FARO TECHNOLOGIES INC, S-1, 1997-08-06

FARO TECHNOLOGIES INC
S-1, 1997-08-06

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 6, 1997
REGISTRATION NO. 333-
================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------

FARO TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
FLORIDA 3829 59-3157093
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>

125 TECHNOLOGY PARK
LAKE MARY, FLORIDA 32746
(407) 333-9911
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------------

GREGORY A. FRASER, PH.D.
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
FARO TECHNOLOGIES, INC.
125 TECHNOLOGY PARK
LAKE MARY, FLORIDA 32746
(407) 333-9911
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------

COPIES TO:

<TABLE>
<S> <C>
MARTIN A. TRABER, ESQ. JEFFREY M. STEIN, ESQ.
RUSSELL T. ALBA, ESQ. KING & SPALDING
FOLEY & LARDNER 191 PEACHTREE STREET, N.E.
100 NORTH TAMPA STREET, SUITE 2700 ATLANTA, GEORGIA 30303-1763
TAMPA, FLORIDA 33602 (404) 572-4600
(813) 229-2300
</TABLE>

---------------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of this prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
---------------------

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
=========================================================================================================================
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) FEE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par value... 2,645,000 shares $12.00 $31,740,000 $9,618
========================================================================================================================
</TABLE>

(1) Includes 345,000 shares of Common Stock that would be purchased upon
exercise of an over-allotment option granted to the Underwriters.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Section 6(b) and Rule 457(o) of the Securities Act of 1933.
---------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED , 1997

2,300,000 SHARES

[FARO LOGO]
COMMON STOCK
------------------------

Of the 2,300,000 shares of Common Stock offered hereby, 1,700,000 shares
are being issued and sold by FARO Technologies, Inc. (the "Company") and 600,000
shares are being sold by certain shareholders of the Company (the "Selling
Shareholders"). See "Principal and Selling Shareholders." The Company will not
receive any proceeds from the sale of Common Stock by the Selling Shareholders.

Prior to this offering, there has been no public market for the Common
Stock. It is currently estimated that the initial public offering price of the
Common Stock will be between $10.00 and $12.00 per share. See "Underwriting" for
information relating to the determination of the initial public offering price.

The Company has applied to have the Common Stock quoted on the Nasdaq Stock
Market's National Market under the symbol "FARO."
------------------------

SEE "RISK FACTORS" ON PAGES 6 THROUGH 10 FOR CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
=========================================================================================================================
UNDERWRITING PROCEEDS
PRICE TO DISCOUNTS AND PROCEEDS TO TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS(2)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share.................... $ $ $ $
- ------------------------------------------------------------------------------------------------------------------------
Total(3)..................... $ $ $ $
========================================================================================================================
</TABLE>

(1) Excludes additional compensation to be received by the Representatives of
the Underwriters in the form of warrants. The Company and the Selling
Shareholders have agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933.
See "Underwriting."
(2) Before deducting expenses, estimated at $500,000, payable by the Company.
(3) Certain Selling Shareholders have granted the Underwriters a 30-day option
to purchase up to 345,000 additional shares of Common Stock on the same
terms and conditions as the securities offered hereby solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to Public, Underwriting Discounts and Commissions, Proceeds to Company
and Proceeds to Selling Shareholders will be $ , $ ,
$ and $ , respectively. See "Underwriting."
------------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject to
other conditions including the right of the Underwriters to withdraw, cancel,
modify or reject any order in whole or in part. It is expected that delivery of
the shares will be made on or about , 1997, at the office of Raymond
James & Associates, Inc., St. Petersburg, Florida.

RAYMOND JAMES & ASSOCIATES, INC. HANIFEN, IMHOFF INC.
The date of this Prospectus is , 1997.
<PAGE> 3

The following six photographs appear here:

1. Individual using a FAROArm to measure a jet aircraft engine.

2. Individuals using a FAROArm to measure an automobile body during the
manufacturing process.

3. Individual using a FAROArm to measure an automobile subcomponent during
the manufacturing process.

4. Individual using a FAROArm to measure a contoured surface.

5. All six models of the FAROArm manufactured by the Company, including
three different sizes of the Bronze Series FAROArm and three different sizes of
the Silver Series FAROArm.

6. Close-up of a Silver Series FAROArm.

---------------------

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES OFFERED
HEREBY, INCLUDING OVER-ALLOTMENT AND STABILIZING TRANSACTIONS, THE PURCHASE OF
SUCH SECURITIES TO COVER SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY
BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."

2
<PAGE> 4

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements, including the notes
thereto, appearing elsewhere in this Prospectus. Unless otherwise indicated, the
information in this Prospectus (i) has been adjusted to reflect a 1 for
1.422272107 reverse split of the issued and outstanding shares of Common Stock
effective at June 30, 1997, and (ii) assumes no exercise of the Underwriters'
overallotment option. Investors should carefully consider the information set
forth under the heading "Risk Factors." As used herein, the terms "FARO" and the
"Company" refer to FARO Technologies, Inc. and its subsidiaries, except where
the context indicates otherwise.

THE COMPANY

FARO Technologies, Inc. ("FARO" or the "Company") designs, develops,
markets and supports portable, software-driven, three-dimensional ("3-D")
measurement systems that are used in a broad range of manufacturing and
industrial applications. The Company's principal products are the FAROArm(R)
articulated measuring device and its companion AnthroCam(R) software. Together,
these products integrate the measurement and quality inspection function with
computer-aided design ("CAD"), computer-aided manufacturing ("CAM") and
computer-aided engineering ("CAE") technology to improve productivity, enhance
product quality and decrease rework and scrap in the manufacturing process. The
Company's products bring precision measurement, quality inspection and
specification conformance capabilities, integrated with leading CAD software, to
the factory floor. The Company is a pioneer in the development and marketing of
3-D measurement technology for manufacturing and industrial applications and
currently holds or has pending 18 patents in the United States, eight of which
also are held or pending in other jurisdictions. The Company's products have
been purchased by more than 600 customers worldwide, ranging from small machine
shops to such large manufacturing and industrial companies as General Motors,
Chrysler, Ford, Boeing, Lockheed Martin, General Electric, Westinghouse
Electric, Caterpillar and Komatsu Dresser.

The processes of product design and manufacturing have evolved rapidly
during the past decade through the adoption of 3-D software and CAD/CAM
technology. This evolution has been driven by increasing global and competitive
pressures for shorter product cycles, greater customization and higher quality
and lower cost products. Despite such technological advances in design and
manufacturing, the measurement and quality inspection function of the
manufacturing process generally remains limited to manual, analog technology or
traditional, fixed-based coordinate measurement machines ("CMMs") that are
largely restricted to a metrology laboratory and often lengthen the
manufacturing process. These global and competitive pressures have created a
significant demand for measurement systems that bridge the gap between the
virtual 3-D world of the CAD process and the physical 3-D world of the factory
floor. The Company believes that the FAROArm(R) and AnthroCam(R) provide that
bridge by integrating CAD/CAM technology into a manufacturer's design,
production and measurement and quality inspection processes, serving a much
broader range of the manufacturing process than traditional measurement tools.

The FAROArm(R) is a portable, six-axis, instrumented, articulated device
that approximates the range of motion and dexterity of the human arm.
AnthroCam(R) is the Company's proprietary companion software for the FAROArm(R).
This CAD-based measurement software provides an interface between the FAROArm(R)
and CAD technology for design, manufacturing and measurement and quality
inspection applications. The Company's products provide its customers an
affordable way to integrate CAD technology throughout the manufacturing process.
These products are based on an open architecture and are designed to be used by
shop personnel with minimal prior computer or CAD experience and to be operated
in the often harsh environments typical of manufacturing facilities.

The Company's objective is to enhance its position as a leading provider of
portable, software-driven, 3-D measurement systems. To achieve this objective,
the Company has adopted the following principal strategies: (i) focus on the
portable 3-D measurement market; (ii) further penetrate its installed customer
base; (iii) increase international sales; (iv) leverage its technology; and (v)
expand its product line and service offerings.
3
<PAGE> 5

As a result of the implementation of the Company's strategies, total sales
have increased from $4.5 million in 1994 to $14.7 million in 1996 and $10.3
million for the first six months of 1997. The Company's operating results have
improved from an operating loss of $247,000 in 1994 to operating income of $2.7
million in 1996 and $2.1 million for the first six months of 1997.

The Company commenced operations in Canada in 1982 and reincorporated in
Florida in 1992. The Company's executive offices and principal operating
facilities are located at 125 Technology Park, Lake Mary, Florida 32746 and its
telephone number is (407) 333-9911.

THE OFFERING

Common Stock offered by the Company........... 1,700,000 shares

Common Stock offered by the Selling
Shareholders.................................. 600,000 shares

Common Stock to be outstanding after the
Offering...................................... 8,700,000 shares(1)

Use of Proceeds............................... Repayment of indebtedness,
capital expenditures, working
capital and general corporate
purposes, including possible
acquisitions. See "Use of
Proceeds."

Nasdaq National Market Symbol................. FARO
- ---------------

(1) Excludes 383,513 shares of Common Stock issuable upon the exercise of
outstanding stock options at a weighted average exercise price of $1.53 per
share.
4
<PAGE> 6

SUMMARY CONSOLIDATED FINANCIAL DATA

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------- -------------------------
1994 1995 1996 1996 1997
---------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales.............................. $4,508,837 $9,862,242 $14,656,337 $6,460,113 $10,318,535
Cost of sales...................... 2,222,085 4,987,779 6,486,268 2,744,994 4,188,280
---------- ---------- ----------- ---------- -----------
Gross profit....................... 2,286,752 4,874,463 8,170,069 3,715,119 6,130,255
Operating expenses:
Selling.......................... 1,569,014 2,008,301 3,731,762 1,653,693 2,512,066
General and administrative....... 521,040 503,184 744,206 349,645 622,092
Depreciation and amortization.... 270,615 341,494 230,799 125,388 124,646
Research and development......... 173,400 363,871 730,124 236,539 394,839
Employee stock options(1)........ -- 106,700 23,100 11,550 364,146
---------- ---------- ----------- ---------- -----------
Total operating
expenses............... 2,534,069 3,323,550 5,459,991 2,376,815 4,017,789
---------- ---------- ----------- ---------- -----------
Income (loss) from operations...... (247,317) 1,550,913 2,710,078 1,338,304 2,112,466
Other income....................... 11,706 62,212 25,145 7,814 46,067
Interest expense................... (192,543) (355,468) (212,669) (122,806) (65,853)
---------- ---------- ----------- ---------- -----------
Income (loss) before income
taxes......................... (428,154) 1,257,657 2,522,554 1,223,312 2,092,680
Income tax expense (benefit)....... -- (342,000) 1,115,892 541,152 837,072
---------- ---------- ----------- ---------- -----------
Net income (loss)........ $ (428,154) $1,599,657 $ 1,406,662 $ 682,160 $ 1,255,608
========== ========== =========== ========== ===========
Net income (loss) per common share
and common equivalent share...... $ (0.06) $ 0.22(2) $ 0.19 $ 0.09 $ 0.17
Weighted average common shares and
common equivalent shares(3)...... 7,149,690 7,166,740 7,349,042 7,354,292 7,333,290
</TABLE>

<TABLE>
<CAPTION>
AT JUNE 30, 1997
-------------------------
AS
ACTUAL ADJUSTED(4)
----------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital............................................. $ 4,976,323 $21,033,554
Total assets................................................ 10,558,549 25,949,113
Total debt.................................................. 1,500,436 --
Total shareholders' equity.................................. 5,349,468 22,240,468
</TABLE>

- ---------------

(1) Reflects compensation expense incurred upon the vesting of options having an
exercise price less than the fair market value of the Common Stock on the
date of grant. The weighted average exercise price of such vested options is
$0.36 per share.
(2) Includes a benefit of $0.11 per share resulting from a reduction in the
deferred tax asset valuation allowance.
(3) Includes 7,000,000 common shares outstanding in each period plus the effect
of stock options granted, using the Treasury Stock Method, assuming an
initial public offering price of $11.00 per share. See Notes 1 and 11 to the
Consolidated Financial Statements.
(4) Adjusted to give effect to the sale of 1,700,000 shares of Common Stock
offered by the Company hereby (assuming an initial public offering price of
$11.00 per share) and the application of the estimated net proceeds
therefrom. See "Use of Proceeds."
5
<PAGE> 7

RISK FACTORS

An investment in the shares offered hereby involves a high degree of risk,
including the risks described below. Prospective investors should carefully
consider the following risk factors together with the other information
contained in this Prospectus before purchasing the shares offered hereby.

FLUCTUATIONS IN QUARTERLY OPERATING RESULTS

The Company's quarterly operating results have varied in the past and may
vary significantly in the future depending on many factors including, among
others, the size, timing and recognition of revenue from significant orders;
increases in operating expenses required for product development and new product
marketing; the timing and market acceptance of new products and product
enhancements; customer order deferrals in anticipation of new products and
product enhancements; the Company's success in expanding its sales and marketing
programs; and general economic conditions. Further, the Company's operating
results have been, and are expected to continue to be, highly sensitive to the
length of the Company's sales cycle, from initial contact through product
shipment. Moreover, the Company has historically incurred higher expenses
relating to marketing and production in the first and second quarters of each
year. Based upon all of the foregoing factors, the Company believes that its
quarterly revenue, expenses and operating results are likely to vary
significantly in the future, that period-to-period comparisons of its results of
operations may not be meaningful and that, in any event, such comparisons should
not be relied upon as indications of future performance. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Quarterly Results."

EMERGING MARKET; DEPENDENCE ON A SINGLE PRODUCT LINE

The products from which the Company derives substantially all of its
revenues were introduced in 1993, and the Company's future performance will
depend on market acceptance of these products. The measurement industry is
currently dominated by manufacturers of hand-measurement tools and traditional,
fixed-base coordinate measurement machines ("CMMs"). As a result, the Company's
focus on a new measurement technology requires its customers to reevaluate their
historical measurement procedures and methodologies. There can be no assurance
that the Company's products will attain broad market acceptance. The inability
of the Company's products to attain broad market acceptance would have a
material adverse effect on the Company's results of operations and financial
condition.

The Company has developed and marketed two closely interdependent products
(the FAROArm(R) and AnthroCam(R)) for use in the 3-D measurement field.
Substantially all of the Company's revenues are currently derived from sales of
these products, and the Company plans to continue its business strategy of
focusing on the portable, software-driven, 3-D measurement market for the
foreseeable future. Consequently, the Company's financial performance will
depend on continued market acceptance of these products and, to a lesser extent,
on the Company's introduction and market acceptance of related products. If the
Company's products are not widely accepted in the 3-D measurement field, the
Company will have reduced sales and will be required to make increased
expenditures on research and development for new applications in other fields or
new products. There can be no assurance that such efforts to develop new
products or diversify the Company's products into other fields would be
successful. Management believes that continued market acceptance of the
Company's products will depend largely on the Company's ability to enhance and
broaden its product line. Additionally, other factors adversely affecting sales
of the Company's products, such as delays in development, significant hardware
or software flaws, incompatibility with significant software or negative
evaluation of the Company's products, could have a material adverse effect on
the Company's results of operations and financial condition. See
"Business -- The FARO Strategy" and "Business -- FARO Products."

COMPETITION

The broad market for measurement devices for manufacturing and industrial
applications, which consists primarily of hand-measurement tools and CMMs, is
highly competitive. Manufacturers of hand-measurement

6
<PAGE> 8

tools and CMMs include a significant number of well-established companies that
are substantially larger and possess substantially greater financial, technical
and marketing resources than the Company. The Company's products compete on the
basis of portability, accuracy, application features, ease-of-use, quality,
price and technical support. These entities or others may develop products or
technologies that will directly compete with those of the Company. Furthermore,
there can be no assurance that the Company will have sufficient resources to
make additional investments in such products and technologies or that the
Company's product development efforts will allow the Company to compete
successfully as the industry evolves.

The worldwide trend toward CAD-based factory floor metrology has resulted
in the introduction of CAD-based inspection software for conventional CMMs by
most of the large CMM manufacturers. Certain CMM manufacturers also are
miniaturizing, and in some cases increasing the mobility of, their conventional
CMMs. There can be no assurance that CMM manufacturers will not alter their
products to provide functions which are competitive with those of the Company's
products.

The Company also competes with a number of smaller companies that market
articulated arm measuring devices. There can be no assurance that such companies
will not devote additional resources to the development and marketing of
products that compete with those of the Company. See "Business -- Competition."

DEPENDENCE ON PROPRIETARY TECHNOLOGY

The Company has utilized proprietary technology in the development of its
products. The Company relies on a combination of patents, copyrights,
trademarks, trade secrets, confidentiality procedures and contractual rights to
establish and protect its proprietary rights. Despite these efforts, third
parties might attempt to copy aspects of the Company's products or to obtain and
use information that the Company regards as proprietary. In addition, the laws
of some foreign countries may not protect the Company's proprietary rights to
the same extent as do the laws of the United States. Policing unauthorized use
of its proprietary technology is difficult, expensive and time-consuming. There
can be no assurance that the Company's means of protecting its proprietary
rights will be adequate or that its competitors will not independently develop
similar technology. In addition, third parties might reverse-engineer unpatented
features of the Company's products. The Company's inability to protect its
proprietary rights could have a material adverse effect on its results of
operations and financial condition.

