with  respect  to the Plan,  and  shall,  to the  extent
permitted by law, be fully indemnified and protected by the Company with respect
to any such action or determination.

     4. STOCK SUBJECT TO PLAN.

          (a) LIMITATION ON OVERALL NUMBER OF SHARES SUBJECT TO AWARDS.  Subject
to adjustment as provided in Section 10(c) hereof, the total number of shares of
Stock  reserved and available  for delivery in connection  with Awards under the
Plan shall be the sum of (i)  10,000,000,  plus (ii) the  number of shares  with
respect to Awards previously granted under the Plan that terminate without being
exercised,  expire, are forfeited or canceled, and the number of shares of Stock
that are surrendered in payment of any Awards or any tax withholding with regard
thereto.  Any shares of Stock delivered under the Plan may consist,  in whole or
in part,  of  authorized  and  unissued  shares or treasury  shares.  Subject to
adjustment as provided in Section 10(c) hereof,  in no event shall the aggregate
number of shares of Stock which may be issued pursuant to ISOs exceed  5,000,000
shares.

          (b)  APPLICATION OF LIMITATIONS.  The limitation  contained in Section
4(a) shall  apply not only to Awards  that are  settleable  by the  delivery  of
shares of Stock but also to Awards  relating  to shares of Stock but  settleable
only in cash (such as  cash-only  SARs).  The  Committee  or the Board may adopt
reasonable  counting  procedures to ensure  appropriate  counting,  avoid double
counting (as, for example,  in the case of tandem or substitute awards) and make
adjustments if the number of shares of Stock actually delivered differs from the
number of shares previously counted in connection with an Award.

     5. ELIGIBILITY;  PER-PERSON AWARD LIMITATIONS.  Awards may be granted under
the Plan only to Eligible Persons.  In each fiscal year during any part of which
the Plan is in effect,  an Eligible Person may not be granted Awards relating to
more than  5,000,000  shares of Stock,  subject to  adjustment  as  provided  in
Section 10(c),  under each of Sections 6(b), 6(c), 6(d), 6(e), 6(f), 6(g), 6(h),
8(b) and 8(c). In addition,  the maximum  amount that may be earned as an Annual
Incentive  Award or other cash Award in any fiscal  year by any one  Participant
shall be $2,000,000,  and the maximum amount that may be earned as a Performance
Award  or other  cash  Award  in  respect  of a  performance  period  by any one
Participant shall be $5,000,000.

                                       6
<PAGE>
     6. SPECIFIC TERMS OF AWARDS.

          (a)  GENERAL.  Awards may be granted on the terms and  conditions  set
forth in this Section 6. In addition,  the  Committee or the Board may impose on
any Award or the exercise thereof,  at the date of grant or thereafter  (subject
to Section 10(e)),  such additional terms and conditions,  not inconsistent with
the  provisions  of the Plan,  as the  Committee  or the Board shall  determine,
including  terms  requiring  forfeiture of Awards in the event of termination of
employment  by the  Participant  and  terms  permitting  a  Participant  to make
elections  relating to his or her Award. The Committee or the Board shall retain
full power and discretion to accelerate,  waive or modify, at any time, any term
or condition of an Award that is not mandatory  under the Plan.  Except in cases
in which the  Committee  or the Board is  authorized  to require  other forms of
consideration under the Plan, or to the extent other forms of consideration must
be paid to satisfy the requirements of Nevada law, no  consideration  other than
services may be required for the grant (but not the exercise) of any Award.

          (b) OPTIONS.  The  Committee and the Board each is authorized to grant
Options to Participants on the following terms and conditions:

               (i)  EXERCISE  PRICE.  The  exercise  price  per  share  of Stock
          purchasable  under an Option shall be  determined  by the Committee or
          the Board, provided that such exercise price shall not, in the case of
          Incentive Stock Options, be less than 100% of the Fair Market Value of
          the Stock on the date of grant of the  Option  and shall  not,  in any
          event,  be less  than the par value of a share of Stock on the date of
          grant of such  Option.  If an  employee  owns or is  deemed to own (by
          reason of the attribution rules applicable under Section 424(d) of the
          Code) more than 10% of the  combined  voting  power of all  classes of
          stock of the Company or any Parent  Corporation  or Subsidiary  and an
          Incentive  Stock Option is granted to such employee,  the option price
          of such Incentive  Stock Option (to the extent required by the Code at
          the time of grant) shall be no less than 110% of the Fair Market Value
          of the Stock on the date such Incentive Stock Option is granted.

               (ii) TIME AND  METHOD OF  EXERCISE.  The  Committee  or the Board
          shall determine the time or times at which or the circumstances  under
          which an Option may be exercised in whole or in part (including  based
          on   achievement   of   performance   goals  and/or   future   service
          requirements), the time or times at which Options shall cease to be or
          become exercisable  following  termination of employment or upon other
          conditions,  the methods by which such  exercise  price may be paid or
          deemed to be paid (including in the discretion of the Committee or the
          Board a  cashless  exercise  procedure),  the  form  of such  payment,
          including,  without  limitation,  cash, Stock,  other Awards or awards
          granted under other plans of the Company or any  subsidiary,  or other
          property   (including  notes  or  other  contractual   obligations  of
          Participants to make payment on a deferred basis),  and the methods by
          or forms in which Stock will be delivered or deemed to be delivered to
          Participants.

               (iii)  ISOS.  The terms of any ISO  granted  under the Plan shall
          comply in all respects with the provisions of Section 422 of the Code.
          Anything in the Plan to the contrary  notwithstanding,  no term of the

                                       7
<PAGE>
          Plan relating to ISOs (including any SAR in tandem therewith) shall be
          interpreted, amended or altered, nor shall any discretion or authority
          granted  under the Plan be exercised,  so as to disqualify  either the
          Plan or any ISO under Section 422 of the Code,  unless the Participant
          has  first   requested   the   change   that   will   result  in  such
          disqualification.  Thus, if and to the extent  required to comply with
          Section 422 of the Code,  Options  granted as Incentive  Stock Options
          shall be subject to the following special terms and conditions:

                    (A) the Option shall not be exercisable  more than ten years
          after the date such  Incentive  Stock  Option  is  granted;  provided,
          however,  that if a Participant owns or is deemed to own (by reason of
          the attribution  rules of Section 424(d) of the Code) more than 10% of
          the  combined  voting  power of all classes of stock of the Company or
          any Parent  Corporation  and the Incentive  Stock Option is granted to
          such Participant,  the term of the Incentive Stock Option shall be (to
          the extent  required by the Code at the time of the grant) for no more
          than five years from the date of grant; and

                    (B) The aggregate  Fair Market Value  (determined  as of the
          date the  Incentive  Stock  Option is  granted) of the shares of stock
          with respect to which  Incentive  Stock Options granted under the Plan
          and all other  option  plans of the Company or its Parent  Corporation
          during  any  calendar  year  exercisable  for  the  first  time by the
          Participant during any calendar year shall not (to the extent required
          by the Code at the time of the grant) exceed $100,000.

               (iv)  REPURCHASE  RIGHTS.  The Committee and the Board shall have
          the  discretion to grant Options  which are  exercisable  for unvested
          shares of Common Stock.  Should the Optionee cease to be employed with
          or  perform  services  to the  Company  (or a  Parent  Corporation  or
          Subsidiary) while holding such unvested shares, the Company shall have
          the right to repurchase,  at the exercise price paid per share, any or
          all of those  unvested  shares.  The terms upon which such  repurchase
          right shall be  exercisable  (including  the period and  procedure for
          exercise  and the  appropriate  vesting  schedule  for  the  purchased
          shares)  shall be  established  by the  Committee or the Board and set
          forth in the document evidencing such repurchase right.

          (c) STOCK  APPRECIATION  RIGHTS.  The  Committee and the Board each is
authorized to grant SARs to Participants on the following terms and conditions:

               (i) RIGHT TO PAYMENT.  A SAR shall confer on the  Participant  to
          whom it is granted a right to  receive,  upon  exercise  thereof,  the
          excess of (A) the Fair Market  Value of one share of stock on the date
          of exercise  (or, in the case of a "Limited SAR" that may be exercised
          only in the  event of a Change  in  Control,  the  Fair  Market  Value
          determined  by  reference to the Change in Control  Price,  as defined
          under  Section  9(c)  hereof),  over (B) the grant price of the SAR as
          determined  by the  Committee or the Board.  The grant price of an SAR
          shall  not be less than the Fair  Market  Value of a share of Stock on
          the date of grant except as provided under Section 7(a) hereof.