Moreover, there can be no assurance that infringement or invalidity claims
will not be asserted against the Company or that any such assertions will not
have a material adverse effect on the Company. Any such claims, whether with or
without merit, could result in time-consuming and costly litigation and
diversion of the Company's management and financial resources.

TECHNOLOGICAL CHANGE

The market for the Company's products has only recently emerged and is
characterized by rapid technological change. Any technology in the measurement
industry, including the Company's technology, may be rendered obsolete or
non-competitive by future discoveries and developments. As a result, the
Company's growth and future financial performance depends upon its ability to
introduce new products and enhance existing products that accommodate the latest
technological advances and customer requirements. There can be no assurance that
any such products will be successfully introduced or will achieve market
acceptance. In addition, the Company believes that a substantial amount of
capital will be required for future research and development. Any failure by the
Company to anticipate or respond adequately to changes in technology and
customer preferences, or any significant delays in product development or
introductions, could have a material adverse effect on its results of operations
and financial condition. There can be no assurance that technological
developments will not render actual and proposed products or technologies of the
Company uneconomical or obsolete.

7
<PAGE> 9

DEPENDENCE ON KEY PERSONNEL

The development of new products, enhancements to existing products, and the
success of the Company are largely dependent upon the efforts, direction and
guidance of Simon Raab and Gregory A. Fraser, the Company's founders. The
Company's continued growth and success also depends in part on its ability to
attract and retain qualified managers and on the ability of its executive
officers and key employees to manage its operations successfully. The loss of
any of the Company's senior management or key personnel, particularly Messrs.
Raab or Fraser, or its inability to attract and retain key management personnel
in the future, could have a material adverse effect on the Company's results of
operations and financial condition. The Company currently carries key man life
insurance policies on Messrs. Raab and Fraser in the amount of $3.0 million
each. See "Management."

MANAGEMENT OF GROWTH

The Company has grown rapidly in recent years, with sales increasing from
$4.5 million in 1994 to $14.7 million in 1996, and this growth has from time to
time placed burdens on the Company's managerial resources and systems. As part
of its business strategy, the Company intends to continue pursuing rapid growth,
which is likely to place substantial demands on the Company's financial,
managerial, operational and other resources. Effective management of growth will
require the addition and training of personnel throughout the Company, expanded
customer services and support, expanded operational, financial and management
information systems and the implementation of additional control procedures,
including those related to the Company's international operations. There can be
no assurance that the Company will be able to maintain its recent rate of
revenue growth, continue its profitable operations or manage future growth
successfully. See "Management's Discussion and Analysis of Results of Operations
and Financial Condition."

INTERNATIONAL OPERATIONS

In 1995, 1996 and the first six months of 1997, international sales
accounted for $2.1 million, $3.0 million and $2.7 million, or 21.6%, 20.5% and
26.0%, respectively, of the Company's total sales. The Company anticipates that
international sales will account for an increasing portion of the Company's
total sales. The Company's international business is subject to special risks,
including fluctuating exchange rates, uncertainties in patent enforcement or the
protection of other proprietary rights, changes in import and export controls
and changes in tax policies, trade policies, tariffs, product safety and other
regulatory requirements, in addition to currency controls and political and
economic risks. A portion of the Company's sales is in foreign currencies and
changes in the value of these foreign currencies relative to the United States
dollar could affect the Company's results of operations and financial position,
and gains and losses on translation to United States dollars could contribute to
fluctuations in the Company's results of operations. Although the Company has
not historically engaged in any hedging transactions to limit risks of currency
fluctuations, it intends to do so in the future. There can be no assurance that
engaging in hedging transactions would materially reduce the effects of
fluctuations in foreign currency exchange rates on the Company's results of
operations and financial condition. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Overview."

DEPENDENCE ON KEY SUPPLIERS

The Company purchases the major component parts for the FAROArm(R) from
third parties and conducts final assembly, customization and inspection of the
FAROArm(R) at its manufacturing facility. Although there is more than one
potential supplier of each of these components, the Company currently relies on
single sources of supply for several components. Accordingly, the Company is
vulnerable to the possible business interruption of its suppliers, and the
Company could experience temporary delays or interruptions while alternative
sources of supply are secured. Any such delays or interruptions could have a
material adverse effect on the Company's results of operations and financial
condition.

In particular, the Company currently purchases the vast majority of the
transducers used in certain models of the FAROArm(R) from a single supplier
located in Europe. Although there are a number of alternative suppliers for this
class of transducers, switching to these suppliers could result in temporary
delays

8
<PAGE> 10

or interruptions. While the Company maintains supplies of such transducers for
at least several months in its inventories, any reductions or interruptions in
supply, or material increases in the price of these components, could cause the
Company to suffer disruptions in the operation of its business or to incur
higher costs, which could have a material adverse effect on the Company's
results of operations and financial condition.

CYCLICALITY OF END USER MARKETS

A significant portion of the Company's sales are to manufacturers in the
automotive, aerospace and heavy equipment industries. Each of these industries
experiences cyclicality and may be adversely affected during recessionary
periods. The cyclical nature of these industries may exert significant influence
on the Company's revenues and results of operations. The volume of orders for
and prices of the Company's products are likely to be adversely impacted by
decreases in capital spending by a significant portion of its end users during
recessionary periods. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Results of Operations."

DEPENDENCE ON KEY CUSTOMERS

Sales to the Company's ten largest customers represented 28.1% and 17.5% of
the Company's sales in 1996 and the first six months of 1997, respectively.
Sales to Boeing represented 10.0% of the Company's sales in 1996. No customer
represented 10.0% or more of the Company's sales in the first six months of
1997. The Company does not maintain long-term purchase agreements with any of
its customers, all of which may unilaterally reduce or discontinue their
purchases of the Company's products. The Company's loss of, or the failure to
continue to make additional sales to, any of its key customers could have a
material adverse effect on the Company's results of operations and financial
condition. See "Business -- Customers."

WARRANTY LIABILITY AND MAINTENANCE CONTRACTS

The Company provides an initial one-year basic warranty, without additional
charge, on all its products. Historically, warranty costs associated with
providing the basic warranty have not been material. Additionally, the Company
currently offers its customers one, two and three year extended maintenance
contracts for its products. The Company recognizes the revenue from these sales
ratably over the contract term and recognizes the cost of claims as incurred.
While the Company's deferred revenues have been sufficient to cover the expenses
of such claims, there can be no assurance that such deferred revenues will be
adequate in the future. The occurrence of a significant number of extended
warranty claims could have a material adverse effect on the Company's results of
operations and financial condition.

PRODUCT LIABILITY AND INSURANCE COVERAGE

The Company licenses and supports certain specialty products based on its
articulated arm technology that are used in medical applications. The sale of
the Company's medical products entails a risk of product liability claims.
Although no claims have been asserted to date, product liability or other claims
might be asserted against the Company by persons who allege that the use of the
Company's products resulted in injury or other adverse effects, and such claims
could involve large amounts of alleged damages and significant defense costs.
Although the Company currently maintains product liability insurance, the
liability limits or scope of the Company's insurance policies could be
inadequate to protect against potential claims. In addition, the Company's
insurance policies are subject to annual renewal. Although the Company has been
able to obtain product liability insurance in the past, the cost and
availability of this insurance varies and such coverage could be difficult to
obtain in the future. A successful claim against the Company in excess of its
available insurance coverage could have a material adverse effect on the
Company's results of operations and financial condition. In addition, the
Company's business reputation could be adversely affected by product liability
claims, regardless of their merit or the eventual outcome of such claims.

CONTROL BY PRINCIPAL SHAREHOLDERS; ANTI-TAKEOVER CONSIDERATIONS

Upon the conclusion of this offering, Messrs. Simon Raab and Gregory A.
Fraser will, in the aggregate, beneficially own approximately 39.4% of the
outstanding Common Stock (37.4% if the Underwriters' over-

9
<PAGE> 11

allotment option is exercised in full). As a result, Messrs. Raab and Fraser
will retain significant voting power with respect to the election of the
Company's directors and the outcome of other matters requiring shareholder
approval. The voting power of Messrs. Raab and Fraser, together with the
staggered Board of Directors and the anti-takeover effects of certain provisions
contained in both the Florida Business Corporation Act and in the Company's
Articles of Incorporation and Bylaws (including, without limitation, the ability
of the Board of Directors of the Company to issue shares of Preferred Stock and
to fix the rights and preferences thereof), may have the effect of delaying,
deferring, or preventing an unsolicited change in the control of the Company,
which may adversely affect the market price of the Common Stock. See
"Management," "Principal and Selling Shareholders" and "Description of Capital
Stock."

SHARES ELIGIBLE FOR FUTURE SALE

Upon the completion of this offering, the Company will have outstanding
8,700,000 shares of Common Stock. Of these shares, 3,997,984 shares, including
the 2,300,000 shares of Common Stock sold in this offering (2,645,000 shares if
the Underwriters' over-allotment option is exercised in full), will be freely
tradeable by persons other than affiliates of the Company without restriction
under the Securities Act of 1933, as amended (the "Securities Act"). The
remaining 4,702,016 shares of Common Stock will be "restricted" securities
within the meaning of Rule 144 under the Securities Act and may not be sold in
the absence of registration under the Securities Act unless an exemption from
registration is available. All of such shares will be beneficially owned by
persons who are affiliates of the Company and, commencing 90 days after the date
of this Prospectus, would be eligible for public sale subject to the volume and
other limitations of Rule 144. However, the Company's directors, executive
officers and principal shareholders and the Selling Shareholders have agreed not
to sell, contract to sell or otherwise dispose of any shares of Common Stock for
a period of 180 days after the date of this Prospectus without the prior written
consent of Raymond James & Associates, Inc. The sale of a substantial number of
shares of Common Stock could adversely affect the market price of the Common
Stock. See "Shares Eligible for Future Sale."

NO PRIOR PUBLIC MARKET AND POSSIBLE VOLATILITY OF STOCK PRICE

Prior to this offering, there has not been a public market for the Common
Stock, and there is no assurance that an active trading market will develop or
continue following this offering. Accordingly, purchasers in this offering may
experience difficulty in selling or otherwise disposing of their shares of
Common Stock. In addition, there is no assurance that the market price of the
Common Stock will not decline below the initial public offering price. The
initial public offering price for the Common Stock will be determined by
negotiations among the Company, the Selling Shareholders and the Underwriters
based on several factors, and may not be indicative of the market price for the
Common Stock after this offering. See "Underwriting."

The Company believes that various factors such as general economic
conditions, changes or volatility in the financial markets, and quarterly or
annual variations in the Company's financial results could cause the market
price of the Common Stock to fluctuate substantially.

DILUTION TO NEW INVESTORS

The initial public offering price is substantially higher than the per
share net tangible book value of the Common Stock. Purchasers of Common Stock in
this offering will incur immediate and substantial dilution of $8.51 per share
in the net tangible book value of their shares of Common Stock. See "Dilution."

10
<PAGE> 12

USE OF PROCEEDS

The net proceeds to the Company (after deducting underwriting discounts and
estimated offering expenses payable by the Company) from the sale of 1,700,000
shares of Common Stock offered by the Company, assuming an initial public
offering price of $11.00 per share, are estimated to be approximately $16.9
million. The Company will not receive any proceeds from the sale of shares of
Common Stock by the Selling Shareholders. See "Principal and Selling
Shareholders."

The Company intends to use approximately $1.5 million of the net proceeds
of this offering to repay indebtedness incurred to finance operations, which
accrues interest at the 30-day commercial paper rate plus 2.7% per annum (8.31%
at June 30, 1997), and matures in September 1999. The balance of the net
proceeds of this offering will be used for expansion of the Company's sales and
marketing activities for existing and new products, investment in new
technologies, including product development, capital expenditures and for
working capital and general corporate purposes, including possible acquisitions.
The Company has not yet identified the specific amounts of proceeds to be
expended for these respective corporate purposes. The amounts actually expended
for each purpose may vary significantly depending on a number of factors,
including future revenue growth, the amount of cash generated or used by the
Company's operations, the progress of the Company's new product development
efforts, technological advances and the status of competitive products.
Currently, the Company has no arrangements or understandings with respect to any
acquisition. Pending any such uses, the Company plans to invest the net proceeds
of this offering in short-term, investment grade securities or money market
instruments.

DIVIDEND POLICY

The Company has never declared or paid any cash dividends on the Common
Stock. The Company currently anticipates that all of its earnings will be
retained for development and expansion of its business and does not anticipate
paying any cash dividends in the foreseeable future. In addition, the Company's
loan agreement prohibits the Company from declaring any dividends. Any future
determination to pay cash dividends will be at the discretion of the Board of
Directors and will be dependent upon the Company's financial condition, results
of operations, capital requirements, limitations which may be included in loan
and other agreements and such other factors as the Board of Directors deems
relevant.

11
<PAGE> 13

CAPITALIZATION

The following table sets forth the current portion of long-term debt and
the capitalization of the Company (i) at June 30, 1997, and (ii) as adjusted to
give effect to the sale by the Company of 1,700,000 shares of Common Stock
offered hereby (assuming an initial public offering price of $11.00 per share)
and the application of the estimated net proceeds therefrom as described under
"Use of Proceeds." This table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's Consolidated Financial Statements and the notes thereto contained
elsewhere in this Prospectus.

<TABLE>
<CAPTION>
AT JUNE 30, 1997
------------------------
AS
ACTUAL ADJUSTED
---------- -----------
<S> <C> <C>
Current portion of long-term debt........................... $ 666,667 $ --
========== ===========
Long-term debt, less current portion........................ $ 833,769 $ --
---------- -----------
Shareholders' equity:
Class A Preferred Stock, $0.001 par value, 10,000,000
shares authorized; no shares issued and outstanding.... -- --
Common Stock, $0.001 par value, 20,000,000 shares
authorized; 7,000,000 shares issued and outstanding,
8,700,000 shares issued and outstanding as
adjusted(1)............................................ 7,000 8,700
Additional paid-in capital.................................. 4,827,544 21,716,844
Retained earnings........................................... 1,067,243 1,067,243
Unearned compensation....................................... (508,334) (508,334)
Cumulative translation adjustments.......................... (43,985) (43,985)
---------- -----------
Total shareholders' equity........................ 5,349,468 22,240,468
---------- -----------
Total capitalization.............................. $6,183,237 $22,240,468
========== ===========
</TABLE>

- ---------------

(1) Excludes 383,513 shares of Common Stock issuable upon the exercise of
outstanding stock options at a weighted average exercise price of $1.53 per
share. In July 1997, the Company's Board of Directors and shareholders
approved the Company's Amended and Restated Articles of Incorporation (the
"Articles of Incorporation"), which increased the authorized shares of
Common Stock to 50,000,000 shares.

12
<PAGE> 14

DILUTION

The net tangible book value of the Company at June 30, 1997 was $4.7
million, or $0.68 per share of Common Stock. Net tangible book value per share
represents the amount of the Company's tangible net worth (total assets less
patents and total liabilities) divided by the total number of shares of Common
Stock outstanding. After giving effect to the sale of 1,700,000 shares of Common
Stock by the Company in this offering (assuming an initial public offering price
of $11.00 per share) and the application of the estimated net proceeds therefrom
(after deducting underwriting discounts and estimated offering expenses payable
by the Company), the pro forma net tangible book value of the Company at June
30, 1997 would have been $21.6 million, or $2.49 per share of Common Stock. This
represents an immediate increase in net tangible book value of $1.81 per share
to existing shareholders and an immediate dilution of $8.51 per share to
purchasers of shares in this offering. The following table illustrates this per
share dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price....................... $11.00
Net tangible book value before this offering................ $0.68
Increase attributable to new investors...................... 1.81
-----
Pro forma net tangible book value after this offering....... 2.49
------
Dilution to new investors................................... $ 8.51
======
</TABLE>

The following table sets forth the number of shares of Common Stock
purchased from the Company, the total consideration paid and the average price
per share paid by the Company's existing shareholders and to be paid by new
investors in this offering (assuming an initial public offering price of $11.00
per share):

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders(1)......... 7,000,000 80.5% $ 3,832,264 17.0% $ 0.55
New investors.................... 1,700,000 19.5 18,700,000 83.0 11.00
--------- ------ ----------- ------
Total.................. 8,700,000 100.0% $22,532,264 100.0% 2.59
========= ====== =========== ======
</TABLE>

- ---------------

(1) Does not reflect the sale of 600,000 shares of Common Stock by the Selling
Shareholders in this offering (945,000 shares if the over-allotment option
is exercised in full) and excludes 383,513 shares of Common Stock issuable
upon the exercise of outstanding stock options. See "Management -- Stock
Option Plans." To the extent outstanding stock options are exercised, there
will be further dilution to new investors.

Assuming the over-allotment option is not exercised, sales by the Selling
Shareholders in this offering will reduce the number of shares held by existing
shareholders to 6,400,000 shares (or 73.6% of the total number of shares of
Common Stock outstanding after this offering) and will increase the number of
shares held by new investors to 2,300,000 shares (or 26.4% of the total number
of shares of Common Stock outstanding after this offering).

13
<PAGE> 15

SELECTED CONSOLIDATED FINANCIAL DATA

The selected data presented below are derived from the consolidated
financial statements of the Company and its subsidiaries at December 31, 1994,
1995 and 1996 and for the years then ended, which are included elsewhere in this
Prospectus and have been audited by Deloitte & Touche LLP, independent public
accountants. The selected consolidated financial data at December 31, 1992 and
1993 and for the years then ended have been derived from audited consolidated
financial statements not included herein. The selected consolidated financial
data for the six months ended June 30, 1996 and June 30, 1997 have been derived
from the Company's unaudited consolidated financial statements. In the opinion
of management, all unaudited consolidated financial statements used to derive
the information presented have been prepared on the same basis as the audited
consolidated financial statements and include all adjustments (consisting only
of normal recurring accruals) necessary for a fair presentation of the results
for the periods presented. The information for the six months ended June 30,
1997 is not necessarily indicative of the operating results to be expected for
any future period. The selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Results of Operations
and Financial Condition" and the Consolidated Financial Statements and related
notes and other financial information included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------------------- ------------------------
1992 1993 1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales.......................... $4,727,637 $5,106,270 $4,508,837 $9,862,242 $14,656,337 $6,460,113 $10,318,535
Cost of sales.................. 2,359,693 2,266,296 2,222,085 4,987,779(1) 6,486,268 2,744,994 4,188,280
---------- ---------- ---------- ---------- ----------- ---------- -----------
Gross profit................... 2,367,944 2,839,974 2,286,752 4,874,463 8,170,069 3,715,119 6,130,255
Operating expenses:
Selling...................... 1,839,527 1,971,177 1,569,014 2,008,301 3,731,762 1,653,693 2,512,066
General and administrative... 454,606 424,026 521,040(2) 503,184 744,206 349,645 622,092
Depreciation and
amortization............... 122,613 211,682 270,615 341,494(3) 230,799 125,388 124,646
Research and development..... 282,829 276,489 173,400 363,871 730,124 236,539 394,839
Employee stock options(4).... -- -- -- 106,700 23,100 11,550 364,146
---------- ---------- ---------- ---------- ----------- ---------- -----------
Total operating
expenses............. 2,699,575 2,883,374 2,534,069 3,323,550 5,459,991 2,376,815 4,017,789
---------- ---------- ---------- ---------- ----------- ---------- -----------
Income (loss) from
operations................... (331,631) (43,400) (247,317) 1,550,913 2,710,078 1,338,304 2,112,466
Other income................... 4,035 12,648 11,706 62,212 25,145 7,814 46,067
Interest expense............... (76,780) (110,504) (192,543) (355,468) (212,669) (122,806) (65,853)
---------- ---------- ---------- ---------- ----------- ---------- -----------
Income (loss) before income
taxes...................... (404,376) (141,256) (428,154) 1,257,657 2,522,554 1,223,312 2,092,680
Income tax expense (benefit)... -- -- -- (342,000) 1,115,892 541,152 837,072
---------- ---------- ---------- ---------- ----------- ---------- -----------
Net income (loss)...... $ (404,376) $ (141,256) $ (428,154) $1,599,657 $ 1,406,662 $ 682,160 $ 1,255,608
========== ========== ========== ========== =========== ========== ===========
Net income (loss) per common
share and common equivalent
share........................ $ (0.06) $ (0.02) $ (0.06) $ 0.22(5) $ 0.19 $ 0.09 $ 0.17
Weighted average common shares
and common equivalent
shares(6).................... 7,149,690 7,149,690 7,149,690 7,166,740 7,349,042 7,354,292 7,333,290
</TABLE>

<TABLE>
<CAPTION>
AT DECEMBER 31, AT JUNE 30, 1997
-------------------------------------------------------------- ----------------------------
1992 1993 1994 1995 1996 ACTUAL AS ADJUSTED(7)
---------- ---------- ---------- ---------- ---------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................ $ 193,499 $ (109,760) $ (718,564) $1,321,517 $3,832,424 $4,976,323 $21,033,554
Total assets................... 3,406,815 3,877,445 4,229,551 5,479,698 7,815,668 10,558,549 25,949,113
Total debt..................... 1,430,000 2,100,000 2,925,000 2,200,000 1,501,267 1,500,436 --
Total shareholders' equity..... 1,299,290 1,158,034 637,580 2,343,937 3,773,699 5,349,468 22,240,468
</TABLE>

(footnotes on following page)

14
<PAGE> 16

- ---------------

(1) Includes $531,186 from a change in the estimated life of product development
costs. See Note 1 to the Consolidated Financial Statements, "Product Design
Costs."
(2) Includes $146,541 for costs incurred in a terminated private stock offering.
(3) Includes a charge for unamortized patent costs of $192,570 due to the
discontinuance of certain products sold in the medical field.
(4) Reflects compensation expense incurred upon the vesting of options having an
exercise price less than the fair market value of the Common Stock on the
date of grant. The weighted average exercise price of such vested options is
$0.36 per share.
(5) Includes a benefit of $0.11 per share resulting from a reduction in the
deferred tax asset valuation allowance.
(6) Includes 7,000,000 common shares outstanding in each period plus the effect
of stock options granted, using the Treasury Stock Method, assuming an
initial public offering price of $11.00 per share. See Notes 1 and 11 to the
Consolidated Financial Statements.
(7) Adjusted to give effect to the sale of 1,700,000 shares of Common Stock
being offered by the Company hereby (assuming an initial public offering
price of $11.00 per share) and the application of the estimated net proceeds
therefrom. See "Use of Proceeds."

15
<PAGE> 17

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following information should be read in conjunction with the
Consolidated Financial Statements of the Company, including the notes thereto,
included elsewhere in this Prospectus.

OVERVIEW

From its inception in 1982 through 1992, the Company focused on providing
computerized, 3-D measurement devices to the orthopedic and neurosurgical
markets. During this period, the Company introduced a knee laxity measurement
device, a diagnostic tool for measuring posture, scoliosis and back flexibility,
and a surgical guidance device utilizing a six-axis articulated arm.

In 1992, in an effort to capitalize on a demand for 3-D portable
measurement tools for the factory floor, the Company made a strategic decision
to target its core measurement technology to the manufacturing and industrial
markets. In order to focus on manufacturing and industrial applications of its
technology, the Company phased out the direct sale of its medical products and
entered into licensing agreements with two major neurosurgical companies for its
medical technology. Since that time, sales to the manufacturing and industrial
markets have increased to 96.5% of sales in 1996 and 98.0% of sales in the six
months ended June 30, 1997. In 1995, the Company made a strategic decision to
target international markets. The Company established sales offices in France
and Germany in 1996 and the United Kingdom in 1997. International sales
represented 21.6% of sales in 1995, 20.5% of sales in 1996 and 26.0% of sales in
the six months ended June 30, 1997.

The Company derives revenues primarily from the sale of the FAROArm(R), its
six-axis articulated measuring device, and AnthroCam(R), its companion 3-D
measurement software. The majority of the Company's revenues are derived from
the sale of its bundled hardware and software measurement systems. Revenue
related to these products is recognized upon shipment.

Revenue growth has resulted primarily from increased unit sales due to an
expanded sales effort that included the addition of sales personnel at existing
offices, the opening of new sales offices, expanded promotional efforts and the
addition of new product features. Additionally, during this period, the Company
lowered its prices on its bundled 3-D measurement systems to stimulate volume.
The Company expects to continue its revenue growth through further penetration
of its installed customer base, expansion of its domestic and international
sales force and expansion of its product line and service offerings. See
"Business -- The FARO Strategy."

In addition to providing a one-year basic warranty without additional
charge, the Company offers its customers one, two and three-year extended
maintenance contracts, which include on-line help services, software upgrades
and hardware warranties. In addition, the Company sells training and technology
consulting services relating to its products. The Company recognizes the revenue
from extended maintenance contracts ratably over the contract term and
recognizes the cost of claims as incurred.

Cost of sales consists primarily of materials, production, overhead and
labor. Selling expenses consist primarily of salaries and commissions to sales
and marketing personnel, and promotion, advertising, travel and
telecommunications expenses. General and administrative expenses consist
primarily of salaries for administrative personnel, rent, utilities and
professional and legal expenses. Research and development expenses represent
salaries, equipment and third-party services.

16
<PAGE> 18

Accounting for wholly-owned foreign subsidiaries is maintained in the
currency of the respective foreign jurisdiction and, therefore, fluctuations in
exchange rates may have an impact on intercompany accounts reflected in the
Company's Consolidated Financial Statements. Although the Company has not
historically engaged in any hedging transactions to limit risks of currency
fluctuations, it intends to do so in the future.

RESULTS OF OPERATIONS

The following table sets forth for the periods presented the percentage of
sales represented by certain items in the Company's Consolidated Statements of
Operations:

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------ ----------------
1994 1995 1996 1996 1997
----- ----- ----- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales.......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.................................. 49.3 50.6 44.3 42.5 40.6
----- ----- ----- ----- -----
Gross profit................................... 50.7 49.4 55.7 57.5 59.4
Operating expenses:
Selling...................................... 34.8 20.4 25.5 25.6 24.3
General and administrative................... 11.6 5.1 5.1 5.4 6.0
Depreciation and amortization................ 6.0 3.5 1.6 1.9 1.2
Research and development..................... 3.8 3.7 5.0 3.7 3.8
Employee stock options....................... -- 1.1 0.2 0.2 3.5
----- ----- ----- ----- -----
Total operating expenses............. 56.2 33.8 37.4 36.8 38.8
----- ----- ----- ----- -----
Income (loss) from operations.................. (5.5) 15.6 18.3 20.7 20.6
Other income................................... 0.3 0.6 0.2 0.1 0.4
Interest expense............................... (4.3) (3.6) (1.5) (1.9) (0.6)
----- ----- ----- ----- -----
Income (loss) before income taxes.............. (9.5) 12.6 17.0 18.9 20.4
Income tax expense (benefit)................... -- (3.5) 7.6 8.4 8.1
----- ----- ----- ----- -----
Net income (loss).................... (9.5)% 16.1% 9.4% 10.5% 12.3%
===== ===== ===== ===== =====
</TABLE>

SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996

Sales. Sales increased $3.9 million, or 59.7%, from $6.5 million for the
first six months of 1996 to $10.3 million for the first six months of 1997. The
increase was primarily the result of increased unit sales due to an expanded
sales effort that included the addition of sales personnel at existing offices,
the opening of new sales offices, expanded promotional efforts and the addition
of new product features. International sales increased $1.5 million, or 123.4%,
from $1.2 million for the first six months of 1996 to $2.7 million for the first
six months of 1997. This growth was attributable to the opening of the Company's
European sales offices in France and Germany in 1996 and the United Kingdom in
1997 and an increase in the number of international distributors.

Gross profit. Gross profit increased $2.4 million, or 65.0%, from $3.7
million for the first six months of 1996 to $6.1 million for the first six
months of 1997. Gross margin increased from 57.5% for the first six months of
1996 to 59.4% for the first six months of 1997. This margin increase was
attributable to a reduction in product costs as a result of technological
improvements, purchasing economies and production efficiencies, partially offset
by a decrease in average unit prices.

Selling expenses. Selling expenses increased $858,000, or 51.9%, from $1.7
million for the first six months of 1996 to $2.5 million for the first six
months of 1997. This increase was primarily a result of the Company's expansion
of sales and marketing staff in the United States and Europe and expanded
promotional efforts. Selling expenses as a percentage of sales decreased from
25.6% for the first six months of 1996 to 24.3% for the first six months of
1997.

17
<PAGE> 19

General and administrative expenses. General and administrative expenses
increased $272,000, or 77.9%, from $350,000 for the first six months of 1996 to
$622,000 for the first six months of 1997. This increase resulted from the
hiring of additional administrative personnel, including network services and
accounting personnel. General and administrative expenses as a percentage of
sales increased from 5.4% for the first six months of 1996 to 6.0% for the first
six months of 1997.

Research and development expenses. Research and development expenses
increased $158,000, or 66.9%, from $237,000 for the first six months of 1996 to
$395,000 for the first six months of 1997. This increase was primarily a result
of increased efforts leading to the introduction of new electronic circuitry,
enhanced mechanical features and 32-bit functionality. Research and development
expenses as a percentage of sales increased from 3.7% for the first six months
of 1996 to 3.8% for the first six months of 1997.

Employee stock options expenses. Employee stock options expenses increased
$353,000 from $12,000 for the first six months of 1996 to $364,000 for the first
six months of 1997. This increase was primarily attributable to the grant of
52,733 options in May 1997, which was made at an exercise price below the fair
market value of the Common Stock on the date of grant.

Interest expense. Interest expense decreased $57,000, or 46.4%, from
$123,000 for the first six months of 1996 to $66,000 for the first six months of
1997. This reduction was attributable to the refinancing of the Company's
indebtedness, resulting in a reduced principal balance and lower interest rate.

Income tax expense. Income tax expense increased $296,000, or 54.7%, from
$541,000 for the first six months of 1996 to $837,000 for the first six months
of 1997. The provision for income taxes as a percentage of income before income
taxes was 44.2% in the first six months of 1996 and 40.0% in the first six
months of 1997.

Net income. Net income increased $573,000, or 84.1%, from $682,000 for the
first six months of 1996 to $1.3 million for the first six months of 1997.

1996 COMPARED TO 1995

Sales. Sales increased $4.8 million, or 48.6%, from $9.9 million in 1995
to $14.7 million in 1996. This increase was attributable to a shift in product
mix to higher priced Silver Series models of the FAROArm(R) and increased unit
sales resulting from completion of the Company's shift in focus from the medical
market to the manufacturing and industrial markets.

Gross profit. Gross profit increased $3.3 million, or 67.6%, from $4.9
million in 1995 to $8.2 million in 1996. Gross margin increased from 49.4% in
1995 to 55.7% in 1996. This increase was due to a reduction in product costs as
a result of technological improvements and to an increase in sales of higher
margin Silver Series models of the FAROArm(R). In addition, gross profit for
1995 was adversely affected by a $531,000 charge to cost of sales relating to a
change in the estimated life of product design costs.

Selling expenses. Selling expenses increased $1.7 million, or 85.8%, from
$2.0 million in 1995 to $3.7 million in 1996 primarily as a result of the
Company's expansion of sales and marketing staff and the opening of additional
sales offices in the United States and Europe in the second half of 1996.
Selling expenses as a percentage of sales increased from 20.4% in 1995 to 25.5%
in 1996.

General and administrative expenses. General and administrative expenses
increased $241,000, or 47.9%, from $503,000 in 1995 to $744,000 in 1996. This
increase was a result of additional accounting personnel and corporate legal
expenses related to the opening of new offices in Europe. General and
administrative expenses as a percentage of sales remained unchanged at 5.1% in
1996 compared to 1995.

Research and development expenses. Research and development expenses
increased $366,000, or 100.7%, from $364,000 in 1995 to $730,000 in 1996. This
increase was a result of the hiring of additional personnel to design and
develop improved hardware, software and product functionality. Research and
development expenses as a percentage of sales increased from 3.7% in 1995 to
5.0% in 1996.

Employee stock options expenses. Employee stock options expenses decreased
$84,000, or 78.4%, from $107,000 in 1995 to $23,000 in 1996. The Company did not
grant options in 1996, and compensation expense relating to options granted in
1995 was significantly lower in 1996 than in 1995.

Interest expense. Interest expense decreased $143,000, or 40.2%, from
$355,000 in 1995 to $213,000 in 1996 due to a reduction in the amount of the
Company's indebtedness.

18
<PAGE> 20

Income tax expense. Income tax expense increased $1.5 million from a
benefit of $342,000 in 1995 to an expense of $1.1 million in 1996. The provision
for income taxes as a percentage of income before income taxes was 44.2% in
1996. In 1995, the Company had an income tax benefit as a result of the reversal
of a deferred tax valuation allowance.

Net income. Net income decreased $193,000, or 12.1%, from $1.6 million in
1995 to $1.4 million in 1996.

1995 COMPARED TO 1994

Sales. Sales increased $5.4 million, or 118.7%, from $4.5 million in 1994
to $9.9 million in 1995. The increase was due to increased unit sales resulting
from a shift in focus from the medical market to the manufacturing and
industrial markets and the Company's release of its AnthroCam(R) software in
late 1994. The release of AnthroCam(R) led to increased sales of the Company's
FAROArm(R) products, particularly of higher priced Silver Series models.

Gross profit. Gross profit increased $2.6 million, or 113.2%, from $2.3
million in 1994 to $4.9 million in 1995 due to an increase in 1995 in sales of
Silver Series models of the FAROArm(R) and AnthroCam(R) software, compared to
Bronze Series models and the Company's medical and surgical products. Gross
margins as a percentage of sales declined from 50.7% in 1994 to 49.4% in 1995,
primarily because of price reductions made to increase sales volume and a
$531,000 charge to cost of sales relating to a change in the estimated life of
product design costs.

Selling expenses. Selling expenses increased $439,000, or 28.0%, from $1.6
million in 1994 to $2.0 million in 1995. This increase was primarily a result of
the hiring of additional personnel related to the Company's continued expansion
of sales to manufacturing and industrial markets and related marketing
activities. Selling expenses as a percentage of sales decreased from 34.8% in
1994 to 20.4% in 1995. This decrease was due to an increase in sales without a
commensurate increase in selling expenses.