                                       8
<PAGE>
               (ii) OTHER TERMS.  The Committee or the Board shall  determine at
          the date of grant or  thereafter,  the time or times at which  and the
          circumstances  under which a SAR may be  exercised in whole or in part
          (including  based on achievement  of  performance  goals and/or future
          service requirements),  the time or times at which SARs shall cease to
          be or become exercisable  following  termination of employment or upon
          other conditions,  the method of exercise, method of settlement,  form
          of  consideration  payable in settlement,  method by or forms in which
          Stock will be delivered  or deemed to be  delivered  to  Participants,
          whether  or not a SAR shall be in tandem  or in  combination  with any
          other Award,  and any other terms and  conditions of any SAR.  Limited
          SARs that may only be exercised in connection with a Change in Control
          or other event as  specified  by the  Committee  or the Board,  may be
          granted on such terms, not inconsistent with this Section 6(c), as the
          Committee  or the Board may  determine.  SARs and Limited  SARs may be
          either freestanding or in tandem with other Awards.

          (d) RESTRICTED  STOCK.  The Committee and the Board each is authorized
to grant Restricted Stock to Participants on the following terms and conditions:

               (i) GRANT AND RESTRICTIONS.  Restricted Stock shall be subject to
          such  restrictions  on  transferability,  risk of forfeiture and other
          restrictions,  if any, as the Committee or the Board may impose, which
          restrictions  may lapse  separately or in  combination  at such times,
          under  such   circumstances   (including   based  on   achievement  of
          performance  goals  and/or  future  service  requirements),   in  such
          installments or otherwise, as the Committee or the Board may determine
          at the date of grant or  thereafter.  Except to the extent  restricted
          under the terms of the Plan and any Award  agreement  relating  to the
          Restricted  Stock, a Participant  granted  Restricted Stock shall have
          all of the rights of a  stockholder,  including  the right to vote the
          Restricted Stock and the right to receive  dividends  thereon (subject
          to any  mandatory  reinvestment  or other  requirement  imposed by the
          Committee or the Board).  During the restricted  period  applicable to
          the Restricted  Stock,  subject to Section 10(b) below, the Restricted
          Stock may not be sold, transferred, pledged, hypothecated, margined or
          otherwise encumbered by the Participant.

               (ii) FORFEITURE.  Except as otherwise determined by the Committee
          or the  Board  at  the  time  of  the  Award,  upon  termination  of a
          Participant's employment during the applicable restriction period, the
          Participant's  Restricted  Stock  that  is at  that  time  subject  to
          restrictions  shall  be  forfeited  and  reacquired  by  the  Company;
          provided  that the  Committee  or the  Board may  provide,  by rule or
          regulation  or in  any  Award  agreement,  or  may  determine  in  any
          individual case, that restrictions or forfeiture  conditions  relating
          to  Restricted  Stock shall be waived in whole or in part in the event

                                       9
<PAGE>
          of terminations  resulting from specified causes, and the Committee or
          the Board may in other cases waive in whole or in part the  forfeiture
          of Restricted Stock.

               (iii) CERTIFICATES FOR STOCK.  Restricted Stock granted under the
          Plan may be  evidenced  in such manner as the  Committee  or the Board
          shall  determine.  If certificates  representing  Restricted Stock are
          registered in the name of the Participant,  the Committee or the Board
          may  require  that  such  certificates  bear  an  appropriate   legend
          referring to the terms, conditions and restrictions applicable to such
          Restricted Stock,  that the Company retain physical  possession of the
          certificates,  and that the  Participant  deliver a stock power to the
          Company, endorsed in blank, relating to the Restricted Stock.

               (iv)  DIVIDENDS  AND SPLITS.  As a  condition  to the grant of an
          Award of Restricted Stock, the Committee or the Board may require that
          any  cash   dividends   paid  on  a  share  of  Restricted   Stock  be
          automatically  reinvested in additional  shares of Restricted Stock or
          applied to the purchase of  additional  Awards under the Plan.  Unless
          otherwise  determined by the Committee or the Board, Stock distributed
          in connection with a Stock split or Stock dividend, and other property
          distributed as a dividend, shall be subject to restrictions and a risk
          of forfeiture to the same extent as the Restricted  Stock with respect
          to which such Stock or other property has been distributed.

          (e) DEFERRED STOCK.  The Committee and the Board each is authorized to
grant Deferred Stock to Participants,  which are rights to receive Stock,  cash,
or a combination  thereof at the end of a specified deferral period,  subject to
the following terms and conditions:

               (i) AWARD AND RESTRICTIONS.  Satisfaction of an Award of Deferred
          Stock shall occur upon expiration of the deferral period specified for
          such Deferred Stock by the Committee or the Board (or, if permitted by
          the  Committee  or the  Board,  as  elected  by the  Participant).  In
          addition,  Deferred Stock shall be subject to such restrictions (which
          may include a risk of  forfeiture)  as the  Committee or the Board may
          impose, if any, which  restrictions may lapse at the expiration of the
          deferral  period or at earlier  specified  times  (including  based on
          achievement of performance goals and/or future service  requirements),
          separately or in combination,  in  installments  or otherwise,  as the
          Committee or the Board may determine.  Deferred Stock may be satisfied
          by  delivery  of Stock,  cash  equal to the Fair  Market  Value of the
          specified  number of shares of Stock covered by the Deferred Stock, or
          a combination  thereof, as determined by the Committee or the Board at
          the date of grant or thereafter.  Prior to satisfaction of an Award of
          Deferred  Stock,  an Award of  Deferred  Stock  carries  no  voting or
          dividend or other rights associated with share ownership.

               (ii) FORFEITURE.  Except as otherwise determined by the Committee
          or the Board,  upon termination of a Participant's  employment  during
          the applicable deferral period thereof to which forfeiture  conditions
          apply (as  provided in the Award  agreement  evidencing  the  Deferred
          Stock), the Participant's  Deferred Stock that is at that time subject
          to deferral (other than a deferral at the election of the Participant)
          shall be  forfeited;  provided  that the  Committee  or the  Board may

                                       10
<PAGE>
          provide,  by rule or  regulation  or in any  Award  agreement,  or may
          determine in any  individual  case,  that  restrictions  or forfeiture
          conditions  relating to Deferred  Stock shall be waived in whole or in
          part in the event of terminations resulting from specified causes, and
          the  Committee  or the Board may in other  cases  waive in whole or in
          part the forfeiture of Deferred Stock.

               (iii) DIVIDEND  EQUIVALENTS.  Unless otherwise  determined by the
          Committee or the Board at date of grant,  Dividend  Equivalents on the
          specified  number of shares of Stock  covered by an Award of  Deferred
          Stock shall be either (A) paid with respect to such Deferred  Stock at
          the dividend  payment date in cash or in shares of unrestricted  Stock
          having a Fair Market Value equal to the amount of such  dividends,  or
          (B)  deferred  with respect to such  Deferred  Stock and the amount or
          value thereof  automatically  deemed reinvested in additional Deferred
          Stock, other Awards or other investment vehicles,  as the Committee or
          the Board shall determine or permit the Participant to elect.

          (f) BONUS STOCK AND AWARDS IN LIEU OF  OBLIGATIONS.  The Committee and
the Board each is  authorized  to grant  Stock as a bonus,  or to grant Stock or
other  Awards  in lieu of  Company  obligations  to pay  cash or  deliver  other
property  under  the Plan or under  other  plans or  compensatory  arrangements,
provided that, in the case of Participants subject to Section 16 of the Exchange
Act, the amount of such grants remains within the discretion of the Committee to
the extent  necessary to ensure that  acquisitions  of Stock or other Awards are
exempt from  liability  under Section 16(b) of the Exchange Act. Stock or Awards
granted hereunder shall be subject to such other terms as shall be determined by
the Committee or the Board.

          (g)  DIVIDEND  EQUIVALENTS.  The  Committee  and  the  Board  each  is
authorized  to  grant  Dividend  Equivalents  to  a  Participant  entitling  the
Participant  to receive cash,  Stock,  other Awards,  or other property equal in
value to dividends  paid with respect to a specified  number of shares of Stock,
or  other  periodic  payments.   Dividend   Equivalents  may  be  awarded  on  a
freestanding  basis or in connection  with another  Award.  The Committee or the
Board may provide that Dividend  Equivalents  shall be paid or distributed  when
accrued or shall be deemed to have been reinvested in additional Stock,  Awards,
or  other   investment   vehicles,   and   subject  to  such   restrictions   on
transferability  and  risks of  forfeiture,  as the  Committee  or the Board may
specify.

          (h) OTHER  STOCK-BASED  AWARDS.  The  Committee  and the Board each is
authorized,   subject  to  limitations   under   applicable  law,  to  grant  to
Participants  such other Awards that may be denominated or payable in, valued in
whole or in part by reference  to, or otherwise  based on, or related to, Stock,
as deemed by the  Committee or the Board to be  consistent  with the purposes of
the Plan,  including,  without  limitation,  convertible  or  exchangeable  debt
securities, other rights convertible or exchangeable into Stock, purchase rights
for Stock,  Awards with value and payment  contingent  upon  performance  of the
Company or any other  factors  designated  by the  Committee  or the Board,  and
Awards valued by reference to the book value of Stock or the value of securities
of or the performance of specified subsidiaries or business units. The Committee
or the Board shall  determine  the terms and  conditions  of such Awards.  Stock

                                       11
<PAGE>
delivered  pursuant to an Award in the nature of a purchase  right granted under
this Section 6(h) shall be purchased for such  consideration  (including without
limitation loans from the Company or a Parent Corporation or a Subsidiary), paid
for at such  times,  by such  methods,  and in such  forms,  including,  without
limitation, cash, Stock, other Awards or other property, as the Committee or the
Board shall determine.  The Committee and the Board shall have the discretion to
grant such other Awards  which are  exercisable  for  unvested  shares of Common
Stock.  Should the Optionee cease to be employed with or perform services to the
Company (or a Parent  Corporation  or  Subsidiary)  while  holding such unvested
shares,  the Company shall have the right to  repurchase,  at the exercise price
paid per share, any or all of those unvested  shares.  The terms upon which such
repurchase  right shall be  exercisable  (including the period and procedure for
exercise and the appropriate vesting schedule for the purchased shares) shall be
established  by the  Committee  or the  Board  and  set  forth  in the  document
evidencing such repurchase right. Cash awards, as an element of or supplement to
any other Award  under the Plan,  may also be granted  pursuant to this  Section
6(h).

     7. CERTAIN PROVISIONS APPLICABLE TO AWARDS.

          (a) STAND-ALONE,  ADDITIONAL,  TANDEM, AND SUBSTITUTE  AWARDS.  Awards
granted under the Plan may, in the discretion of the Committee or the Board,  be
granted  either alone or in addition to, in tandem with, or in  substitution  or
exchange  for, any other Award or any award  granted  under  another plan of the
Company, any subsidiary, or any business entity to be acquired by the Company or
a subsidiary,  or any other right of a Participant  to receive  payment from the
Company or any subsidiary.  Such additional,  tandem, and substitute or exchange
Awards  may be granted at any time.  If an Award is granted in  substitution  or
exchange for another  Award or award,  the  Committee or the Board shall require
the surrender of such other Award or award in consideration for the grant of the
new Award.  In  addition,  Awards  may be granted in lieu of cash  compensation,
including  in lieu of cash amounts  payable  under other plans of the Company or
any  subsidiary,  in which the value of Stock subject to the Award is equivalent
in value to the cash  compensation  (for example,  Deferred  Stock or Restricted
Stock),  or in which the exercise  price,  grant price or purchase  price of the
Award in the nature of a right that may be exercised is equal to the Fair Market
Value  of  the  underlying  Stock  minus  the  value  of the  cash  compensation
surrendered (for example, Options granted with an exercise price "discounted" by
the amount of the cash compensation surrendered).

          (b) TERM OF AWARDS. The term of each Award shall be for such period as
may be determined by the Committee or the Board; provided that in no event shall
the term of any Option or SAR exceed a period of ten years (or such shorter term
as may be required in respect of an ISO under Section 422 of the Code).

          (c) FORM AND TIMING OF PAYMENT UNDER AWARDS; DEFERRALS. Subject to the
terms of the Plan and any applicable Award agreement, payments to be made by the
Company  or a  subsidiary  upon the  exercise  of an  Option  or other  Award or
settlement  of an Award may be made in such forms as the  Committee or the Board
shall  determine,  including,  without  limitation,  cash, other Awards or other
property,  and may be made in a single payment or transfer, in installments,  or
on a deferred basis.  The settlement of any Award may be  accelerated,  and cash
paid in lieu of Stock in connection with such  settlement,  in the discretion of
the Committee or the Board or upon  occurrence of one or more  specified  events

                                       12
<PAGE>
(in addition to a Change in Control).  Installment  or deferred  payments may be
required by the Committee or the Board (subject to Section 10(e) of the Plan) or
permitted at the election of the Participant on terms and conditions established
by the  Committee  or the  Board.  Payments  may  include,  without  limitation,
provisions  for the  payment  or  crediting  of a  reasonable  interest  rate on
installment  or  deferred  payments  or  the  grant  or  crediting  of  Dividend
Equivalents  or other  amounts in respect of  installment  or deferred  payments
denominated in Stock.

          (d) EXEMPTIONS FROM SECTION 16(B) LIABILITY. If and to the extent that
the Company is or becomes a Publicly Held  Corporation,  it is the intent of the
Company that this Plan comply in all respects with applicable provisions of Rule
16b-3 or Rule  16a-1(c)(3)  to the extent  necessary  to ensure that neither the
grant of any Awards to nor other  transaction by a Participant who is subject to
Section 16 of the  Exchange  Act is subject to  liability  under  Section  16(b)
thereof  (except for  transactions  acknowledged  in writing to be non-exempt by
such  Participant).  Accordingly,  if any  provision  of this  Plan or any Award
agreement  does  not  comply  with  the  requirements  of  Rule  16b-3  or  Rule
16a-1(c)(3) as then applicable to any such  transaction,  such provision will be
construed or deemed amended to the extent necessary to conform to the applicable
requirements of Rule 16b-3 or Rule  16a-1(c)(3) so that such  Participant  shall
avoid  liability  under Section  16(b).  In addition,  the purchase price of any
Award  conferring a right to purchase Stock shall be not less than any specified
percentage  of the Fair Market  Value of Stock at the date of grant of the Award
then required in order to comply with Rule 16b-3.

     8. PERFORMANCE AND ANNUAL INCENTIVE AWARDS.

          (a) PERFORMANCE CONDITIONS.  The right of a Participant to exercise or
receive a grant or  settlement  of any  Award,  and the timing  thereof,  may be
subject to such  performance  conditions as may be specified by the Committee or
the Board.  The Committee or the Board may use such business  criteria and other
measures  of  performance  as  it  may  deem  appropriate  in  establishing  any
performance  conditions,  and may exercise its  discretion to reduce the amounts
payable under any Award  subject to  performance  conditions,  except as limited
under Sections 8(b) and 8(c) hereof in the case of a Performance Award or Annual
Incentive Award intended to qualify under Code Section 162(m).  At such times as
the Company is a Publicly Held Corporation,  if and to the extent required under
Code Section 162(m),  any power or authority  relating to a Performance Award or
Annual  Incentive Award intended to qualify under Code Section 162(m),  shall be
exercised by the Committee and not the Board.

          (b) PERFORMANCE AWARDS GRANTED TO DESIGNATED COVERED EMPLOYEES. If and
to the extent  that the  Committee  determines  that a  Performance  Award to be
granted to an Eligible Person who is designated by the Committee as likely to be
a Covered  Employee  should  qualify  as  "performance-based  compensation"  for
purposes of Code Section 162(m),  the grant,  exercise and/or settlement of such
Performance  Award  shall  be  contingent  upon  achievement  of  preestablished
performance goals and other terms set forth in this Section 8(b).

               (i) PERFORMANCE  GOALS GENERALLY.  The performance goals for such
          Performance  Awards shall consist of one or more business criteria and
          a targeted level or levels of performance with respect to each of such
          criteria,  as specified by the Committee  consistent with this Section
          8(b).  Performance  goals shall be objective and shall  otherwise meet

                                       13
<PAGE>
          the  requirements  of Code Section 162(m) and  regulations  thereunder
          including  the  requirement  that the level or  levels of  performance
          targeted by the Committee  result in the  achievement  of  performance
          goals being  "substantially  uncertain."  The  Committee may determine
          that  such  Performance  Awards  shall be  granted,  exercised  and/or
          settled upon  achievement of any one  performance  goal or that two or
          more of the  performance  goals must be  achieved  as a  condition  to
          grant,   exercise  and/or  settlement  of  such  Performance   Awards.
          Performance goals may differ for Performance Awards granted to any one
          Participant or to different Participants.