General and administrative expenses. General and administrative expenses
decreased $18,000, or 3.4%, from $521,000 in 1994 to $503,000 in 1995. General
and administrative expenses as a percentage of sales decreased from 11.6% in
1994 to 5.1% in 1995. This decrease reflects a one-time expense of $147,000 in
1994 related to a terminated private stock offering. Net of this one-time
expense, general and administrative expenses increased $129,000, or 34.4%, from
$374,000 in 1994 due to increases in legal fees, administrative salaries and
insurance, all associated with the Company's growth. However, general and
administrative expenses decreased as a percentage of sales from 8.3% in 1994 to
5.1% in 1995.

Research and development expenses. Research and development expenses
increased $190,000, or 109.8%, from $173,000 in 1994 to $364,000 in 1995. This
increase was primarily a result of a substantial effort to expand the Company's
product line. Research and development expenses as a percentage of sales
decreased from 3.8% in 1994 to 3.7% in 1995.

Employee stock options expenses. The Company granted stock options for the
first time in 1995 under its 1993 Stock Option Plan. As a result, the Company
recognized employee stock options expenses of $107,000 in 1995 compared to none
in 1994.

Interest expense. Interest expense increased $163,000, or 84.6%, from
$193,000 in 1994 to $355,000 in 1995. This increase was due to new borrowings
that were obtained to finance additional working capital needs to complete the
transition from the medical market to the manufacturing and industrial markets.

Income tax expense. The Company recognized an income tax benefit of
$342,000 in 1995 compared to no provision for income taxes in 1994. In 1994, the
deferred income tax benefit of $146,000 was offset by a valuation allowance due
to the Company's history of operating losses. In 1995, the Company's income tax
provision was offset by a corresponding reduction in its deferred tax valuation
allowance. In addition, the remaining deferred tax asset valuation allowance was
reversed because the Company had commenced profitable operations.

Net income (loss). The Company's net income (loss) for 1995 increased $2.0
million from a net loss of $428,000 in 1994 to net income of $1.6 million in
1995.

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<PAGE> 21

QUARTERLY RESULTS

The following table sets forth certain unaudited statements of income data
for each of the eight quarters in the period ending June 30, 1997. This data has
been derived from unaudited financial statements which, in the opinion of
management, have been prepared on the same basis as the audited financial
statements and include all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation of the results for the periods
presented. The results of operations for the interim periods are not necessarily
indicative of future results.

<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------------------------------
1995 1996 1997
----------------------- ------------------------------------------------- -----------------------
SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales..................... $1,855,175 $3,233,317 $3,037,610 $3,422,503 $4,083,193 $4,113,031 $4,889,471 $5,429,064
Cost of sales............. 658,225 1,687,246 1,186,666 1,558,328 1,756,120 1,985,154 1,948,549 2,239,731
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Gross profit.............. 1,196,950 1,546,071 1,850,944 1,864,175 2,327,073 2,127,877 2,940,922 3,189,333
Operating expenses:
Selling................. 383,026 699,756 731,549 922,144 940,900 1,137,169 1,158,559 1,353,507
General and
administrative........ 104,328 63,981 166,166 183,479 195,216 199,345 302,523 319,569
Depreciation and
amortization.......... 37,231 37,231 80,450 44,938 48,682 56,729 58,873 65,773
Research and
development........... 18,320 244,626 93,580 142,959 191,917 301,668 178,073 216,766
Employee stock
options............... -- 106,700 5,775 5,775 5,775 5,775 3,270 360,876
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total operating
expenses............ 542,905 1,152,294 1,077,520 1,299,295 1,382,490 1,700,686 1,701,298 2,316,491
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Income from operations.... 654,045 393,777 773,424 564,880 944,583 427,191 1,239,624 872,842
Other income.............. 3,558 3,217 2,770 5,044 12,866 4,465 (5,810) 51,877
Interest expense.......... (85,696) (72,358) (64,147) (58,659) (53,650) (36,213) (34,262) (31,591)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income
taxes................... 571,907 324,636 712,047 511,265 903,799 395,443 1,199,552 893,128
Income tax expense
(benefit)............... (155,521) (88,280) 314,986 226,166 399,810 174,930 479,821 357,251
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income............ $ 727,428 $ 412,916 $ 397,061 $ 285,099 $ 503,989 $ 220,513 $ 719,731 $ 535,877
========== ========== ========== ========== ========== ========== ========== ==========
Net income (loss) per
common share and common
equivalent share........ $ 0.10 $ 0.06 $ 0.05 $ 0.04 $ 0.07 $ 0.03 $ 0.10 $ 0.07
Weighted average common
shares and common
equivalent shares....... 7,149,690 7,217,891 7,354,292 7,354,292 7,354,292 7,333,290 7,333,290 7,333,290
</TABLE>

LIQUIDITY AND CAPITAL RESOURCES

The Company has financed its operations to date through a combination of
cash flow from operations, borrowings and private equity financings.

Net cash provided by operating activities for the six months ended June 30,
1997 was $268,000 compared to $732,000 for the six months ended June 30, 1996.
Net cash provided by operating activities in this period decreased primarily due
to increases in accounts receivable. Net cash provided by operating activities
for 1996 was $1.5 million compared to $936,000 for 1995. Net cash provided by
operating activities in 1996 increased primarily due to increases in accounts
payable and unearned service revenues.

Net cash used in investing activities was $413,000 for the six months ended
June 30, 1997 compared to $265,000 for the six months ended June 30, 1996. Net
cash used in investing activities was $550,000 for 1996 compared to $285,000 for
1995. Net cash used in investing activities increased for the six months ended
June 30, 1997 and for 1996 primarily due to increased purchases of property and
equipment and increased patent costs.

Net cash used in financing activities for the six months ended June 30,
1997 was $1,000 compared to $300,000 for the six months ended June 30, 1996. The
$300,000 of net cash used in financing activities in the first six months of
1996 primarily reflects the repayment of related party loans. Net cash used in
financing activities for 1996 was $715,000 compared to $725,000 for 1995. Net
cash used in financing activities decreased primarily due to the repayment of
related party loans of $2.2 million in 1996, offset by proceeds from debt of
$1.6 million.

20
<PAGE> 22

The Company has a loan agreement in the form of a term note and a line of
credit that matures in September 1999. The Company had available borrowings
under the line of credit in the amount of $443,000 at June 30, 1997. Advances
outstanding under the loan bear interest at the 30-day commercial paper rate
plus 2.7% per annum (8.31% at June 30, 1997). Principal payments of $611,000,
$667,000 and $223,000 will be due in 1997, 1998 and 1999, respectively. The loan
is collateralized by substantially all of the Company's assets. The loan
agreement contains restrictive covenants, including the maintenance of certain
amounts of working capital and tangible net worth and limits on loans to related
parties. In April 1997, the Company also obtained a one-year unsecured $1.0
million line of credit from the same lender which bears interest at the 30-day
commercial paper rate plus 2.65% per annum (8.26% at June 30, 1997).

The Company's principal commitments at June 30, 1997 were leases on its
headquarters and regional offices, and there were no material commitments for
capital expenditures at that date. The Company believes that the proceeds of
this offering, cash generated from operations and borrowings under its credit
facilities will be sufficient to satisfy its working capital and capital
expenditure needs for at least one year.

INFLATION

The Company believes that inflation has not had a material impact on its
results of operations in recent years and does not expect inflation to have a
material impact on its operations in 1997.

RECENT ACCOUNTING PRONOUNCEMENTS

In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share." This Statement
establishes standards for computing and presenting earnings per share ("EPS")
and applies to all entities with publicly held common stock or potential common
stock. This Statement replaces the presentation of primary EPS and fully diluted
EPS with a presentation of basic EPS and diluted EPS, respectively. Basic EPS
excludes dilution and is computed by dividing earnings available to common
stockholders by the weighted-average number of common shares outstanding for the
period. Similar to fully diluted EPS, diluted EPS reflects the potential
dilution of securities that could share in the earnings. This Statement is
effective for the Company's financial statements for the year ended December 31,
1997.

CERTAIN FORWARD-LOOKING INFORMATION

Certain matters discussed in this Prospectus are forward-looking statements
within the meaning of the federal securities laws. Although the Company believes
that the expectations reflected in such forward-looking statements are based
upon reasonable assumptions, there can be no assurance that its expectations
will be achieved. Factors that could cause actual results to differ materially
from the Company's current expectations include market acceptance of the
Company's products, which consist of two closely interdependent products, the
amount and timing of expenses associated with the development and marketing of
new products, the Company's ability to protect and continue to develop its
proprietary technology in the face of competition and technological change,
risks associated with the Company's international operations, general economic
conditions and the other risks set forth under the caption "Risk Factors."

21
<PAGE> 23

BUSINESS

GENERAL

The Company designs, develops, markets and supports portable,
software-driven, 3-D measurement systems that are used in a broad range of
manufacturing and industrial applications. The Company's principal products are
the FAROArm(R) articulated measuring device and its companion AnthroCam(R)
software. Together, these products integrate the measurement and quality
inspection function with computer-aided design ("CAD"), computer-aided
manufacturing ("CAM") and computer-aided engineering ("CAE") technology to
improve productivity, enhance product quality and decrease rework and scrap in
the manufacturing process. The Company's products bring precision measurement,
quality inspection and specification conformance capabilities, integrated with
leading CAD software, to the factory floor. The Company is a pioneer in the
development and marketing of 3-D measurement technology in manufacturing and
industrial applications and currently holds or has pending 18 patents in the
United States, eight of which also are held or pending in other jurisdictions.
The Company's products have been purchased by more than 600 customers worldwide,
ranging from small machine shops to such large manufacturing and industrial
companies as General Motors, Chrysler, Ford, Boeing, Lockheed Martin, General
Electric, Westinghouse Electric, Caterpillar and Komatsu Dresser.

INDUSTRY BACKGROUND

The creation of physical products involves the processes of design,
engineering, production and measurement and quality inspection. These basic
processes have been profoundly affected by the computer hardware and software
revolution that began in the 1980s. CAD software was developed to automate the
design process, providing manufacturers with computerized 3-D design capability.
Today, most manufacturers use some form of CAD software to create designs and
engineering specifications for new products and to quantify and modify designs
and specifications for existing products. The benefits of CAD are significant.
The CAD process offers a three-dimensional, highly-efficient and inherently
flexible alternative to traditional design methods. Many manufacturers have also
recently adopted CAM technology, in which CAD data directs machines in the
manufacturing process. CAM has further improved the efficiency and quality of
the production of manufactured goods. According to International Data
Corporation, the worldwide market for mechanical CAD, CAM and CAE-based software
products amounted to $3.0 billion in 1996 and is expected to grow at the rate of
16.5% per year to $5.6 billion in 2000.

A significant aspect of the manufacturing process which traditionally has
not benefitted from computer-aided technology is measurement and quality
inspection. Historically, manufacturers have measured and inspected products
using hand-measurement tools such as scales, calipers, micrometers and plumb
lines for simple measuring tasks, test fixtures for certain large manufactured
products and traditional coordinate measurement machines ("CMMs") for objects
that require higher precision measurement. However, the broader utility of each
of these measurement methods is limited. Although hand-measurement tools are
often appropriate for simple measurements, their use for complex measurements is
time-consuming and limited in adaptability. Test fixtures (customized fixed
tools used to make comparative measurements of production parts to "master
parts") are relatively expensive and must be reworked or discarded each time a
dimensional change is made in the part being measured. In addition, these manual
measuring devices do not permit the manufacturer to compare the dimensions of an
object with its CAD model.

Conventional CMMs are generally large, fixed-base machines that provide
very high levels of precision but have only recently begun to provide a link to
the CAD model of the object being measured. CMMs require that the object being
measured be brought to the fixed-based CMM and that the object fit within the
CMM's measurement grid. In addition, conventional CMMs generally operate in
metrology laboratories or environmentally-stable quality inspection departments
of manufacturing facilities rather than on the factory floor. According to Frost
& Sullivan, an independent industry research group, the worldwide market for
fixed-base CMMs amounted to $1.2 billion in 1995.

22
<PAGE> 24

Isolation from the factory floor and the relatively small measurement grids
of CMMs limit their utility to small, readily portable workpieces that require
high levels of measurement precision. As manufactured subassemblies increase in
size and become integrated into even larger assemblies, they become less
transportable, thus diminishing the utility of a conventional CMM. Consequently,
manufacturers must continue to use hand-measuring tools or expensive customized
test fixtures to measure large or unconventionally shaped objects.

An increasingly competitive global marketplace has created a demand for
higher quality products with shorter life cycles. While manufacturers previously
designed their products to be in production for longer periods of time, current
manufacturing practices must accommodate more frequent product introductions and
modifications, while satisfying more stringent quality and safety standards. In
most cases, only a relatively small percentage of the components of a
manufactured product requires highly precise measurements (less than
one-thousandth of an inch). Conventional CMMs provide manufacturers with very
precise measurement capabilities and cost up to $2 million per unit. However,
they are not responsive to manufacturers' increasing need for cost-effective
intermediate precision measurement capabilities. The Company believes that a
greater percentage of components requires intermediate precision measurements
(between one- and twenty-thousandths of an inch). In the absence of intermediate
precision measuring systems, manufacturers often are unable to make appropriate
measurements or part-to-CAD comparisons during the manufacturing process,
resulting in decreased productivity, poor product quality and unacceptable
levels of product rework and scrap. Manufacturers increasingly require more
rapid design, greater control of the manufacturing process, tools to compare
components to their CAD specifications and the ability to measure precisely
components that cannot be measured or inspected by conventional CMMs. Moreover,
they increasingly require measurement capabilities to be integrated into the
manufacturing process and to be available on the factory floor.

THE FARO SOLUTION

Integration with CAD Technology. The Company's products provide a
bridge between the virtual 3-D world of the CAD process and the physical
3-D world of the factory floor. The interface to CAD allows manufacturers
to integrate design, production and measurement and quality inspection
processes on a common software platform. The Company believes that this
integration creates significant savings by reducing the need for test
fixtures and improves productivity by reducing production set-up times.
Finally, the Company's integration with CAD technology significantly
enhances product quality by maximizing the opportunities to make precise
measurements based on engineering specifications within the manufacturing
process.

Six-Axis Articulating Arm. The FAROArm(R) incorporates a six-axis
instrumented, articulating device that approximates the range of motion and
dexterity of the human arm. The flexibility of the FAROArm(R) enables the
user to measure complex shapes and ergonomic structures and to reach
behind, underneath and into previously inaccessible spaces, such as
interior surfaces of aircraft or automobiles. The flexibility of the
FAROArm(R) allows customers to measure more accurately and efficiently than
previously possible.

Portability and Adaptability. The FAROArm(R) is lightweight, portable
and designed for operation in the often harsh environments typical of
manufacturing facilities. The FAROArm(R) can be moved to multiple locations
on the factory floor to measure large parts and assemblies that cannot be
easily moved to a conventional CMM. This portability extends 3-D
measurement to previously inaccessible areas of the factory floor and
eliminates the travel time to and from quality inspection departments.

23
<PAGE> 25

Levels of Precision Responsive to Industry Needs. The Company's
products respond to manufacturers' need for intermediate levels of
measurement precision. Although high levels of precision (less than
one-thousandth of an inch) are required for certain manufacturing
applications, the FAROArm(R) satisfies the greater demand for measurements
that require intermediate precision (one- to twenty-thousandths of an
inch). The Company's products meet the precision measurement requirements
of a substantial portion of products in the manufacturing process and
address the underserved market for intermediate precision measurement
systems.

Broad Affordability. The Company offers various models of the
FAROArm(R) ranging in price from $14,000 to $70,000, while conventional
CMMs range in price from $20,000 to $2 million. The relatively low cost of
the Company's products compared to conventional CMMs has afforded
manufacturers the opportunity to introduce cost-effective measurement and
quality inspection functions throughout the manufacturing process.
Manufacturers are able to purchase multiple units to be used at different
locations within a single manufacturing facility and to introduce
measurement and quality inspection at additional points in the
manufacturing process.

Ease of Use. The Company's software products have been specifically
designed to be used by production line personnel with minimal prior
computer or CAD experience. The bundled hardware and software system is
designed to require minimal training for production line personnel to reach
proficiency with the product. To take a measurement, the operator simply
touches the object to be measured with a probe at the end of the arm and
presses a button. The FAROArm(R) is also ergonomically designed to
facilitate use in typical factory floor applications.

Paperless Data Collection. The FAROArm(R) allows for paperless data
collection by a connected computer hosting related CAD application
software. This function responds to current trends toward automated
statistical process controls for facilitating data analysis. Paperless data
collection improves productivity and eliminates the risk of error in
transcribing the collected information.

Open Architecture. The FAROArm(R) and AnthroCam(R) have been designed
as an open architecture system, allowing the user to unbundle the hardware
and software to interface the FAROArm(R) with other CAD-based software
packages and to interface AnthroCam(R) with other 3-D measurement devices.
In addition, the Company's software and hardware are built in accordance
with computer and communications industry standards so that these products
may be integrated with a broad range of application software packages.

THE FARO STRATEGY

The Company's objective is to strengthen its position as the leading
provider of portable, software-driven, 3-D measurement systems. To achieve this
objective, the Company has adopted the following principal strategies:

Focus on the Portable 3-D Measurement Market. The Company is a
pioneer in the development and marketing of portable, software-driven, 3-D
measurement systems. The Company believes that the market for these
products is substantial, but is currently underserved. The Company expects
its intensive efforts to document and publicize new applications to lead to
a greater market awareness of the benefits of the Company's technology.