               (ii) BUSINESS  CRITERIA.  One or more of the  following  business
          criteria for the Company,  on a consolidated  basis,  and/or specified
          subsidiaries  or business units of the Company (except with respect to
          the total stockholder  return and earnings per share criteria),  shall
          be used exclusively by the Committee in establishing performance goals
          for such Performance  Awards:  (1) total stockholder  return; (2) such
          total stockholder  return as compared to total return (on a comparable
          basis) of a publicly  available index such as, but not limited to, the
          Standard & Poor's 500 Stock Index or the S&P Specialty Retailer Index;
          (3) net income;  (4) pretax  earnings;  (5) earnings  before  interest
          expense,  taxes,  depreciation and amortization;  (6) pretax operating
          earnings after interest expense and before bonuses,  service fees, and
          extraordinary or special items; (7) operating margin; (8) earnings per
          share;  (9) return on equity;  (10) return on capital;  (11) return on
          investment;   (12)  operating   earnings;   (13)  working  capital  or
          inventory; and (14) ratio of debt to stockholders' equity. One or more
          of the foregoing  business  criteria shall also be exclusively used in
          establishing  performance goals for Annual Incentive Awards granted to
          a Covered  Employee  under  Section  8(c) hereof that are  intended to
          qualify as "performanced-based compensation under Code Section 162(m).

               (iii)  PERFORMANCE  PERIOD;  TIMING FOR ESTABLISHING  PERFORMANCE
          GOALS. Achievement of performance goals in respect of such Performance
          Awards shall be measured over a performance period of up to ten years,
          as specified by the Committee.  Performance goals shall be established
          not later than 90 days after the beginning of any  performance  period
          applicable to such Performance Awards, or at such other date as may be
          required or permitted for "performance-based  compensation" under Code
          Section 162(m).

               (iv)  PERFORMANCE  AWARD  POOL.  The  Committee  may  establish a
          Performance  Award pool, which shall be an unfunded pool, for purposes
          of  measuring  Company  performance  in  connection  with  Performance
          Awards.  The amount of such Performance Award pool shall be based upon
          the achievement of a performance goal or goals based on one or more of
          the business  criteria set forth in Section 8(b)(ii) hereof during the
          given performance  period, as specified by the Committee in accordance
          with Section 8(b)(iii) hereof. The Committee may specify the amount of
          the  Performance  Award pool as a percentage  of any of such  business

                                       14
<PAGE>
          criteria,  a percentage thereof in excess of a threshold amount, or as
          another   amount   which  need  not  bear  a   strictly   mathematical
          relationship to such business criteria.

               (v) SETTLEMENT OF PERFORMANCE AWARDS; OTHER TERMS.  Settlement of
          such Performance Awards shall be in cash, Stock, other Awards or other
          property,  in the discretion of the  Committee.  The Committee may, in
          its discretion, reduce the amount of a settlement otherwise to be made
          in  connection  with such  Performance  Awards.  The  Committee  shall
          specify the  circumstances in which such  Performance  Awards shall be
          paid or forfeited in the event of  termination  of  employment  by the
          Participant prior to the end of a performance  period or settlement of
          Performance Awards.

          (c) ANNUAL INCENTIVE AWARDS GRANTED TO DESIGNATED  COVERED  EMPLOYEES.
The Committee may,  within its  discretion,  grant one or more Annual  Incentive
Awards to any Eligible Person,  subject to the terms and conditions set forth in
this Section 8(c).

               (i) ANNUAL  INCENTIVE  AWARD POOL. The Committee may establish an
          Annual  Incentive  Award pool,  which shall be an unfunded  pool,  for
          purposes of measuring  Company  performance in connection  with Annual
          Incentive  Awards.  In the case of Annual Incentive Awards intended to
          qualify  as  "performance-based  compensation"  for  purposes  of Code
          Section 162(m),  the amount of such Annual  Incentive Award pool shall
          be based upon the achievement of a performance  goal or goals based on
          one or more of the  business  criteria  set forth in Section  8(b)(ii)
          hereof  during  the given  performance  period,  as  specified  by the
          Committee in accordance with Section 8(b)(iii)  hereof.  The Committee
          may  specify  the  amount  of the  Annual  Incentive  Award  pool as a
          percentage  of any such  business  criteria,  a percentage  thereof in
          excess of a threshold amount, or as another amount which need not bear
          a strictly mathematical relationship to such business criteria.

               (ii) POTENTIAL ANNUAL INCENTIVE AWARDS. Not later than the end of
          the 90th day of each  fiscal  year,  or at such  other  date as may be
          required  or  permitted   in  the  case  of  Awards   intended  to  be
          "performance-based   compensation"  under  Code  Section  162(m),  the
          Committee  shall determine the Eligible  Persons who will  potentially
          receive Annual Incentive Awards, and the amounts  potentially  payable
          thereunder,  for that fiscal year,  either out of an Annual  Incentive
          Award pool established by such date under Section 8(c)(i) hereof or as
          individual  Annual Incentive  Awards. In the case of individual Annual
          Incentive  Awards intended to qualify under Code Section  162(m),  the
          amount  potentially  payable shall be based upon the  achievement of a
          performance  goal  or  goals  based  on one or  more  of the  business
          criteria set forth in Section 8(b)(ii) hereof in the given performance
          year, as specified by the Committee; in other cases, such amount shall
          be based on such criteria as shall be established by the Committee. In
          all cases, the maximum Annual Incentive Award of any Participant shall
          be subject to the limitation set forth in Section 5 hereof.

                                       15
<PAGE>
               (iii) PAYOUT OF ANNUAL  INCENTIVE  AWARDS.  After the end of each
          fiscal year, the Committee shall determine the amount,  if any, of (A)
          the Annual  Incentive  Award pool, and the maximum amount of potential
          Annual  Incentive  Award  payable  to each  Participant  in the Annual
          Incentive Award pool, or (B) the amount of potential  Annual Incentive
          Award otherwise payable to each Participant. The Committee may, in its
          discretion, determine that the amount payable to any Participant as an
          Annual  Incentive Award shall be reduced from the amount of his or her
          potential Annual Incentive Award, including a determination to make no
          Award  whatsoever.  The Committee shall specify the  circumstances  in
          which an Annual  Incentive  Award  shall be paid or  forfeited  in the
          event of termination of employment by the Participant prior to the end
          of a fiscal year or settlement of such Annual Incentive Award.

          (d) WRITTEN DETERMINATIONS.  All determinations by the Committee as to
the establishment of performance goals, the amount of any Performance Award pool
or  potential  individual  Performance  Awards  and  as to  the  achievement  of
performance  goals  relating to  Performance  Awards under Section 8(b), and the
amount  of any  Annual  Incentive  Award  pool or  potential  individual  Annual
Incentive  Awards and the amount of final Annual  Incentive Awards under Section
8(c),  shall be made in  writing  in the case of any Award  intended  to qualify
under Code Section  162(m).  The Committee  may not delegate any  responsibility
relating to such  Performance  Awards or Annual  Incentive  Awards if and to the
extent required to comply with Code Section 162(m).

          (e) STATUS OF SECTION  8(B) AND SECTION 8(C) AWARDS UNDER CODE SECTION
162(M).  It is the  intent of the  Company  that  Performance  Awards and Annual
Incentive  Awards under Section 8(b) and 8(c) hereof  granted to persons who are
designated by the Committee as likely to be Covered Employees within the meaning
of Code Section 162(m) and regulations thereunder shall, if so designated by the
Committee,  constitute  "qualified  performance-based  compensation"  within the
meaning of Code Section  162(m) and  regulations  thereunder.  Accordingly,  the
terms of Sections 8(b),  (c), (d) and (e),  including the definitions of Covered
Employee  and  other  terms  used  therein,  shall  be  interpreted  in a manner
consistent  with Code Section 162(m) and regulations  thereunder.  The foregoing
notwithstanding, because the Committee cannot determine with certainty whether a
given  Participant will be a Covered Employee with respect to a fiscal year that
has not yet been completed,  the term Covered Employee as used herein shall mean
only a person  designated by the Committee,  at the time of grant of Performance
Awards or an Annual  Incentive  Award,  as likely to be a Covered  Employee with
respect to that  fiscal  year.  If any  provision  of the Plan or any  agreement
relating to such  Performance  Awards or Annual Incentive Awards does not comply
or is inconsistent  with the  requirements of Code Section 162(m) or regulations
thereunder,  such  provision  shall be construed or deemed amended to the extent
necessary to conform to such requirements.

     9. CHANGE IN CONTROL.

          (a) EFFECT OF "CHANGE IN  CONTROL."  If and to the extent  provided in
the Award, in the event of a "Change in Control," as defined in Section 9(b):

                                       16
<PAGE>
               (i) The Committee  may,  within its  discretion,  accelerate  the
          vesting and  exercisability  of any Award carrying a right to exercise
          that was not previously  vested and  exercisable as of the time of the
          Change in Control,  subject to  applicable  restrictions  set forth in
          Section 10(a) hereof;

               (ii) The Committee  may,  within its  discretion,  accelerate the
          exercisability  of any limited  SARs (and other SARs if so provided by
          their terms) and provide for the  settlement of such SARs for amounts,
          in cash, determined by reference to the Change in Control Price;

               (iii)  The  Committee  may,  within  its  discretion,  lapse  the
          restrictions,   deferral  of  settlement,  and  forfeiture  conditions
          applicable  to any other Award  granted under the Plan and such Awards
          may be deemed  fully  vested as of the time of the Change in  Control,
          except to the extent of any waiver by the  Participant  and subject to
          applicable restrictions set forth in Section 10(a) hereof; and

               (iv)  With  respect  to any such  outstanding  Award  subject  to
          achievement  of performance  goals and conditions  under the Plan, the
          Committee may, within its discretion,  deem such performance goals and
          other  conditions  as having  been met as of the date of the Change in
          Control.