Further Penetrate its Installed Customer Base. The Company has more
than 600 customers that use its products in a broad range of manufacturing
and industrial applications. Many of these customers are large
manufacturers with multiple facilities. For many of its customers, the
Company's products are used only at certain manufacturing facilities or by
certain divisions. Accordingly, the Company will seek to leverage
successful installations of its products to encourage adoption at
additional customer sites.

Increase International Sales. The Company believes that substantial
international demand exists for portable, software-driven, 3-D measurement
systems. Therefore, the Company plans to extend its significant commitment
to international sales and support to take advantage of worldwide market
opportunities. International sales represented 20.5% of the Company's sales
for 1996 and 26.0% for the

24
<PAGE> 26

first six months of 1997. The Company intends to increase international
sales by expanding its current sales organization in Europe and entering
new markets, such as the Pacific Rim and Latin America.

Leverage its Technology. The Company has made a substantial
investment in the development of its technology, employs a number of
proprietary manufacturing processes and currently holds or has pending 18
patents in the United States, eight of which are also held or pending in
other jurisdictions. The Company believes that the foundation of its
successes to date has been the technological superiority and affordability
of its products. The Company intends to leverage its existing technology to
lower the cost of producing, and enhance the functionality, of its
products.

Expand its Product Line and Service Offerings. The Company intends to
introduce new products to meet the requirements of its customers. The
Company also intends to capitalize on its experience in solving unique
production problems to increase revenues through technical service
offerings. In addition, the Company may seek to acquire complementary
businesses or technologies to expand its product and service offerings.

FARO PRODUCTS

SILVER SERIES MODEL

[NUMBERS 1-6 INDICATE AXES (GRAPH)]

A schematic drawing of the Company's Silver Series FAROArm(R) showing (i) six
numbered axes of motion, (ii) an on-board controller and (iii) a probe,
hardgrip and data switch on one end and a laptop computer connected at the
other end with the Company's Autro Cam logo on the computer screen.

25
<PAGE> 27

FAROArm(R)

The FAROArm(R) is a portable, six-axis, instrumented, articulated device
that approximates the range of motion and dexterity of the human arm. Each
articulated arm is comprised of three major joints, each of which may consist of
one, two or three axes of motion. The FAROArm(R) is available in a variety of
sizes, configurations and precision levels that are suitable for a broad range
of applications. To take a measurement, the operator simply touches the object
to be measured with a probe at the end of the arm and presses a button. Data can
be captured as either individual points or a series of points. Digital
rotational transducers located at each of the joints of the arm measure the
angles at those joints. This rotational measurement data is transmitted to an
on-board controller that converts the arm angles to precise locations in 3-D
space using "xyz" position coordinates and "ijk" orientation coordinates.

The FAROArm(R) has been designed as an open architecture system. The
communications parameters of the on-board processors have the ability to combine
advanced sensing probes, integrate with conventional CMM software and
communicate with different CAD software packages and a variety of computer
operating systems. This open architecture is designed to provide for easy
integration of the FAROArm(R) into the manufacturing environment. The customer's
ability to use an installed base of computing hardware and software further
reduces the cost of installation and training while initiating the transition to
the Company's preferred group of CAD-based products. To encourage integration of
the FAROArm(R) into the manufacturing environment, the Company provides a group
of seamless interface drivers for leading CAD/CAM packages, including
AutoCAD(R), CADKey(R) and SURFCAM(R). The Company also provides a full serial
communication command protocol to the FAROArm(R) for customers who write their
own interfaces.

The Company offers several models of the FAROArm(R) under two product
lines: the Silver Series and the Bronze Series.

Silver Series. The Silver Series models are the Company's higher precision
(P.003 to P.007 inches) measuring devices and are available in six, eight and
twelve foot measurement diameters. These models are most frequently used for
factory floor inspection and fit-checking applications. Depending on the size,
configuration and precision level, the Silver Series models are priced between
$50,000 and $70,000 when sold as a turnkey system including hardware and
AnthroCam(R) software and between $30,000 and $60,000 without AnthroCam(R)
software.

Bronze Series. The Bronze Series models are the Company's medium precision
(P.012 to P.016 inches) measuring devices and are available in six, eight and
ten foot measurement diameters. These models are most frequently used for
applications that do not require high-level precision, such as 3-D modeling,
mold production and reverse-engineering applications. Depending on the size,
configuration and precision level, the Bronze Series models are priced between
$30,000 and $50,000 when bundled with AnthroCam(R) software and between $14,000
and $23,000 without AnthroCam(R) software.

AnthroCam(R)

AnthroCam(R) is the Company's proprietary measurement software. It is built
on the AutoCAD/AutoSurf software development platform, which allows users to
benefit from extensive hardware, software, interfacing and product support
libraries and teaching products. AnthroCam(R) software is offered with the
FAROArm(R) and is also offered as an unbundled product. When unbundled from the
FAROArm(R), AnthroCam(R) sells for $15,000.

AnthroCam(R) is the Company's software-based bridge to CAD and CAM; it
allows users to compare measurements of manufactured components with complex CAD
data. In conventional design applications, curved or ergonomic shapes are
typically modeled physically and then converted into data for manufacturing.
AnthroCam(R) provides an alternative to the time and expense of this physical
modeling process with a digital solution. For older parts without data files,
AnthroCam(R) enables pre-existing parts to be measured in order to adapt them to
current manufacturing technologies.

AnthroCam(R) has been designed as an open architecture system, allowing for
efficient integration into the manufacturing environment. The Company provides a
full serial communication command protocol to the

26
<PAGE> 28

AnthroCam(R) software for customers who write interfaces to their own software.
The Company also provides comprehensive training and support for AnthroCam(R)
and offers this product in a number of international versions.

AnthroCam(R) is a Windows-based, 32-bit application written for the most
recent PC-based technology. AnthroCam(R) has been entirely designed and
programmed by the Company utilizing field input and industry wide beta site
installations. AnthroCam(R) is written as an AutoCAD runtime extension (ARX)
that is the AutoCAD(R) Application Programming Interface (API). The software is
written in the C++ development language using Microsoft Foundation Class (MFC)
standards. The software fully implements UNICODE standards for worldwide
translation allowing the Company to create foreign language versions to enter
international markets more effectively.

Specialty Products

The Company licenses and supports certain specialty products based on its
articulated arm technology that are used in medical and multimedia applications.
License and support fees from these products do not represent a significant
portion of the Company's revenues and the Company does not intend to actively
market these products.

CUSTOMERS

The Company's products have been purchased by more than 600 customers
ranging from small machine shops to large manufacturing and industrial
companies. The Company's ten largest customers by revenue represented 28.1% and
17.5% of the Company's total revenues in 1996 and the six months ended June 30,
1997, respectively. Sales to Boeing represented 10.0% of the Company's sales in
1996. No customer represented 10.0% or more of the Company's sales in the first
six months of 1997. The following table illustrates, by vertical market, the
Company's diverse customer base:

AEROSPACE
Boeing
GE Aircraft Engines
Lockheed Martin
Nordam Repair Division
Northrop Grumman
Orbital Sciences
Dee Howard

APPAREL AND FOOTWEAR
Nike
Reebok

AUTOMOTIVE
AO Smith
Chrysler
Ford
General Motors
Honda
Hyundai
Johnson Controls
Lear Corporation
Mercedes Benz
Porsche
Samsung Motors
Toyota
Vehma International

BUSINESS AND CONSUMER
MACHINES
Corning Asahi
Xerox

ELECTRIC UTILITIES AND
MANUFACTURERS
General Electric
Southern California Edison
Tennessee Valley Authority
Westinghouse Electric

FARM/LAWN EQUIPMENT
New Holland North America
Toro

HEAVY EQUIPMENT
MANUFACTURERS
Caterpillar
Komatsu Dresser
Champion Road Machinery
Texas Steel

PERSONAL ROAD/
WATER/SNOW CRAFT
Harley Davidson
Polaris Industries

PLASTICS
Able Design Plastics
Paramount Plastics
Thermoform Plastics

CUSTOMER CASE STUDIES

The following case studies illustrate the use of the Company's products and
services by its customers:

Chrysler Canada Corporation. Chrysler Canada Corporation ("Chrysler")
manufactures the Dodge Ram truck, van and wagon at its Windsor, Ontario
plant. This plant builds approximately 420

27
<PAGE> 29

vehicles per shift, with two shifts per day. Chrysler discovered certain
fit problems with its large panels and bodyside assemblies. Previous
inspection tools, such as test fixtures, templates and patterns, could not
meet Chrysler's requirements for on-site product measurement. The
FAROArm(R) was originally introduced as an interim solution. Chrysler
identified one of its three production lines as its "ideal" or "good" line
and used the FAROArm(R) to compare the products produced by the lines and
adjust the two "bad" lines. Within two weeks, Chrysler experienced
significantly improved product quality. The Company's "interim" solution
resulted in measurable production improvements for the plant, together with
significant capital savings as custom test fixtures were replaced with the
FAROArm(R).

Champion Road Machinery. Champion Road Machinery ("Champion") is a
worldwide manufacturer of road graders. Similar to a snow plow, road
graders are essential for shaping and smoothing new roadbeds, and are also
used in surface mining, dam work and land reclamation. Champion identified
the need to reduce the number of "reworks" or the custom fit of
subassemblies to its frames because of dimensional variations.
Historically, each time component parts did not fit together, Champion
corrected the deviations on a case-by-case basis by custom-fitting the
parts. With the FAROArm(R) and its companion AnthroCam(R) software,
Champion was able to capture measurement data from the parts and identify
the origin of the variations, which allowed it to address the source of the
problems rather than continue to make individual adjustments. Champion's
use of the FAROArm(R) resulted in a systematic solution for a recurring and
expensive manufacturing problem.

Southern California Edison. Southern California Edison ("SCE") is a
large public utility company. Like other utilities, SCE experienced
significant expense and customer dissatisfaction as a result of lengthy
downtimes. During routine turbine overhauls, scheduled and unscheduled
maintenance and forced outage conditions, SCE typically made numerous
repairs and modifications to make its equipment functional. Common problems
encountered by SCE included obsolete parts, long turnaround times for
replacement parts and difficulty in returning damaged parts to full
functionality. Using the FAROArm(R), SCE was able to measure large damaged
blades and create CAD drawings for quick manufacture of replacements. This
allowed SCE to bring its power generation units online without undue delay
and expense.

Texas Steel. Texas Steel is a foundry that produces steel castings
for off-road, mining, oil field and construction equipment. Its castings
weigh as much as 25,000 pounds and have diameters as large as twelve feet.
Texas Steel used the FAROArm(R) to improve the accuracy of dimensional
checks of these large castings, and found it to be safer, faster and more
efficient than its previous measurement methods. Texas Steel reported a 75%
time-savings in making these checks by using the FAROArm(R). In addition,
the FAROArm(R) allowed Texas Steel to measure exceptionally large parts
where such measurements were not possible with previous methods. The ease
of use of the FAROArm(R) and AnthroCam(R) also encouraged Texas Steel to
expand the range of parts checked, further increasing production quality.

Polaris Industries, Inc. Polaris Industries, Inc. ("Polaris") is a
leading manufacturer of all-terrain vehicles ("ATVs"). To satisfy its own
stringent quality standards, Polaris engineers routinely check all ATV
subassemblies and weldments to ensure quality and reduce the number of
reworks caused by dimensional variations. Before Polaris began using the
FAROArm(R), measuring the subassemblies took approximately 2.5 hours.
Polaris' engineers would manually measure various points on the
subassemblies to ensure that they matched blueprint specifications. These
measurements were difficult to make because of the complex size and shape
of the subassemblies. Using the FAROArm(R), Polaris reduced the measurement
time for subassemblies to approximately 15 minutes. Polaris reports that
its use of the FAROArm(R) has resulted in a significant increase in
productivity.

SALES AND MARKETING

The Company directs its sales and marketing efforts from its headquarters
in Lake Mary, Florida. At June 30, 1997, the Company employed 40 sales
professionals who operate from the Company's five domestic regional sales
offices located in Chicago, Dallas, Detroit, Los Angeles and Seattle, and three
international sales

28
<PAGE> 30

offices located in London, Paris and Stuttgart. The Company also utilizes three
domestic and 12 international distributors in territories where the Company does
not have regional sales offices.

The Company uses a process of integrated lead qualification and sales
demonstration. Once a customer opportunity is identified, the Company employs a
team-based sales approach involving inside and outside sales personnel who are
supported by application engineers.

The Company employs a variety of marketing techniques, including direct
mail, trade shows, and advertising in trade journals, and proactively seeks
publicity opportunities for customer testimonials. Management believes that
word-of-mouth advertising from the Company's existing customers provides an
important marketing advantage. The Company also has a computerized sales and
marketing software system with telemarketing, lead tracking and analysis, as
well as customer support capabilities. Each of the Company's sales offices is
linked electronically to the Company's headquarters.

In June 1996, the Company entered into an OEM agreement with Mitutoyo
Corporation ("Mitutoyo"), a Japanese company that is the world's largest
manufacturer of metrology tools. Mitutoyo markets the FAROArm(R) in Japan under
the name SPINARM(R). The agreement, which grants Mitutoyo a non-exclusive right
to sales in Japan, expires in June 1999 and is renewable for one year terms.

RESEARCH AND DEVELOPMENT

The Company believes that its future success depends on its ability to
achieve technological leadership, which will require ongoing enhancements of its
products and the development of new applications and products that provide 3-D
measurement solutions. Accordingly, the Company intends to continue to make
substantial investments in the development of new technologies, the
commercialization of new products that build on the Company's existing
technological base and the enhancement and development of additional
applications for its products.

The Company's research and development efforts are directed primarily at
enhancing the technology of its current products and developing new and
innovative products that respond to specific requirements of the emerging market
for 3-D measurement systems. The Company's research and development efforts have
been devoted primarily to mechanical hardware, electronics and software. The
Company's engineering development efforts will continue to focus on the
FAROArm(R) and AnthroCam(R) products. Significant efforts are also being
directed toward the development of new measurement technologies and additional
features for existing products. See "-- Technology."

At June 30, 1997, the Company employed 16 scientists and technicians in its
research and development efforts. Research and development expenses were
$730,000 in 1996 and $395,000 in the first six months of 1997. Research and
development activities, especially with respect to new products and
technologies, are subject to significant risks, and there can be no assurance
that any of the Company's research and development activities will be completed
successfully or on schedule, or, if so completed, will be commercially accepted.
See "Risk Factors -- Technological Change."

TECHNOLOGY

The primary measurement function of the FAROArm(R) is to provide
orientation and position information with respect to the probe at the end of the
FAROArm(R). This information is processed by software and can be compared to the
desired dimensions of the CAD data of a production part or assembly to determine
whether the measured data conforms to meet dimensional specifications.

To accomplish this measurement function, the FAROArm(R) is designed as an
articulated arm with six or seven joints. The arm consists of aluminum links and
rotating joints that are combined in different lengths and configurations,
resulting in human arm-like characteristics. Each joint is instrumented with a
rotational transducer, a device used to measure rotation, which is based on
optical digital technology. The position and orientation of the probe in three
dimensions is determined by applying trigonometric calculations at each joint.
The position of the end of a link of the arm can be determined by using the
angle measured and the known

29
<PAGE> 31

length of the link. Through a complex summation of these calculations at each
joint, the position and orientation of the probe is determined.

The Company's products are the result of a successful integration of
state-of-the-art developments in mechanical and electronic hardware and
applications software. The unique nature of the Company's technical developments
is evidenced by the Company's numerous U.S. and international patents. The
Company maintains low cost product design processes by retaining development
responsibilities for all electronics, hardware and software.

Mechanical Hardware. The FAROArm(R) is designed to function in diverse
environments and under rigorous physical conditions. The arm monitors its
temperature to adjust for environments ranging from -10 degrees to +50 degrees
Celsius. The arm is constructed of pre-stressed precision bearings to resist
shock loads. Low production costs are attained by the proprietary combination of
reasonably priced electromechanical components accompanied by the optimization
and on-board storage of calibration data. Many of the Company's innovations
relate to the environmental adaptability of its products. Significant features
include integrated counter-balancing, configuration convertibility and
temperature compensation.

Electronics. The rotational information for each joint is processed by an
on-board computer that is designed to handle complex analyses of joint data as
well as communications with a variety of host computers. The Company's
electronics are based on digital signal processing and surface mount
technologies. The Company's products meet all mandatory electronic safety
requirements. Advanced circuit board development, surface mount production and
automated testing methods are used to ensure low cost and high reliability.

Software. AnthroCam(R) is a Windows-based, 32-bit application written for
the most recent PC-based technology. AnthroCam(R) has been entirely designed and
programmed by the Company utilizing field input and industry wide beta site
installations. AnthroCam(R) is written as an AutoCAD runtime extension (ARX)
that is the AutoCAD(R) Application Programming Interface (API). The software is
written in the C++ development language using Microsoft Foundation Class (MFC)
standards. The software fully implements UNICODE standards for worldwide
translation allowing the Company to create foreign language versions to enter
international markets more effectively. The software is developed with the
cooperation of diverse user beta sites and a well developed system for tracking
and implementing market demands.

INTELLECTUAL PROPERTY

The Company holds or has pending 18 patents in the United States, eight of
which also are held or pending in other jurisdictions. The Company also has 16
registered trademarks in the United States and 12 trademark applications pending
in the United States and the European Union.