          (b)  DEFINITION OF "CHANGE IN CONTROL." A "Change in Control" shall be
deemed to have occurred upon:

               (i)   Approval   by  the   shareholders   of  the  Company  of  a
          reorganization,  merger,  consolidation  or  other  form of  corporate
          transaction or series of  transactions,  in each case, with respect to
          which  persons who were the  shareholders  of the Company  immediately
          prior  to  such  reorganization,  merger  or  consolidation  or  other
          transaction do not, immediately  thereafter,  own more than 50% of the
          combined  voting power  entitled to vote  generally in the election of
          directors of the  reorganized,  merged or consolidated  company's then
          outstanding voting securities,  or a liquidation or dissolution of the
          Company or the sale of all or  substantially  all of the assets of the
          Company (unless such  reorganization,  merger,  consolidation or other
          corporate  transaction,  liquidation,  dissolution  or sale  (any such
          event being referred to as a "Corporate  Transaction") is subsequently
          abandoned);

               (ii)  Individuals  who,  as of the  date on  which  the  Award is
          granted,  constitute the Board (the  "Incumbent  Board") cease for any
          reason to constitute  at least a majority of the Board,  provided that
          any person  becoming a  director  subsequent  to the date on which the
          Award was granted whose  election,  or nomination  for election by the
          Company's shareholders,  was approved by a vote of at least a majority
          of the directors then  comprising  the Incumbent  Board (other than an
          election or nomination of an  individual  whose initial  assumption of
          office is in connection with an actual or threatened  election contest
          relating to the  election of the  Directors  of the  Company,  as such

                                       17
<PAGE>
          terms are used in Rule 14a-1 of Regulation 14A  promulgated  under the
          Securities  Exchange  Act) shall be, for  purposes of this  Agreement,
          considered as though such person were a member of the Incumbent Board;
          or

               (iii)  the  acquisition  (other  than  from the  Company)  by any
          person,  entity or "group",  within the meaning of Section 13(d)(3) or
          14(d)(2) of the  Securities  Exchange  Act, of more than 50% of either
          the then  outstanding  shares  of the  Company's  Common  Stock or the
          combined  voting  power  of  the  Company's  then  outstanding  voting
          securities  entitled to vote  generally  in the  election of directors
          (hereinafter referred to as the ownership of a "Controlling Interest")
          excluding,  for this purpose,  any  acquisitions by (1) the Company or
          its  Subsidiaries,  (2) any person,  entity or "group"  that as of the
          date on which the Award is granted owns beneficial  ownership  (within
          the meaning of Rule 13d-3  promulgated  under the Securities  Exchange
          Act) of a Controlling Interest or (3) any employee benefit plan of the
          Company or its Subsidiaries.

          (c)  DEFINITION  OF "CHANGE IN CONTROL  PRICE." The "Change in Control
Price" means an amount in cash equal to the higher of (i) the amount of cash and
fair  market  value  of  property  that is the  highest  price  per  share  paid
(including  extraordinary dividends) in any Corporate Transaction triggering the
Change in Control  under Section  9(b)(i)  hereof or any  liquidation  of shares
following a sale of substantially all of the assets of the Company,  or (ii) the
highest  Fair  Market  Value  per share at any time  during  the  60-day  period
preceding and the 60-day period following the Change in Control.

     10. GENERAL PROVISIONS.

          (a) COMPLIANCE WITH LEGAL AND OTHER REQUIREMENTS.  The Company may, to
the extent deemed necessary or advisable by the Committee or the Board, postpone
the issuance or delivery of Stock or payment of other  benefits  under any Award
until  completion of such  registration or  qualification of such Stock or other
required  action under any federal or state law, rule or regulation,  listing or
other required action with respect to any stock exchange or automated  quotation
system upon which the Stock or other Company securities are listed or quoted, or
compliance  with any other  obligation  of the Company,  as the Committee or the
Board,  may consider  appropriate,  and may require any Participant to make such
representations,  furnish such information and comply with or be subject to such
other conditions as it may consider  appropriate in connection with the issuance
or delivery of Stock or payment of other benefits in compliance  with applicable
laws, rules, and regulations,  listing requirements,  or other obligations.  The
foregoing  notwithstanding,  in connection with a Change in Control, the Company
shall  take or cause to be taken no  action,  and shall  undertake  or permit to
arise no legal or  contractual  obligation,  that results or would result in any
postponement  of the issuance or delivery of Stock or payment of benefits  under
any Award or the imposition of any other  conditions on such issuance,  delivery
or  payment,  to the extent  that such  postponement  or other  condition  would
represent  a  greater  burden  on a  Participant  than  existed  on the 90th day
preceding the Change in Control.

          (b) LIMITS ON TRANSFERABILITY;  BENEFICIARIES. No Award or other right
or interest of a Participant under the Plan,  including any Award or right which
constitutes a derivative security as generally defined in Rule 16al(c) under the

                                       18
<PAGE>
Exchange Act, shall be pledged,  hypothecated or otherwise encumbered or subject
to any lien,  obligation  or liability of such  Participant  to any party (other
than  the  Company  or  a  Subsidiary),  or  assigned  or  transferred  by  such
Participant otherwise than by will or the laws of descent and distribution or to
a Beneficiary  upon the death of a  Participant,  and such Awards or rights that
may be  exercisable  shall be exercised  during the lifetime of the  Participant
only by the Participant or his or her guardian or legal  representative,  except
that Awards and other rights (other than ISOs and SARs in tandem  therewith) may
be  transferred to one or more  Beneficiaries  or other  transferees  during the
lifetime  of the  Participant,  and  may be  exercised  by such  transferees  in
accordance  with the terms of such  Award,  but only if and to the  extent  such
transfers and exercises are permitted by the Committee or the Board  pursuant to
the express  terms of an Award  agreement  (subject to any terms and  conditions
which the Committee or the Board may impose thereon,  and further subject to any
prohibitions  or  restrictions  on such  transfers  pursuant to Rule  16b-3).  A
Beneficiary, transferee, or other person claiming any rights under the Plan from
or through any  Participant  shall be subject to all terms and conditions of the
Plan and any Award agreement applicable to such Participant, except as otherwise
determined  by the  Committee  or the  Board,  and to any  additional  terms and
conditions deemed necessary or appropriate by the Committee or the Board.

          (c) ADJUSTMENTS.

               (i)  ADJUSTMENTS  TO AWARDS.  In the event that any  dividend  or
          other  distribution  (whether  in the  form of cash,  Stock,  or other
          property), recapitalization, forward or reverse split, reorganization,
          merger,  consolidation,   spin-off,  combination,   repurchase,  share
          exchange,   liquidation,   dissolution  or  other  similar   corporate
          transaction or event affects the Stock and/or such other securities of
          the Company or any other issuer such that a substitution, exchange, or
          adjustment  is  determined  by  the  Committee  or  the  Board  to  be
          appropriate,  then the Committee or the Board shall, in such manner as
          it may deem  equitable,  substitute,  exchange or adjust any or all of
          (A) the number and kind of shares of Stock which may be  delivered  in
          connection with Awards granted thereafter,  (B) the number and kind of
          shares  of Stock by which  annual  per-person  Award  limitations  are
          measured under Section 5 hereof,  (C) the number and kind of shares of
          Stock subject to or deliverable in respect of outstanding  Awards, (D)
          the  exercise  price,  grant price or purchase  price  relating to any
          Award and/or make  provision for payment of cash or other  property in
          respect  of any  outstanding  Award,  and (E) any other  aspect of any
          Award that the Committee or Board determines to be appropriate.