The Company relies on a combination of contractual provisions and trade
secret laws to protect its proprietary information. There can be no assurance
that the steps taken by the Company to protect its trade secrets and proprietary
information will be sufficient to prevent misappropriation of its proprietary
information or to preclude third-party development of similar intellectual
property.

Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of the Company's products or to
obtain and use information that the Company regards as proprietary. The Company
intends to vigorously defend its proprietary rights against infringement by
third parties. However, policing unauthorized use of the Company's products is
difficult, particularly overseas, and the Company is unable to determine the
extent to which piracy of its software products exists. In addition, the laws of
some foreign countries do not protect the Company's proprietary rights to the
same extent as the laws of the United States.

The Company does not believe that any of its products infringe on the
proprietary rights of third parties. There can be no assurance, however, that
third parties will not claim infringement by the Company with respect to current
or future products. Any such claims, with or without merit, could be
time-consuming, result in costly litigation, cause product shipment delays or
require the Company to enter into royalty or licensing agreements. Such royalty
or licensing agreements, if required, may not be available on terms acceptable
to the

30
<PAGE> 32

Company or at all, which could have a material adverse effect upon the Company's
business, operating results and financial condition.

MANUFACTURING AND ASSEMBLY

The Company manufactures its products primarily at its headquarters in Lake
Mary, Florida. Manufacturing consists primarily of assembling components and
subassemblies purchased from suppliers into finished products. The primary
components, which include machined parts and electronic circuit boards, are
produced by subcontractors according to the Company's specifications. All
products are assembled, calibrated and finally tested for accuracy and
functionality before shipment. In limited circumstances, the Company performs
in-house circuit board assembly and part machining. The Company's facilities and
operations are in the process of completing requirements for ISO 9000
registration.

COMPETITION

The broad market for measurement devices, which includes hand-measurement
tools, test fixtures and conventional, fixed-base CMMs, is highly competitive.
Manufacturers of hand-measurement tools and traditional CMMs include a
significant number of well-established companies that are substantially larger
and possess substantially greater financial, technical and marketing resources
than the Company. There can be no assurance that these entities or others will
not succeed in developing products or technologies that will directly compete
with those of the Company. The Company will be required to make continued
investments in technology and product development to maintain its technological
advantage over its competition. There can be no assurance that the Company will
have sufficient resources to make such investments or that the Company's product
development efforts will be sufficient to allow the Company to compete
successfully as the industry evolves. The Company's products compete on the
basis of portability, accuracy, application features, ease-of-use, quality,
price and technical support.

The Company's only significant direct competitor is a joint venture of
Romer SRL (France) and Romer, Inc. (California). The Company is aware of a
direct competitor in Germany and two new direct competitors in Italy, each of
which the Company believes currently has negligible sales. The Company also has
an established, indirect competitor in Japan that markets a measuring device
that is mobile but not portable. There can be no assurance that such companies
will not devote additional resources to the development and marketing of
products that compete with those of the Company.

The worldwide trend toward CAD-based factory floor metrology has resulted
in the introduction of CAD-based inspection software for conventional CMMs by
most of the large CMM manufacturers. Certain CMM manufacturers are
miniaturizing, and in some cases increasing the mobility of, their conventional
CMMs. Nonetheless, these CMMs still have small measurement volumes, lack the
adaptability typical of portable, articulated arm measurement devices and lose
accuracy outside the controlled environment of the metrology lab.

BACKLOG

At June 30, 1997, the Company had orders representing $1.9 million in
sales, compared to $1.5 million at June 30, 1996. The Company expects to ship
all such outstanding orders by August 31, 1997. The Company affords its
customers the right to cancel any order at any time before the product is
shipped. Historically, the number of canceled orders has been negligible.
Nonetheless, there can be no assurance that all orders in backlog will be
shipped, and backlog may not be indicative of future sales.

EMPLOYEES

At June 30, 1997, the Company had 104 full time employees, consisting of 40
sales/application engineering staff, 27 production staff, 16 research and
development staff, 13 administrative staff, and eight customer service
specialists. None of the Company's employees is represented by a labor
organization, and the Company is not a party to any collective bargaining
agreements. The Company believes its employee relations

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<PAGE> 33

are good. Management believes that its future growth and success will depend in
part on its ability to retain and continue to attract highly skilled personnel.

FACILITIES

The Company's headquarters and principal operations are located in a leased
building in Lake Mary, Florida containing approximately 18,000 square feet. The
Company currently is in the process of increasing the size of its headquarters
facility to 36,000 square feet. The expanded facility will be used to increase
the Company's production, research and development, and training capabilities.
The Company believes that, after this expansion, its headquarters will be
adequate for its foreseeable needs and that it will be able to locate suitable
space for additional regional offices as those needs develop.

In addition, the Company has five sales offices in the United States and
three sales offices in Europe. The following table sets forth additional
information concerning these sales offices:

<TABLE>
<CAPTION>
LOCATION DATE OPENED
- -------- ------------
<S> <C>
London, United Kingdom...................................... May 1997
Paris, France............................................... April 1996
Stuttgart, Germany.......................................... April 1996
Chicago, Illinois........................................... March 1996
Dallas, Texas............................................... March 1996
Los Angeles, California..................................... March 1996
Seattle, Washington......................................... March 1995
Detroit, Michigan........................................... January 1995
</TABLE>

LEGAL PROCEEDINGS

The Company is not a party to any litigation, and is not aware of any
pending or threatened litigation, that is expected to have a material adverse
effect on the Company or its business.

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<PAGE> 34

MANAGEMENT

EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES

The executive officers and directors of the Company, as well as certain key
employees, and their ages as of August 1, 1997 are as follows:

<TABLE>
<CAPTION>
TERM AS
DIRECTOR
NAME AGE POSITION EXPIRES
- ---- --- -------- --------
<S> <C> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS:
Simon Raab, Ph.D........................ 44 Chairman of the Board, President, Chief 2000
Executive Officer and Director
Gregory A. Fraser, Ph.D................. 42 Chief Financial Officer, Executive Vice 1999
President, Secretary, Treasurer and
Director
Hubert d'Amours......................... 58 Director 2000
Philip R. Colley........................ 59 Director 1999
Andre Julien............................ 54 Director 2000
Martin M. Koshar........................ 64 Director 1999
Alexandre Raab.......................... 72 Director 1998
Norman H. Schipper, Q.C................. 67 Director 1998

KEY EMPLOYEES:
Daniel T. Buckles....................... 42 Vice President -- Sales
Ali S. Sajedi........................... 37 Chief Engineer
</TABLE>

- ---------------

Simon Raab, Ph.D., a co-founder of the Company, has served as the Chairman
of the Board, Chief Executive Officer and a director of the Company since its
inception in 1982 and as President since 1986. Mr. Raab holds a Ph.D. in
Mechanical Engineering from McGill University, Montreal, Canada, a Masters of
Engineering Physics from Cornell University and a Bachelor of Science in Physics
with a minor in Biophysics from the University of Waterloo, Canada.

Gregory A. Fraser, Ph.D., a co-founder of the Company, has served as Chief
Financial Officer and Executive Vice President since May 1997 and as Secretary,
Treasurer and a director of the Company since its inception in 1982. Mr. Fraser
holds a Ph.D. in Mechanical Engineering from McGill University, Montreal,
Canada, a Masters of Theoretical and Applied Mechanics from Northwestern
University and a Bachelor of Science and Bachelor of Mechanical Engineering from
Northwestern University.

Hubert d'Amours has been a director since 1990. Mr. d'Amours has served as
president of Montroyal Capital Inc. and Capimont Inc., two venture capital
investment firms, since 1990. Mr. d'Amours also serves as a director of a number
of privately held companies.

Philip R. Colley has been a director since 1984. Mr. Colley has been the
President of Colley, Borland and Vale Insurance Brokers Ltd. in Ontario, Canada,
since 1967.

Andre Julien has been a director since 1986. Mr. Julien was a co-founder in
1970 and a major shareholder until 1977 of Performance Sail Craft, Inc., a
Montreal-based sailboat manufacturer which produces the Laser(TM) sailboat. From
1969 until his retirement in 1994, Mr. Julien was president and the owner of
Chateau Paints, Inc., a coatings and paint manufacturer in Montreal Canada.
Since his retirement in 1994, Mr. Julien has sat on boards of directors of, and
provided consulting services to, a number of private companies.

Martin M. Koshar has been a director since 1992. From 1988 until his
retirement in 1992, Mr. Koshar was President of the Aerospace and Naval Division
of Martin Marietta Corporation, where he managed the production of various
aircraft structures, the VLS missile launching system and various SONAR systems
and

33
<PAGE> 35

undersea recovery devices. Since his retirement in 1992, Mr. Koshar has provided
consulting services to a number of organizations, including Lockheed Martin and
the U.S. Army Missile Command.

Alexandre Raab has been a director since the Company's inception in 1982.
Mr. Raab has served as the Chairman of the Board of Advanced Agro Enterprises, a
privately held company in Ontario, Canada, since 1991. From 1953 through 1990,
Mr. Raab was the principal shareholder and Chief Executive Officer of White Rose
Nurseries, Ltd., a privately held horticultural firm. Mr. Raab is the father of
Simon Raab.

Norman H. Schipper, Q.C., has been a director since the Company's inception
in 1982. Mr. Schipper has been a partner in the Toronto office of the law firm
of Goodman, Phillips & Vineberg since 1962.

Daniel T. Buckles has been Vice President -- Sales for the Company since
May 1997. From 1993 to May 1997, he served as the Director of Marketing for the
Company's Industrial Products Group. From 1991 to 1993, Mr. Buckles was the
Manager of Product Assurance Technical Operations for the Aerospace and Naval
Division of Martin Marietta Corporation. From 1987 to 1991, Mr. Buckles held
program management positions for a variety of advanced development and
manufacturing programs at Martin Marietta Corporation. From 1976 to 1987, Mr.
Buckles held various program management and manufacturing positions at the
Submarine Signal Division of Raytheon Company. Mr. Buckles holds a Bachelor of
Arts in Theoretical and Quantitative Economics and a Masters of Business
Administration from the University of Massachusetts -- Dartmouth.

Ali S. Sajedi has been Chief Engineer for the Company since its inception
in 1982. Mr. Sajedi has been responsible for implementation of research and
development plans and for production oversight of the Company's self-managed
production team. Mr. Sajedi holds a Bachelor of Mechanical Engineering from
McGill University.

COMMITTEES OF THE BOARD

The Board of Directors has established the following committees:

Audit Committee. The Audit Committee is comprised of Messrs. d'Amours,
Julien and Simon Raab and is responsible for reviewing the independence,
qualifications and activities of the Company's independent certified accountants
and the Company's financial policies, control procedures and accounting staff.
The Audit Committee recommends to the Board the appointment of the independent
certified public accountants and reviews and approves the Company's financial
statements. The Audit Committee also reviews transactions between the Company
and any officer or director or any entity in which an officer or director of the
Company has a material interest.

Compensation Committee. The Compensation Committee is comprised of Messrs.
Koshar (committee chair), d'Amours and Julien and is responsible for
establishing the compensation of the Company's directors, officers and other
managerial personnel, including salaries, bonuses, termination arrangements and
other benefits. In addition, the Committee administers the Company's 1993 Stock
Option Plan, 1997 Employee Stock Option Plan and 1997 Non-Employee Director
Stock Option Plan.

COMPENSATION OF DIRECTORS

Directors who are executive officers of the Company do not receive
compensation for service as members of either the Board of Directors or
committees thereof. Directors who are not executive officers of the Company
receive $1,000 for each Board meeting and $500 for each committee meeting
attended. The outside directors also receive options to purchase Common Stock
under the Company's 1997 Non-Employee Director Stock Option Plan. See "-- Stock
Option Plans -- 1997 Non-Employee Director Stock Option Plan."

The Company's 1997 Non-Employee Directors' Fee Plan permits non-employee
directors to elect to receive directors' fees in the form of Common Stock rather
than cash. Shares issued in lieu of cash directors' fees are issued at the end
of the quarter in which the fees are earned, with the number of shares being
based on the fair market value of the Common Stock for the five trading days
immediately preceding the last business

34
<PAGE> 36

day of the quarter. Directors may defer the receipt of fees for federal income
tax purposes, whether payable in cash or in shares.

In May 1997, in consideration for his serving on the Board of Directors,
the Company granted Martin M. Koshar options under the 1993 Stock Option Plan to
purchase 52,732 shares of Common Stock at an exercise price of $0.36 per share.
These options become exercisable in full upon the completion of this offering.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The members of the Compensation Committee are Messrs. d'Amours, Julien and
Koshar. Compensation decisions for 1996 were made by the Compensation Committee.
There have been no transactions during the last three years between the Company
and members of the Compensation Committee or entities in which they own an
interest.

EXECUTIVE COMPENSATION

The following table sets forth certain information concerning compensation
paid to the Company's Chief Executive Officer and each of the Company's other
most highly compensated executive officers who earned more than $100,000 in
salary and bonus for the year ended December 31, 1996.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
NAME AND --------------------
PRINCIPAL POSITION SALARY BONUS
- ------------------------------------------------------------ --------- --------
<S> <C> <C>
Simon Raab, Ph.D.
President and Chief Executive Officer..................... $130,000 --
Gregory A. Fraser, Ph.D.
Chief Financial Officer and Executive Vice President...... $111,467 $11,643
</TABLE>

STOCK OPTION PLANS

The Company maintains three stock option plans to attract, motivate and
retain key employees and members of the Board of Directors who are not employees
of the Company.

1993 Stock Option Plan. The Company's 1993 Stock Option Plan (the "1993
Plan") provides for the grant of incentive or nonqualified stock options to key
employees and nonqualified stock options to non-employee directors. An aggregate
of 703,100 shares of Common Stock are reserved for issuance pursuant to the 1993
Plan. The 1993 Plan is administered by the Compensation Committee of the Board
of Directors, which has broad discretion in the granting of awards. As of the
date of this Prospectus, 21 key employees and one non-employee director hold an
aggregate of 383,513 options under the 1993 Plan with a term of ten years and a
weighted average exercise price of $1.53 per share. The executives named in the
Summary Compensation Table do not hold any options under the 1993 Plan.

1997 Employee Stock Option Plan. The Company also has adopted a 1997
Employee Stock Option Plan (the "1997 Plan") that provides for the grant to key
employees of the Company of incentive or nonqualified stock options. An
aggregate of 750,000 shares of Common Stock are reserved for issuance pursuant
to the 1997 Plan. The 1997 Plan is administered by the Compensation Committee of
the Board of Directors, which has broad discretion in the granting of awards.
The exercise price of all options granted under the 1997 Plan must be at least
equal to the fair market value of the Common Stock on the date of grant. Options
granted under the 1997 Plan will be exercisable after the period or periods
specified in the option agreement with respect to such grants and expire ten
years from the date of grant. As of the date of this Prospectus, no options have
been granted under the 1997 Plan. It is anticipated that upon completion of this
offering, Simon Raab will be granted 80,000 options, Gregory A. Fraser will be
granted 60,000 options and approximately 74 other employees will be granted
options to purchase a total of 220,000 shares of Common Stock at the initial
public offering price (except for options granted at 110% of the initial public
offering price

35
<PAGE> 37

to qualify for treatment as incentive stock options). These options will become
exercisable in one-third increments on each anniversary of the date of grant,
commencing in 1998.

1997 Non-Employee Director Stock Option Plan. The Company's 1997
Non-Employee Director Stock Option Plan (the "Non-Employee Plan") provides for
the grant of nonqualified stock options to purchase up to 250,000 shares of
Common Stock to members of the Board of Directors who are not employees of the
Company. As of the date of this Prospectus, no options had been granted under
the Non-Employee Plan. Under the formula grant provisions of the Non-Employee
Plan; (i) each outside director will be granted options to purchase 3,000 shares
of Common Stock upon the completion of this offering; (ii) thereafter, on the
date on which a new outside director is first elected or appointed, he or she
will automatically be granted options to purchase 3,000 shares of Common Stock;
and (iii) each outside director also will be granted options to purchase 3,000
shares of Common Stock annually on the day following the annual meeting of
shareholders. The Non-Employee Plan also permits discretionary option grants
approved by the Board of Directors, and it is anticipated that upon completion
of this offering the Board will grant an aggregate of 160,000 options pursuant
to these provisions. All options granted under the Non-Employee Plan will have
an exercise price equal to the then fair market value of the Common Stock.
Options will become exercisable in one-third increments on each anniversary of
the date of grant.

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<PAGE> 38

PRINCIPAL AND SELLING SHAREHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of August 1, 1997 and as adjusted to reflect the
sale of Common Stock offered hereby, with respect to: (i) each director and
executive officer of the Company; (ii) all directors and executive officers of
the Company as a group; (iii) each person known by the Company to be the
beneficial owner of five percent or more of the outstanding Common Stock; and
(iv) the Selling Shareholders. Except as otherwise indicated, the Company
believes that all beneficial owners named below have sole voting and investment
power with respect to all shares of Common Stock beneficially owned by them.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED BEFORE OWNED AFTER
THE OFFERING SHARES THE OFFERING
------------------- BEING -------------------
NAME OF BENEFICIAL OWNER(1) NUMBER(2) PERCENT OFFERED NUMBER(2) PERCENT
- --------------------------- --------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS:
Simon Raab, Ph.D.(3)............................. 3,102,723 44.3% 165,000 2,937,723 33.8%
Gregory A. Fraser, Ph.D.......................... 542,265 7.7 48,226 494,039 5.7
Hubert d'Amours(4)............................... 59,572 * 5,106 54,466 *
Phillip R. Colley(5)............................. 144,611 2.1 10,649 133,962 1.5
Alexandre Raab(6)................................ 463,158 6.6 -- 463,158 5.3
Martin M. Koshar(7).............................. 52,732 * -- 52,732 *
Norman H. Schipper, Q.C.(8)...................... 166,529 2.4 14,274 152,255 1.8
Andre Julien(9).................................. 510,139 7.3 43,726 466,413 5.4
All directors and executive officers as a group
(8 persons).................................... 5,041,729 71.5 286,981 4,754,748 54.3
OTHER SELLING SHAREHOLDERS:
William Alcamo................................... 19,944 * 3,457 16,487 *
Alexis Nihon Credit Inc.......................... 43,686 * 7,572 36,114 *
Thomas Beck(10).................................. 341,298 4.9 59,158 282,140 3.2
Alec Bloom....................................... 13,106 * 2,272 10,834 *
Charles Rosner Bronfman Family Trust............. 87,373 1.3 15,145 72,228 *
Capital CDPQ, Inc................................ 144,959 2.1 25,126 119,833 1.4
Stephen Cole..................................... 2,440 * 423 2,017 *
Consumers Glass Company Ltd. Pension Fund........ 119,145 1.7 20,652 98,493 1.1
William and Gail Cornwall........................ 20,683 * 3,585 17,098 *
Fiducie de Quebec................................ 26,211 * 4,543 21,668 *
Island City Investments Ltd...................... 19,858 * 3,442 16,416 *
Josyd Inc........................................ 11,915 * 2,065 9,850 *
John Leopold..................................... 5,834 * 1,011 4,823 *
Les Fiduciares de la Cite et du District de
Montreal....................................... 26,211 * 4,543 21,668 *
Levesque Beaubien Geoffrion Inc.................. 11,915 * 2,065 9,850 *
L'Industrielle-Alliance, Compagnie d'Assurance
sur la Vie..................................... 48,055 * 8,330 39,725 *
O. Jack Mandel................................... 95,931 1.4 16,628 79,303 *
Remi Marcoux..................................... 15,886 * 2,754 13,132 *
Marleau Lemire Inc............................... 11,915 * 2,065 9,850 *
Mar-Pick Enterprises, Inc........................ 14,485 * 2,511 11,974 *
Nicanco Holdings Inc............................. 11,915 * 2,065 9,850 *
Nodel Investments Limited........................ 11,915 * 2,065 9,850 *
Power Corporation of Canada...................... 43,686 * 7,572 36,114 *
Rash Holdings Reg'd.............................. 15,886 * 2,754 13,132 *
Redpoll Holdings Ltd............................. 17,475 * 3,029 14,446 *
Richard Renaud................................... 131,595 1.9 22,810 108,785 1.3
Michael Rosenbloom............................... 13,106 * 2,272 10,834 *
</TABLE>

37
<PAGE> 39

* Less than 1%
(1) The business address for each of the officers and directors is 125
Technology Park, Lake Mary, Florida 32746. The business address for
Alexandre Raab is 675 Cochrane Drive, Suite 504, Markham, Ontario L3R OB8.
(2) Except as noted, all shares are held beneficially and of record.
(3) Represents shares owned by Xenon Research, Inc. All of the outstanding
capital stock of Xenon Research, Inc. is owned by Mr. Raab and Diana Raab,
his spouse.
(4) Includes 29,786 shares owned by Mr. d'Amours' spouse. Of the shares being
sold by this shareholder, 2,553 shares are being sold by Mr. d'Amours and
2,553 shares are being sold by his wife.
(5) Includes 49,995 shares owned by 483663 Ontario Ltd. Mr. Colley owns a
controlling interest in 483663 Ontario Ltd. Of the shares being sold by
this shareholder, 6,968 shares are being sold by Mr. Colley and 3,682
shares are being sold by 483663 Ontario Ltd.
(6) Represents shares owned by Geanal Holdings, Inc. All of the outstanding
capital stock of Geanal Holdings, Inc. is owned by Mr. Raab and his spouse.
(7) Represents options which become exercisable upon consummation of this
offering.
(8) Represents shares owned by Shanklin Investments. Mr. Schipper owns a
controlling interest in Shanklin Investments.
(9) Consists of 438,652 shares owned by Philanderer Tree, Inc. ("Tree") and
71,487 shares owned by Philanderer Six Inc. ("Six"), over which Mr. Julien
has shared voting and investment power. Tree and Six are (i) private
investment companies of which Mr. Julien is an executive officer, director
and shareholder and (ii) are selling 37,599 shares and 6,127 shares,
respectively, in the offering.
(10) Includes 300,851 shares owned by H.T. Beck Investments. Mr. Beck owns a
controlling interest in H.T. Beck Investments. Of the shares being sold by
this shareholder, 8,666 shares are being sold by Mr. Beck and 50,493 shares
are being sold by H.T. Beck Investments.

CERTAIN TRANSACTIONS

The Company leases its headquarters from Xenon Research, Inc. ("Xenon"), a
44.3% shareholder. All of the issued and outstanding capital stock of Xenon is
owned by Simon Raab, the Company's President and Chief Executive Officer, and
Diana Raab, Mr. Raab's wife. The term of the lease expires on February 28, 2001,
and the Company has two five-year renewal options. Base rent under the lease was
$150,000 for 1996 and $148,000 for both 1995 and 1994. Upon completion of the
expansion of the leased facility, base rent will increase to $300,000 per year.
Base rent during renewal periods will reflect changes in the U.S. Bureau of
Labor Statistics Consumer Price Index for all Urban Consumers. The terms of the
lease were approved by an independent committee of the Company's Board of
Directors upon review of an independent market study of comparable rental rates
and such terms are, in the opinion of the Board of Directors, no less favorable
than those that could be obtained on an arms-length basis.

38
<PAGE> 40

In June 1994, the Company obtained a $3.5 million line of credit from Xenon
which was secured by substantially all of the Company's assets. Advances under
the line accrued interest at a varying interest rate that was determined by an
independent committee of the Company's Board of Directors after an independent
review of interest rates charged by lenders on comparable loans to third
parties. The Company repaid the outstanding balance and terminated the line in
September 1996. The Company also received an unsecured $100,000 demand,
non-interest bearing loan from Simon Raab in November 1995, which the Company
repaid in January 1996.

The Audit Committee of the Board of Directors is responsible for reviewing
all future transactions between the Company and any officer, director or
principal shareholder of the Company or any entity in which an officer, director
or principal shareholder has a material interest. Any such transactions must be
on terms no less favorable than those that could be obtained on an arms-length
basis from independent third parties.

DESCRIPTION OF CAPITAL STOCK

GENERAL

The authorized capital stock of the Company consists of 50,000,000 shares
of Common Stock, par value $0.001 per share, and 10,000,000 shares of Preferred
Stock, par value $0.001 per share. As of the date of this prospectus, 7,000,000
shares of Common Stock and no shares of Preferred Stock were issued and
outstanding.

COMMON STOCK

The holders of Common Stock are entitled to one vote for each share held of
record on all matters to be voted upon by the shareholders. The Company's
Articles of Incorporation do not provide for cumulative voting. Subject to
preferences that might be applicable to any then outstanding Preferred Stock,
holders of Common Stock are entitled to receive ratably such dividends, if any,
as may be declared by the Board of Directors out of funds legally available
therefor. See "Dividend Policy." In the event of liquidation, dissolution or
winding up of the Company, holders of Common Stock are entitled to share ratably
in all assets remaining after payment of liabilities, subject to prior
distribution rights of Preferred Stock, if any, then outstanding. Holders of
Common Stock have no conversion, preemptive or other rights to subscribe for
additional shares or other securities. There are no redemption or sinking fund
provisions applicable to the Common Stock. The issued and outstanding shares of
Common Stock are, and the shares offered hereby will be upon payment therefor,
fully paid and nonassessable.

PREFERRED STOCK

The Company is authorized to issue up to 10,000,000 shares of Preferred
Stock with such designations, rights and preferences as may be determined from
time to time by the Board of Directors. Accordingly, the Board of Directors is
empowered, without shareholder approval, to issue Preferred Stock with dividend,
liquidation, conversion, voting or other rights that could adversely affect the
voting power or other rights of the holders of the Company's Common Stock and,
in certain instances, could adversely affect the market price of such stock. In
the event of issuance, the Preferred Stock could be utilized, under certain
circumstances, as a method of discouraging, delaying or preventing a change in
control of the Company. No shares of Preferred Stock are outstanding and the
Company has no present intention to issue any shares of its Preferred Stock.

CERTAIN STATUTORY AND OTHER PROVISIONS

Statutory Provisions. The Company is subject to several anti-takeover
provisions under Florida law that apply to public corporations organized under
Florida law unless the corporation has elected to opt out of those provisions in
its Articles of Incorporation or (depending on the provision in question) its
Bylaws. The Company has not elected to opt out of these provisions. The Florida
Business Corporation Act (the "Florida Act") prohibits the voting of shares in a
publicly held Florida corporation that are acquired in a "control share
acquisition" unless the board of directors approves the control share
acquisition or the holders of a majority of the corporation's voting shares
(exclusive of shares held by officers of the corporation, inside directors or
the

39
<PAGE> 41

acquiring party) approve the granting of voting rights as to the shares acquired
in the control share acquisition. A "control share acquisition" is defined as an
acquisition that immediately thereafter entitles the acquiring party to,
directly or indirectly, exercise voting power in the election of directors
within any of the following ranges: (i) one-fifth or more but less than
one-third of such voting power, (ii) one-third or more but less than a majority
of such voting power and (iii) a majority or more of such voting power. This
statutory voting restriction is not applicable in certain circumstances set
forth in the Florida Act.

The Florida Act also contains an "affiliated transaction" provision that
prohibits a publicly-held Florida corporation from engaging in a broad range of
business combinations or other extraordinary corporate transactions with an
"interested shareholder" unless (i) the transaction is approved by a majority of
disinterested directors, (ii) the Company has not had more than 300 shareholders
of record during the past three years, (iii) the interested shareholder has
owned at least 80% of the Company's outstanding voting shares for at least five
years, (iv) the interested shareholder is the beneficial owner of at least 90%
of the voting shares (excluding shares acquired directly from the Company in a
transaction not approved by a majority of the disinterested directors), (v)
consideration is paid to the holders of the Company's shares equal to the
highest amount per share paid by the interested shareholder for the acquisition
of Company shares in the last two years or fair market value and certain other
conditions are met or (vi) the transaction is approved by the holder of
two-thirds of the Company's voting shares other than those owned by the
interested shareholder. An interested shareholder is defined as a person who,
together with affiliates and associates, beneficially owns (as defined in
Section 607.0901(1)(e) of the Florida Act) more than 10% of the Company's
outstanding voting shares.

Classified Board of Directors. The Company's Articles of Incorporation and
Bylaws provide that the Board of Directors of the Company will be divided into
three classes, with staggered terms of three years for each class. The term of
one class expires each year. The Company's Articles of Incorporation provide
that any vacancies on the Board of Directors will be filled only by the
affirmative vote of a majority of the directors then in office, even if less
than a quorum. The Articles of Incorporation of the Company also provide that
any director may be removed from office, but only for cause and only upon the
affirmative vote of the holders of at least two-thirds of the Common Stock.

Special Voting Requirements. The Company's Articles of Incorporation
provide that all actions taken by the shareholders must be taken at an annual or
special meeting of the shareholders or by written consent of the holders of not
less than two-thirds of the Company's outstanding voting shares. The Articles of
Incorporation provide that special meetings of the shareholders may be called
only by the President, the Chairman of the Board, a majority of the members of
the Board of Directors, or the holders of not less than 50% of the Company's
outstanding voting shares. Under the Company's Bylaws, shareholders will be
required to comply with advance notice provisions with respect to any proposal
submitted for shareholder vote, including nominations for elections to the Board
of Directors. The Articles of Incorporation and Bylaws of the Company contain
provisions requiring the affirmative vote of the holders of at least two-thirds
of the Common Stock to amend certain provisions of the Company's Articles of
Incorporation and Bylaws.

Indemnification and Limitation of Liability. The Florida Act authorizes
Florida corporations to indemnify any person who was or is a party to any
proceeding (other than an action by, or in the right of, the corporation), by
reason of the fact that he or she is or was a director, officer, employee, or
agent of the corporation or is or was serving at the request of the corporation
as a director, officer, employee, or agent of another corporation or other
entity, against liability incurred in connection with such proceeding, including
any appeal thereof, if he or she acted in good faith and in a manner he or she
reasonably believed to be in, or not opposed to, the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. In the case of an
action by or on behalf of a corporation, indemnification may not be made if the
person seeking indemnification is adjudged liable, unless the court in which
such action was brought determines such person is fairly and reasonably entitled
to indemnification. The indemnification provisions of the Florida Act require
indemnification if a director or officer has been successful on the merits or
otherwise in defense of any action, suit or proceeding to which he or she was a
party by reason of the fact that he or she is or was a director or officer of
the corporation. The indemnification authorized under Florida law is not
exclusive and is in addition to any other rights granted to

40
<PAGE> 42

officers and directors under the Articles of Incorporation or Bylaws of the
corporation or any agreement between officers and directors and the corporation.
A corporation may purchase and maintain insurance or furnish similar protection
on behalf of any officer or director against any liability asserted against the
officer or director and incurred by the officer or director in such capacity, or
arising out of the status, as an officer or director, whether or not the
corporation would have the power to indemnify him or her against such liability
under the Florida Act.

The Company's Articles of Incorporation provide for the indemnification of
directors and executive officers of the Company to the maximum extent permitted
by Florida law and for the advancement of expenses incurred in connection with
the defense of any action, suit or proceeding that the director or executive
officer was a party to by reason of the fact that he or she is or was a director
or executive officer of the Company.

Under the Florida Act, a director is not personally liable for monetary
damages to the Company or any other person for acts or omissions in his or her
capacity as a director except in certain limited circumstances such as certain
violations of criminal law and transactions in which the director derived an
improper personal benefit. As a result, shareholders may be unable to recover
monetary damages against directors for actions taken by them which constitute
negligence or gross negligence or which are in violation of their fiduciary
duties, although injunctive or other equitable relief may be available.

The foregoing provisions of the Florida Act and the Company's Articles of
Incorporation and Bylaws could have the effect of preventing or delaying a
person from acquiring or seeking to acquire a substantial equity interest in, or
control of, the Company.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is Firstar Trust
Company, Milwaukee, Wisconsin.

SHARES ELIGIBLE FOR FUTURE SALE

Upon the completion of this offering, the Company will have 8,700,000
shares of Common Stock outstanding. Of these shares, 3,997,984 shares, including
the 2,300,000 shares of Common Stock sold in this offering (2,645,000 shares if
the Underwriters' over-allotment option is exercised in full), will be freely
tradeable by persons other than affiliates of the Company, without restriction
under the Securities Act. The remaining 4,702,016 shares of Common Stock will be
"restricted" securities within the meaning of Rule 144 under the Securities Act
and may not be sold in the absence of registration under the Securities Act
unless an exemption from registration is available. All of such shares will be
beneficially owned by persons who are affiliates of the Company and, commencing
90 days after the date of this Prospectus, would be eligible for public sale
subject to the volume and other limitations of Rule 144. However, the Company's
directors, executive officers and principal shareholders and the Selling
Shareholders have agreed not to sell, contract to sell or otherwise dispose of
any shares of Common Stock for a period of 180 days after the date of this
Prospectus without the prior written consent of Raymond James & Associates, Inc.

In general, Rule 144, as currently in effect, allows a shareholder
(including persons who are deemed "affiliates" of the Company) who has
beneficially owned restricted shares for at least one year (including the prior
holding period of any prior owner other than an affiliate) to sell within any
three-month period that number of shares which does not exceed the greater of
(i) 1% of the outstanding shares of the Common Stock or (ii) the average weekly
trading volume during the four calendar weeks preceding such sale. Sales under
Rule 144 also are subject to certain manner of sale and notice requirements and
the availability of current public information about the Company. A person (or
persons whose shares are aggregated) who is not an "affiliate" of the Company at
any time during the 90 days immediately preceding the sale and who has
beneficially owned shares for at least two years (including the holding period
of any prior owner other than an affiliate) is entitled to sell such shares
under Rule 144 without regard to the limitations described above. Shares
properly sold in reliance on Rule 144 to persons who are not "affiliates"
thereafter are freely tradeable without restriction or registration under the
Securities Act.

Before this offering, there has been no public market for the Common Stock.
Sales of substantial amounts of Common Stock in the public market could
adversely affect prevailing market prices.