               (ii) ADJUSTMENTS IN CASE OF CERTAIN  CORPORATE  TRANSACTIONS.  In
          the  event  of a  proposed  sale  of all or  substantially  all of the
          Company's  assets or any  reorganization,  merger,  consolidation,  or
          other form of  corporate  transaction  in which the  Company  does not
          survive,  or in  which  the  shares  of  Stock  are  exchanged  for or
          converted into securities issued by another entity, then the successor
          or acquiring  entity or an affiliate  thereof may, with the consent of
          the  Committee  or  the  Board,  assume  each  outstanding  Option  or
          substitute  an  equivalent  option  or  right.  If  the  successor  or
          acquiring  entity or an  affiliate  thereof,  does not  cause  such an

                                       19
<PAGE>
          assumption or substitution,  then each Option shall terminate upon the
          consummation  of  sale,  merger,  consolidation,  or  other  corporate
          transaction.  The Committee or the Board shall give written  notice of
          any  proposed  transaction  referred  to in this  Section  10(c)(ii) a
          reasonable  period  of  time  prior  to  the  closing  date  for  such
          transaction  (which  notice  may be given  either  before or after the
          approval  of such  transaction),  in order that  Optionees  may have a
          reasonable   period  of  time  prior  to  the  closing  date  of  such
          transaction  within  which  to  exercise  any  Options  that  are then
          exercisable  (including any Options that may become  exercisable  upon
          the closing date of such  transaction).  An Optionee may condition his
          exercise of any Option upon the consummation of the transaction.

               (iii) OTHER  ADJUSTMENTS.  In addition,  the  Committee  (and the
          Board if and only to the extent such  authority  is not required to be
          exercised  by the  Committee  to comply with Code  Section  162(m)) is
          authorized to make adjustments in the terms and conditions of, and the
          criteria  included  in,  Awards  (including   Performance  Awards  and
          performance   goals,  and  Annual  Incentive  Awards  and  any  Annual
          Incentive  Award  pool  or  performance  goals  relating  thereto)  in
          recognition  of unusual or  nonrecurring  events  (including,  without
          limitation,  acquisitions  and  dispositions of businesses and assets)
          affecting the Company, any Related Entity or any business unit, or the
          financial  statements  of the  Company or any  Related  Entity,  or in
          response  to  changes  in  applicable  laws,  regulations,  accounting
          principles,  tax rates and  regulations  or business  conditions or in
          view of the  Committee's  assessment  of the business  strategy of the
          Company,  any Related Entity or business unit thereof,  performance of
          comparable organizations,  economic and business conditions,  personal
          performance  of a  Participant,  and any  other  circumstances  deemed
          relevant; provided that no such adjustment shall be authorized or made
          if and to the  extent  that  such  authority  or the  making  of  such
          adjustment would cause Options, Stock Appreciation Rights, Performance
          Awards  granted under Section 8(b) hereof or Annual  Incentive  Awards
          granted  under Section 8(c) hereof to  Participants  designated by the
          Committee   as  Covered   Employees   and   intended   to  qualify  as
          "performance-based  compensation"  under Code  Section  162(m) and the
          regulations    thereunder   to   otherwise    fail   to   qualify   as
          "performance-based   compensation"   under  Code  Section  162(m)  and
          regulations thereunder.

          (d) TAXES.  The Company and any  Subsidiary  is authorized to withhold
from any  Award  granted,  any  payment  relating  to an Award  under  the Plan,
including  from a  distribution  of Stock,  or any payroll or other payment to a
Participant,  amounts of withholding and other taxes due or potentially  payable
in connection  with any transaction  involving an Award,  and to take such other
action as the  Committee  or the Board may deem  advisable to enable the Company
and Participants to satisfy obligations for the payment of withholding taxes and
other tax  obligations  relating  to any Award.  This  authority  shall  include
authority  to  withhold  or  receive  Stock or other  property  and to make cash
payments in respect thereof in satisfaction of a Participant's  tax obligations,
either on a mandatory or elective basis in the discretion of the Committee.

                                       20
<PAGE>
          (e)  CHANGES  TO THE PLAN AND  AWARDS.  The  Board may  amend,  alter,
suspend,  discontinue  or terminate  the Plan, or the  Committee's  authority to
grant  Awards  under  the  Plan,   without  the  consent  of   stockholders   or
Participants,  except  that any  amendment  or  alteration  to the Plan shall be
subject to the approval of the Company's  stockholders not later than the annual
meeting  next  following  such  Board  action if such  stockholder  approval  is
required  by  any  federal  or  state  law  or  regulation  (including,  without
limitation,  Rule  16b-3 or Code  Section  162(m))  or the  rules  of any  stock
exchange or automated  quotation system on which the Stock may then be listed or
quoted,  and the Board may  otherwise,  in its  discretion,  determine to submit
other such changes to the Plan to  stockholders  for  approval;  provided  that,
without  the  consent  of an  affected  Participant,  no such  Board  action may
materially  and  adversely  affect  the  rights  of such  Participant  under any
previously  granted and outstanding  Award. The Committee or the Board may waive
any  conditions  or rights  under,  or amend,  alter,  suspend,  discontinue  or
terminate  any  Award  theretofore  granted  and any  Award  agreement  relating
thereto,  except as otherwise  provided in the Plan;  provided that, without the
consent of an affected  Participant,  no such  Committee or the Board action may
materially and adversely affect the rights of such Participant under such Award.
Notwithstanding  anything in the Plan to the  contrary,  if any right under this
Plan  would  cause a  transaction  to be  ineligible  for  pooling  of  interest
accounting  that  would,  but for the  right  hereunder,  be  eligible  for such
accounting treatment,  the Committee or the Board may modify or adjust the right
so that  pooling  of  interest  accounting  shall be  available,  including  the
substitution  of Stock  having a Fair Market  Value equal to the cash  otherwise
payable  hereunder for the right which caused the  transaction  to be ineligible
for pooling of interest accounting.

          (f) LIMITATION ON RIGHTS  CONFERRED  UNDER PLAN.  Neither the Plan nor
any action taken  hereunder shall be construed as (i) giving any Eligible Person
or Participant  the right to continue as an Eligible Person or Participant or in
the employ of the Company or a Subsidiary;  (ii) interfering in any way with the
right of the Company or a  Subsidiary  to  terminate  any  Eligible  Person's or
Participant's  employment  at any  time,  (iii)  giving  an  Eligible  Person or
Participant  any claim to be granted  any Award  under the Plan or to be treated
uniformly  with  other  Participants  and  employees,  or (iv)  conferring  on a
Participant  any of the rights of a stockholder  of the Company unless and until
the Participant is duly issued or transferred shares of Stock in accordance with
the terms of an Award.

          (g)  UNFUNDED  STATUS  OF  AWARDS;  CREATION  OF  TRUSTS.  The Plan is
intended  to  constitute   an   "unfunded"   plan  for  incentive  and  deferred
compensation.  With  respect to any payments  not yet made to a  Participant  or
obligation to deliver Stock pursuant to an Award,  nothing contained in the Plan
or any Award shall give any such  Participant  any rights that are greater  than
those of a general  creditor of the Company;  provided  that the  Committee  may
authorize the creation of trusts and deposit therein cash,  Stock,  other Awards
or other property,  or make other arrangements to meet the Company's obligations
under the Plan. Such trusts or other  arrangements  shall be consistent with the
"unfunded" status of the Plan unless the Committee otherwise determines with the
consent  of  each  affected  Participant.  The  trustee  of such  trusts  may be
authorized  to dispose of trust assets and reinvest the proceeds in  alternative
investments,  subject to such terms and conditions as the Committee or the Board
may specify and in accordance with applicable law.

                                       21
<PAGE>
          (h)  NONEXCLUSIVITY  OF THE PLAN.  Neither the adoption of the Plan by
the Board nor its  submission  to the  stockholders  of the Company for approval
shall be construed as creating  any  limitations  on the power of the Board or a
committee  thereof  to adopt such other  incentive  arrangements  as it may deem
desirable including incentive arrangements and awards which do not qualify under
Code Section 162(m).

          (i) PAYMENTS IN THE EVENT OF FORFEITURES;  FRACTIONAL  SHARES.  Unless
otherwise determined by the Committee or the Board, in the event of a forfeiture
of  an  Award  with  respect  to  which  a   Participant   paid  cash  or  other
consideration,  the Participant shall be repaid the amount of such cash or other
consideration.  No  fractional  shares of Stock  shall be  issued  or  delivered
pursuant to the Plan or any Award.  The  Committee or the Board shall  determine
whether cash,  other Awards or other property shall be issued or paid in lieu of
such fractional  shares or whether such fractional  shares or any rights thereto
shall be forfeited or otherwise eliminated.

          (j) GOVERNING LAW. The validity,  construction and effect of the Plan,
any rules and  regulations  under the  Plan,  and any Award  agreement  shall be
determined in accordance  with the laws of the State of Arizona  without  giving
effect to principles of conflicts of laws, and applicable federal law.

          (k) PLAN EFFECTIVE DATE AND STOCKHOLDER APPROVAL; TERMINATION OF PLAN.
The Plan shall become  effective on the  Effective  Date,  subject to subsequent
approval  within 12 months of its adoption by the Board by  stockholders  of the
Company  eligible to vote in the election of directors,  by a vote sufficient to
meet the  requirements  of Code Sections  162(m) (if  applicable)  and 422, Rule
16b-3 under the Exchange Act (if applicable),  applicable  NASDAQ  requirements,
and other laws,  regulations,  and obligations of the Company  applicable to the
Plan.  Awards may be granted  subject to  stockholder  approval,  but may not be
exercised  or  otherwise  settled  in  the  event  stockholder  approval  is not
obtained.  The Plan shall  terminate  at such time as no shares of Common  Stock
remain  available  for  issuance  under the Plan and the  Company has no further
rights or obligations with respect to outstanding Awards under the Plan.

                                       22<PAGE>
                                                                    Exhibit 4.31

                           Form of Exchange Agreement

               10% CONVERTIBLE SERIES B PREFERRED STOCK AGREEMENT

      THIS 10% CONVERTIBLE SERIES B PREFERRED STOCK AGREEMENT (the "Agreement")
is entered into as of December 16, 2002, by and among Spatializer Audio
Laboratories, Inc., a Delaware corporation (the "Company") and the holders of
the Company's 10% Convertible Series B Preferred Stock listed on Schedule A
hereto (each individually a "Holder" and collectively, the "Holders").

                                    RECITALS

      A. Pursuant to the terms of that certain 10% Convertible Series B
Preferred Stock Subscription Agreement, dated December 29, 1999, by and among
the Company and the Holders, the Holders acquired an aggregate of 102,967 shares
of 10% Series B Convertible Preferred Stock of the Company (the "Series B
Preferred"), none of which shares have been converted and which shares of Series
B Preferred are the only outstanding shares of preferred stock of the Company.

      B. The Company and the Holders desire to effect a partial recapitalization
in which the Holders will exchange all of their respective shares of Series B
Preferred, for a new series of shares, being the Series B-1 Convertible
Preferred Stock of the Company (the "Series B-1 Preferred") on the terms and
conditions set forth below (the "Stock Exchange").

      C. The Series B Preferred provide for the accrual and payment of dividends
at the rate of 10% per annum until the Series B Preferred has been converted, in
which event all dividends are payable in Common Stock or in cash, at the option
of the Company, and the Holders and the Company wish, in connection with the
Stock Exchange, to agree to modify the dividends which are due and payable from
the date of issuance of the Series B Preferred through December 29, 2002 and to
provide for the payment of such dividends (the "Dividends Due") and for no
further accrual or payment of dividends and, in connection therewith, to have
issued to them at this time additional shares of the Series B-1 Preferred to
reflect the Dividends Due; all as set forth below.

      D. The Series B Preferred provides for conversion, at the option of the
Holder, of the Series B Preferred into the Common Stock of the Company and for
an automatic conversion, if not sooner converted, of all of the outstanding
Series B Preferred into the Common Stock of the Company on December 29, 2002 and
the Company and the Holders now wish, pursuant to the Stock Exchange, to extend
the date for automatic conversion to December 29, 2005.

<PAGE>

                                    AGREEMENT

      1. Exchange.

            (a) Terms of Exchange. The Company hereby agrees to issue to the
Holders and the Holders agree to accept, a new series of preferred shares,
denominated as Series B-1 Preferred, to be issued pursuant to a Certificate of
Designation to be filed with the Secretary of State of Delaware, substantially
in the form attached as Exhibit 1. The Series B-1 Preferred are to be issued on
the basis of one share of Series B-1 Preferred for each share of Series B
Preferred now held, except that, in addition thereto, there shall be issued to
the Holders, additional shares of Series B-1 Preferred representing the
Dividends Due (the "Dividend Shares") with the number of Dividend Shares to be
issued to be calculated using a dividend of 6.6% for the year 2000, 5.9% for the
year 2001 and 2.4% for the year 2002, respectively, in lieu of, and in full
discharge of, all obligations with respect to Dividends Due and any further
dividends as set forth in the Certificate of Designation for the Series B
Preferred, a copy of which is attached as Exhibit 2. In addition, the Holders
agree that no dividends shall accrue or be payable with respect to the Series
B-1 Preferred. As set forth in the Certificate of Designation for the Series B-1
Preferred, the Series B-1 Preferred (i) shall be convertible at the option of
the Holder at any time after issuance at a Floor Price of $0.56 and at a Ceiling
Price of $1.12, such amounts being identical to the Floor Price and Ceiling
Price applicable to the Series B Preferred, and (ii) shall be automatically
converted, if not sooner converted, on December 29, 2005.

            (b) Exchange of Shares. Therefore, concurrently with the execution
of this Agreement and subject to the terms and conditions set forth herein, each
Holder does hereby exchange, transfer and deliver to the Company that number of
shares of Series B Preferred set forth opposite his or its name on Schedule A
hereto (the "Stock Exchange").

            (c) Issuance of the Series B-1 Preferred Stock. In exchange for each
Holder's respective shares of Series B Preferred and all Dividend Shares
issuable thereon, the Company does hereby issue and deliver to each Holder, in
exchange and in full payment for each share of Series B Preferred and all
accrued and unpaid dividends due through December 29, 2002, the aggregate number
of shares of Series B-1 Preferred, par value $0.01 per share, of the Company set
forth opposite each Holder's name on Schedule A hereto. The Series B-1 Preferred
shall have a stated value of US$10.00 per share.

            (d) Delivery of the Series B Preferred. The Company does hereby
acknowledge receipt of the Series B Preferred stock certificates registered in
the name of each of the Holders, accompanied by assignments separate from
certificates duly executed by each respective Holder, and agrees that all stock
certificates shall be

                                      -2-
<PAGE>

marked cancelled and the class of Series B Preferred shall be extinguished by
the Company.

            (e) Delivery of the Series B-1 Preferred. Each Holder hereby
acknowledges receipt of a stock certificate registered in his, or its, name
representing that number of shares of Series B-1 Preferred set forth opposite
his or its name on Schedule A hereto.

      2. Closing. The closing of the Stock Exchange shall be held at the offices
of Crosby, Heafey, Roach & May, Professional Corporation, 1901 Avenue of the
Stars, Suite 700, Los Angeles, California, 90067 at 10:00 a.m. on December 20,
2002 (the "Closing").

      3. Representations and Warranties of the Company. The Company hereby
represents and warrants to each of the Holders as follows:

            (a) Organization and Standing. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware.

            (b) Corporate Power. The Company has, or will have, at the time of
the Closing, all requisite corporate power to enter into this Agreement, to
issue the shares of the Series B-1 Preferred to each Holder, and to carry out
and perform its obligations under the terms of this Agreement, and has, or will
have, taken all actions necessary for the authorization, execution and delivery
of this Agreement and the issuance of the shares of Series B-1 Preferred. This
Agreement is a valid and binding obligation of the Company enforceable in
accordance with its terms, except as the same may be limited by bankruptcy,
insolvency, moratorium, and other laws of general application affecting the
enforcement of creditors' rights and by the availability of equitable remedies.

            (c) Valid Issuance of Shares. The shares of Series B-1 Preferred,
when issued in compliance with the provisions of this Agreement, will be validly
issued, fully paid and nonassessable, and will be free of any liens or
encumbrances imposed by the Company; provided, however, that the shares of
Series B-1 Preferred will be subject to restrictions on transfer under the state
and federal securities laws as set forth herein, and as may be required by
future changes in such laws.

      4. Representations and Warranties of the Holders. Each Holder represents
and warrants, severally but not jointly, to the Company as follows:

            (a) Capacity. Such Holder has full legal capacity, power and
authority to execute, deliver, and perform his or its obligations under this
Agreement.

                                      -3-
<PAGE>

            (b) Ownership of Stock; Vesting Title. Each Holder beneficially owns
only such number of Series B Preferred as indicated opposite such Holder's name
on Schedule A attached hereto, with full right and authority to deliver such
shares hereunder, and upon delivery of such shares and one or more stock powers
with respect to such shares of Series B Preferred hereunder, the Company will
receive good, valid and marketable title thereto, free and clear of all liens or
encumbrances, and not subject to any agreements or understandings among any
persons with respect to the voting or transfer of such shares.

            (c) Accredited Investor. Each Holder is an "accredited investor" as
defined under the rules promulgated under the Securities Act of 1993, as
amended.

            (d) Ability to Protect Own Interest. Each Holder has a preexisting
personal or business relationship with the Company or one or more of its
directors of officers or controlling persons, or, by reason of such Holder's
business or financial experience, the business or financial experience of such
Holder's professional advisors (who are not affiliated with or compensated by
the Company or any of their affiliates) or the business or financial experience
of such Holder's representative, each Holder has the capacity to protect its own
interest in connection with the Stock Exchange.

            (e) Access to Information. Each Holder (or, if applicable, such
Holder's representative) has had an opportunity to discuss the Company's
business, management and financial affairs with its management and to ask
questions of officers of the Company, which questions were answered to its
satisfaction. Each Holder understands that such discussions with management, as
well as any written information issued by the Company, were intended to describe
certain aspects of the Company's business and prospects but were not a thorough
or exhaustive description. The foregoing, however, does not limit or modify the
representations and warranties of the Company in Section 3 hereof or the right
of the Holders to rely thereon.

            (f) No Reliance. In deciding to enter into and consummate the
transactions contemplated hereby, each Holder has not relied, as to tax,
securities and other legal matters, on the advice that such Holder has received
from the Company or any of its attorneys or representatives, but only on the
advice of such Holder's own advisors and experts.

            (g) Investment Intent. The shares of Series B-1 Preferred to be
issued to each Holder will be acquired for such Holder's own account, for
investment and not with a view to, or for resale in connection with, any
distribution or public offering thereof within the meaning of the Securities Act
of 1933, as amended (the "Securities Act"). Each Holder furthermore has no
current commitment or obligation, contingent or otherwise, to anyone to dispose
of the shares of Series B-1 Preferred and has no current plan or intent to
dispose of the shares of Series B-1 Preferred.

                                      -4-
<PAGE>

            (h) Exempt from Registration. Each Holder understands and
acknowledges that the exchange and delivery of the shares of Series B-1
Preferred pursuant to the terms of this Agreement will not be registered under
the Securities Act on the grounds that the Stock Exchange is exempt from
registration pursuant to section 3(a)(9) of the Securities Act, as an exchange
by the Company solely with its own securities holders, and are exempt from
qualification pursuant to Section 260.103(a)(1) of the California Corporate
Securities Law of 1968, as amended (the "Law"), and that the Company's reliance
upon such exemptions is predicated, in part, upon the Holder's representations
set forth in this Agreement. Each Holder acknowledges and understands that the
Company has no intention of registering the shares of Series B-1 Preferred and
that they therefore must be held indefinitely unless they are (i) converted to
Common Stock pursuant to the terms thereof and are then subsequently sold
pursuant to an effective registration statement or exemption from such
registration or (ii) the shares of Series B-1 Preferred are subsequently
registered under the Securities Act and qualified under the Law or an exemption
from such registration and such qualification is available.

            (i) Indefinite Holding Period. Each Holder understands and
acknowledges that he or it may be required to hold the shares of Series B-1
Preferred for an indeterminate period.

            (j) Disposition of Shares and Options. In no event will each Holder
dispose of any of his or its shares of Series B-1 Preferred (other than in
conjunction with an effective registration statement for the same under the
Securities Act) unless and until (i) such Holder shall have notified the Company
of the proposed disposition and shall have furnished the Company with a
detailed, true and accurate statement of the circumstances surrounding the
proposed disposition, and (ii) if requested by the Company, such Holder shall
have furnished the Company with an opinion of counsel satisfactory in form and
substance to the Company to the effect that [EITHER] (a) such disposition will
not require registration under the Securities Act and (b) appropriate action has
been taken to make the disposition qualify with the Law.

            (k) No Violation. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby will not result in the
breach of any term of, or constitute a default under, any contract, agreement,
commitment, indenture, mortgage, note or other instrument or obligation to which
each Holder, or any of such Holder's shares of Series B-1 Preferred, may be
bound.

            (l) Binding Obligation. This Agreement has been duly executed and
delivered by each Holder and constitutes a legal, valid and binding obligation
of such Holder, enforceable in accordance with its terms, except as limited by
applicable bankruptcy, insolvency and other laws affecting the enforcement of
creditors' rights and by the availability of equitable remedies.

                                      -5-
<PAGE>

            (m) Legends. Each document representing the shares Series B-1
Preferred shall be endorsed with substantially the following legend:

            THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN
            REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT").
            SUCH SECURITIES MAY NOT BE OFFERED OR SOLD OR TRANSFERRED IN THE
            UNITED STATES OR TO U.S. PERSONS IN THE ABSENCE OF SUCH REGISTRATION
            OR AN EXEMPTION THEREFROM UNDER THE ACT WHICH, EXCEPT IN THE CASE OF
            AN EXEMPTION PURSUANT TO RULE 144 UNDER THE ACT, IS CONFIRMED IN A
            LEGAL OPINION SATISFACTORY TO THE COMPANY.

      5. Conditions to the Company's Obligation to Close. The Company's
obligation to issue shares of Series B-1 Preferred at the Closing is subject to
the fulfillment to the Company's satisfaction on or prior to the Closing of the
following conditions, any of which may be waived by the Company in its sole
discretion:

            (a) Representations and Warranties Correct. The representations and
warranties made by the Holders in Section 4 hereof shall be true and correct
when made and shall be true and correct on and as of the Closing with the same
force and effect as if they had been made on and as of said date.

            (b) Tender. Each Holder shall have tendered all of his or its
outstanding shares of Series B Preferred with fully executed stock powers.

            (c) Consents and Waivers. The Company shall have obtained any and
all consents, permits and waivers necessary or appropriate for consummation of
the transactions contemplated by this Agreement.

      6. Miscellaneous

            (a) Governing Law. The Agreement shall be governed in all respects
by the laws of the State of California.

            (b) Survival. The representations, warranties, covenants and
agreements made herein shall survive the Closing of the transactions
contemplated hereby.

            (c) Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.

                                      -6-
<PAGE>

            (d) Further Acts. The parties hereto shall perform all further acts
and execute and deliver all documents that may be reasonably necessary to carry
out their obligations hereunder and the purposes of this Agreement.

            (e) Changes and Termination. Neither this Agreement nor any
provision hereof may be changed, waived, discharged or terminated orally, but
only by a statement in writing signed by the party against whom enforcement of
the change, waiver, discharge or termination is sought.

            (f) Entire Agreement. This Agreement and the other documents
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof.

            (g) Notices, etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be delivered personally,
mailed by registered or certified mail, postage prepaid, return receipt
requested, or sent via internationally recognized overnight courier, addressed:

            If to a Holder:       To such Holder's address set forth by its or
                                  his name on Schedule A attached hereto, or at
                                  such other address as such Holder shall have
                                  furnished to the Company in writing

            If to the Company:    Spatializer Audio Laboratories, Inc.
                                  900 Lafayette Street, Suite 710
                                  Santa Clara, California  95050
                                  Attn:  Chief Executive Officer

Notices that are mailed shall be deemed given one (1) day after deposit in the
United States mail.

            (h) Severability. In case any provision of this Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions of this Agreement shall not in any way be affected or
impaired thereby.

            (i) Expenses. The Company and the Holder shall bear his or its own
expenses and legal fees in connection with this Agreement and the transactions
contemplated thereby.

            (j) Titles and Subtitles. The titles of the sections and subsections
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.

                                      -7-
<PAGE>

            (k) Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
constitute one instrument.

            (l) Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to the Company shall impair any such right, power or
remedy of the Company, nor shall it be construed to be a waiver of any breach or
default under this Agreement, or any acquiescence therein, or any waiver of or
acquiescence in any similar breach or default thereafter occurring; nor shall
any delay or omission to exercise any right, power or remedy accruing to the
Company or any waiver by the Company of any single breach or default by any
other party be deemed a waiver by the Company of any other right, power or
remedy or breach or default theretofore or thereafter occurring. All remedies,
either under this Agreement, or by law otherwise afforded to the Company shall
be cumulative and not alternative.

      IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.

SPATIALIZER AUDIO LABORATORIES, INC.,

a Delaware corporation

By:   /s/ HENRY R. MANDELL
   -----------------------------------
      Henry R. Mandell,
      Chief Executive Officer

                                      -8-
<PAGE>

HOLDERS:

CLARION FINANZ, A.G.,
a Swiss corporation

By: /s/
   -----------------------------------

Name:
     ---------------------------------

Title:
      --------------------------------

/s/
--------------------------------------
CARLO CIVELLI, an individual

/s/
--------------------------------------
HENRY R. MANDELL, an individual

/s/
--------------------------------------
JAMES D. PACE, an individual

/s/
--------------------------------------
JEROLD H. RUBINSTEIN, an individual

/s/
--------------------------------------
GILBERT N. SEGEL, an individual

ATON SELECT FUND LTD.,
a Swiss corporation

By: /s/
   -----------------------------------

Name:
     ---------------------------------

Title:
      --------------------------------

                                      -9-
<PAGE>

ROMOFIN A.G.,
a Swiss corporation

By: /s/
   -----------------------------------

Name:
     ---------------------------------

Title:
      --------------------------------

                                      -10-

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00049-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00049-of-00352.parquet"}]]