41
<PAGE> 43

UNDERWRITING

The Underwriters named below, acting through their representatives, Raymond
James & Associates, Inc. and Hanifen, Imhoff, Inc. (the "Representatives") have
severally agreed, subject to the terms and conditions of the underwriting
agreement by and among the Company, the Selling Shareholders and the
Underwriters (the "Underwriting Agreement"), to purchase from the Company and
the Selling Shareholders the number of shares of Common Stock set forth opposite
their respective names below:

<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- ------------ ---------
<S> <C>
Raymond James & Associates, Inc.............................
Hanifen, Imhoff Inc.........................................
---------

Total............................................. 2,300,000
=========
</TABLE>

The Underwriting Agreement provides that the Underwriters are obligated to
purchase all of the shares offered hereby, if any are purchased. The Company and
the Selling Shareholders have been advised by the Representatives that the
Underwriters propose initially to offer the shares to the public at the offering
price set forth on the cover page of this Prospectus and to certain selected
dealers, including the Underwriters, at such price less a concession not in
excess of $ per share. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share to certain other
dealers. The public offering price and concession may be changed after the
initial offering to the public. The Representatives have informed the Company
and the Selling Shareholders that the Underwriters do not intend to confirm
sales to any accounts over which they exercise discretionary authority.

The Underwriting Agreement provides for indemnification among the Company,
the Selling Shareholders and the Underwriters against certain liabilities in
connection with this offering, including liabilities under the Securities Act.

The Company, each of its officers and directors and the Selling
Shareholders have agreed not to sell any shares of Common Stock to the public,
other than shares offered hereby, without the consent of Raymond James &
Associates, Inc. for a period of 180 days following the closing of this
offering. This restriction does not apply to certain issuances of Common Stock
by the Company pursuant to its stock option plans. See "Shares Eligible for
Future Sale."

Certain Selling Shareholders have granted to the Underwriters an option
exercisable during a 30-day period after the date of this Prospectus to purchase
up to an aggregate of 345,000 additional shares at the same price per share as
the Selling Shareholders receive for the 600,000 shares which the Underwriters
have agreed to purchase from the Selling Shareholders, for the sole purpose of
covering over-allotments, if any. To the extent that the Underwriters exercise
such option, each Underwriter will be committed, subject to certain conditions,
to purchase a number of the additional shares of Common Stock proportionate to
each Underwriter's initial commitment.

The Company has agreed to grant to the Representatives and their designees
warrants (the "Representatives' Warrants") to purchase up to 100,000 shares of
Common Stock for a period of five years from the date of this Prospectus (the
"Warrant Exercise Term") at 110% of the initial public offering price. The
Representatives' Warrants may not be transferred for one year from the date of
this Prospectus, except to the officers, employees and shareholders of the
Representatives. During the Warrant Exercise Term, the holders of the
Representatives' Warrants are given the opportunity to profit from a rise in the
market price of the

42
<PAGE> 44

Common Stock. Any profit realized by the Representatives on the sale of the
Representatives' Warrants or the underlying shares of Common Stock may be deemed
additional underwriting compensation.

The foregoing contains a summary of the principal terms of the Underwriting
Agreement and does not purport to be complete. Reference is made to the copy of
the Underwriting Agreement that is on file as an exhibit to the Registration
Statement of which this Prospectus is a part.

Prior to the offering, there has been no public market for the Common
Stock. The initial public offering will be determined by negotiation among the
Company, the Selling Shareholders and the Representatives. Among the factors to
be considered in determining the initial public offering price will be
prevailing market and economic conditions, revenues and earnings of the Company,
market valuations of other companies engaged in activities similar to the
Company, estimates of the business potential and prospects of the Company, the
present state of the Company's business operations, the Company's management and
other factors deemed relevant.

The Representatives, on behalf of the Underwriters, may engage in
over-allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Securities Exchange Act
of 1934, as amended. Over-allotment involves syndicate sales in excess of the
offering size, which creates a syndicate short position. Stabilizing
transactions permit bids to purchase the underlying security so long as the
stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the Common Stock in the open market after the
distribution has been completed in order to cover syndicate short positions. In
"passive" market making, market makers in the Common Stock who are Underwriters
or prospective underwriters may, subject to certain limitations, make bids for
or purchases of the Common Stock until the time, if any, at which a stabilizing
bid is made. Penalty bids permit the Representatives to reclaim a selling
concession from a syndicate member when shares of Common Stock originally sold
by such syndicate member are purchased in a syndicate covering transaction to
cover syndicate short positions. Such stabilizing transactions, syndicate
covering transactions and penalty bids may cause the price of the Common Stock
to be higher than it would otherwise be in the absence of such transactions.
These transactions may be effected on The Nasdaq National Market or otherwise
and, if commenced, may be discontinued at any time.

LEGAL MATTERS

The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company and the Selling Shareholders by Foley &
Lardner, Tampa, Florida. The validity of the Common Stock offered hereby will be
passed upon for the Underwriters by King & Spalding, Atlanta, Georgia.

EXPERTS

The Consolidated Financial Statements at December 31, 1995 and 1996, and
for each of the three years in the period ended December 31, 1996 included in
this Prospectus and in the registration statement, have been audited by Deloitte
& Touche LLP, independent auditors, as stated in their report appearing herein
and in the registration statement, and have been so included herein in reliance
upon the report of said firm given upon their authority as experts in accounting
and auditing.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (of which this Prospectus is a part)
under the Securities Act with respect to the securities offered hereby. This
Prospectus does not contain all the information set forth in the Registration
Statement, certain portions of which have been omitted as permitted by the rules
and regulations of the Commission. Statements contained in the Prospectus as to
the contents of any contract or other document are not necessarily complete, and
in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects

43
<PAGE> 45

by such reference and the exhibits and schedules thereto. For further
information regarding the Company and the Common Stock offered hereby, reference
is hereby made to the Registration Statement and such exhibits and schedules
which may be obtained from the Commission at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates. In addition, the Registration Statement can be obtained
from the Commission's web site at http://www.sec.gov.

The Company intends to furnish its shareholders written annual reports
containing audited financial statements certified by an independent public
accounting firm and quarterly reports containing unaudited financial statements
for the first three quarters of each calendar year.

44
<PAGE> 46

FARO TECHNOLOGIES, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996
and June 30, 1997 (Unaudited)............................. F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1994, 1995 and 1996 and the Six Months Ended
June 30, 1996 and 1997 (Unaudited)........................ F-4
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 1994, 1995 and 1996 and the Six
Months Ended June 30, 1997 (Unaudited).................... F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1994, 1995 and 1996 and the Six Months Ended
June 30, 1996 and 1997 (Unaudited)........................ F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>

F-1
<PAGE> 47

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders
of FARO Technologies, Inc.:

We have audited the accompanying consolidated balance sheets of FARO
Technologies, Inc. and subsidiaries as of December 31, 1995 and 1996, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of FARO Technologies, Inc. and
subsidiaries as of December 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.

DELOITTE & TOUCHE LLP

Jacksonville, Florida
February 24, 1997
(July 30, 1997 as to Note 10)

F-2
<PAGE> 48

FARO TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ JUNE 30,
1995 1996 1997
----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash................................................... $ 3,921 $ 263,342 $ 117,537
Accounts and notes receivable -- net of allowance...... 2,177,764 2,992,681 4,852,362
Inventories............................................ 2,068,287 3,298,744 3,778,618
Prepaid expenses....................................... 96,306 40,871 25,127
Deferred taxes......................................... 111,000 102,500 193,978
----------- ---------- -----------
Total current assets........................... 4,457,278 6,698,138 8,967,622
----------- ---------- -----------
PROPERTY AND EQUIPMENT -- At cost:
Leasehold improvements................................. 14,938 14,938 14,938
Machinery and equipment................................ 245,195 700,799 923,159
Furniture and fixtures................................. 492,681 453,892 496,477
----------- ---------- -----------
Total.......................................... 752,814 1,169,629 1,434,574
Less accumulated depreciation.......................... 425,435 568,279 669,966
----------- ---------- -----------
Property and equipment -- net.......................... 327,379 601,350 764,608
----------- ---------- -----------
PATENTS -- net of accumulated amortization of $186,223,
$270,925 and $293,884, respectively.................... 441,041 486,480 611,795
DEFERRED TAXES........................................... 254,000 29,700 214,524
----------- ---------- -----------
TOTAL ASSETS................................... $ 5,479,698 $7,815,668 $10,558,549
=========== ========== ===========

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt...................... $ -- $ 611,111 $ 666,667
Related party loans.................................... 2,200,000 -- --
Accounts payable and accrued liabilities............... 735,828 1,710,814 1,850,670
Income taxes payable................................... 23,000 128,216 777,306
Current portion unearned service revenues.............. -- 185,180 413,876
Customer deposits...................................... 176,933 230,393 282,780
----------- ---------- -----------
Total current liabilities...................... 3,135,761 2,865,714 3,991,299
----------- ---------- -----------
UNEARNED SERVICE REVENUES -- less current portion -- 286,099 384,013
LONG-TERM DEBT -- less current portion................... -- 890,156 833,769
COMMITMENTS (Note 7)
SHAREHOLDERS' EQUITY:
Class A preferred stock -- par value $.001, 10,000,000
shares authorized, no shares issued and
outstanding......................................... -- -- --
Common stock -- par value $.001, 20,000,000 shares
authorized, 7,000,000 issued and outstanding........ 7,000 7,000 7,000
Additional paid-in capital............................. 3,971,764 3,961,564 4,827,544
Retained earnings (accumulated deficit)................ (1,595,027) (188,365) 1,067,243
Unearned compensation.................................. (39,800) (6,500) (508,334)
Cumulative translation adjustments..................... -- -- (43,985)
----------- ---------- -----------
Total shareholders' equity..................... 2,343,937 3,773,699 5,349,468
----------- ---------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY..... $ 5,479,698 $7,815,668 $10,558,549
=========== ========== ===========
</TABLE>

See notes to consolidated financial statements.

F-3
<PAGE> 49

FARO TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------------- ------------------------
1994 1995 1996 1996 1997
---------- ---------- ----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SALES.............................. $4,508,837 $9,862,242 $14,656,337 $6,460,113 $10,318,535
COST OF SALES...................... 2,222,085 4,987,779 6,486,268 2,744,994 4,188,280
---------- ---------- ----------- ---------- -----------
Gross profit............. 2,286,752 4,874,463 8,170,069 3,715,119 6,130,255
---------- ---------- ----------- ---------- -----------
OPERATING EXPENSES:
Selling.......................... 1,569,014 2,008,301 3,731,762 1,653,693 2,512,066
General and administrative....... 521,040 503,184 744,206 349,645 622,092
Depreciation and amortization.... 270,615 341,494 230,799 125,388 124,646
Research and development......... 173,400 363,871 730,124 236,539 394,839
Employee stock options........... -- 106,700 23,100 11,550 364,146
---------- ---------- ----------- ---------- -----------
Total operating
expenses............... 2,534,069 3,323,550 5,459,991 2,376,815 4,017,789
---------- ---------- ----------- ---------- -----------
INCOME (LOSS) FROM OPERATIONS...... (247,317) 1,550,913 2,710,078 1,338,304 2,112,466
---------- ---------- ----------- ---------- -----------
OTHER INCOME (EXPENSE):
Other income..................... 11,706 62,212 25,145 7,814 46,067
Interest expense................. (192,543) (355,468) (212,669) (122,806) (65,853)
---------- ---------- ----------- ---------- -----------
INCOME (LOSS) BEFORE INCOME
TAXES............................ (428,154) 1,257,657 2,522,554 1,223,312 2,092,680
INCOME TAX EXPENSE (BENEFIT)....... -- (342,000) 1,115,892 541,152 837,072
---------- ---------- ----------- ---------- -----------
NET INCOME (LOSS)........ $ (428,154) $1,599,657 $ 1,406,662 $ 682,160 $ 1,255,608
========== ========== =========== ========== ===========
PER COMMON SHARE AND COMMON
EQUIVALENT SHARE:
NET INCOME (LOSS)........ $ (0.06) $ 0.22 $ 0.19 $ 0.09 $ 0.17
========== ========== =========== ========== ===========
WEIGHTED AVERAGE COMMON SHARES AND
COMMON EQUIVALENT SHARES......... 7,149,690 7,166,740 7,349,042 7,354,292 7,333,290
========== ========== =========== ========== ===========
</TABLE>

See notes to consolidated financial statements.

F-4
<PAGE> 50

FARO TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
RETAINED
COMMON STOCK ADDITIONAL CUMULATIVE EARNINGS
------------------- PAID-IN UNEARNED TRANSLATION (ACCUMULATED
SHARES AMOUNTS CAPITAL COMPENSATION ADJUSTMENT DEFICIT) TOTAL
--------- ------- ---------- ------------ ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994.............. 7,000,000 $7,000 $3,825,264 $ -- $ -- $(2,766,530) $1,065,734
Net loss...................... -- -- -- -- -- (428,154) (428,154)
--------- ------ ---------- --------- -------- ----------- ----------
BALANCE, DECEMBER 31, 1994............ 7,000,000 7,000 3,825,264 -- -- (3,194,684) 637,580
Granting of employee stock
options........................... -- -- 146,500 (39,800) -- -- 106,700
Net income.................... -- -- -- -- -- 1,599,657 1,599,657
--------- ------ ---------- --------- -------- ----------- ----------
BALANCE, DECEMBER 31, 1995............ 7,000,000 7,000 3,971,764 (39,800) -- (1,595,027) 2,343,937
Employee stock options, forfeitures
and amortization of unearned
compensation...................... -- -- (10,200) 33,300 -- -- 23,100
Net income.................... -- -- -- -- -- 1,406,662 1,406,662
--------- ------ ---------- --------- -------- ----------- ----------
BALANCE, DECEMBER 31, 1996............ 7,000,000 7,000 3,961,564 (6,500) -- (188,365) 3,773,699
Granting of employee and director
stock options (unaudited)......... -- -- 865,980 (501,834) -- -- 364,146
Currency translation adjustment
(unaudited)....................... -- -- -- -- (43,985) -- (43,985)
Net income for period
(unaudited)................. -- -- -- -- -- 1,255,608 1,255,608
--------- ------ ---------- --------- -------- ----------- ----------
BALANCE, JUNE 30, 1997 (unaudited).... 7,000,000 $7,000 $4,827,544 $(508,334) $(43,985) $ 1,067,243 $5,349,468
========= ====== ========== ========= ======== =========== ==========
</TABLE>

See notes to consolidated financial statements.

F-5
<PAGE> 51

FARO TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------------------- -----------------------
1994 1995 1996 1996 1997
----------- ---------- ----------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)......................... $ (428,154) $1,599,657 $ 1,406,662 $ 682,160 $ 1,255,608
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization........... 270,615 341,494 230,799 125,388 124,646
Private placement costs................. 146,541 -- -- -- --
Product design costs.................... -- 531,186 -- -- --
Employee stock options.................. -- 106,700 23,100 11,550 364,146
Provision for bad debts................. 31,207 24,806 28,432 -- --
Provision for obsolete inventory........ -- 27,629 -- -- --
Deferred income taxes................... -- (365,000) 232,800 365,000 (276,302)
Changes in operating assets and
liabilities:
Decrease (Increase) in:
Accounts receivable................... (241,474) (1,147,174) (843,349) (159,992) (1,903,666)
Notes receivable...................... 80,994 47,947 -- -- --
Inventory............................. (35,821) (453,120) (1,230,457) (861,615) (479,874)
Prepaid expenses and other assets..... (22,971) (47,193) 55,435 (7,659) 15,744
Increase (Decrease) in:
Accounts payable and accrued
liabilities........................... (94,359) 126,925 990,993 419,081 139,856
Income taxes payable.................... -- 23,000 105,216 44,652 649,090
Unearned service revenues............... -- -- 471,278 162,218 326,610
Customer deposits....................... 49,619 118,865 53,460 (48,410) 52,387
----------- ---------- ----------- --------- -----------
Net cash provided by (used in)
operating activities............. (243,803) 935,722 1,524,369 732,373 268,245
----------- ---------- ----------- --------- -----------
INVESTING ACTIVITIES:
Purchases of property and equipment....... (89,266) (210,868) (416,162) (194,026) (264,945)
Payment of patent costs................... (122,120) (74,088) (134,046) (71,178) (148,274)
Payments for product design costs......... (304,703) -- -- -- --
----------- ---------- ----------- --------- -----------
Net cash used in investing
activities....................... (516,089) (284,956) (550,208) (265,204) (413,219)
----------- ---------- ----------- --------- -----------
FINANCING ACTIVITIES:
Proceeds from related party loans......... 2,525,000 -- -- -- --
Repayment of related party loans.......... -- (725,000) (2,200,000) (300,000) --
Proceeds from debt........................ -- -- 1,625,816 -- --
Payments on debt.......................... (1,700,000) -- (140,556) -- (831)
----------- ---------- ----------- --------- -----------
Net cash (used in) provided by
financing activities............. 825,000 (725,000) (714,740) (300,000) (831)
INCREASE (DECREASE) IN CASH................. 65,108 (74,234) 259,421 167,169 (145,805)
CASH, BEGINNING OF PERIOD................... 13,047 78,155 3,921 3,921 263,342
----------- ---------- ----------- --------- -----------
CASH, END OF PERIOD......................... $ 78,155 $ 3,921 $ 263,342 $ 171,090 $ 117,537
=========== ========== =========== ========= ===========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.................... $ 182,399 $ 352,987 $ 256,654 $ 127,237 $ 19,226
=========== ========== =========== ========= ===========
Cash paid for income taxes................ $ -- $ -- $ 777,876 $ 135,500 $ 464,283
=========== ========== =========== ========= ===========
Translation adjustment effect on accounts
receivable.............................. $ -- $ -- $ -- $ -- $ (43,985)
=========== ========== =========== ========= ===========
</TABLE>

See notes to consolidated financial statements.

F-6
<PAGE> 52

FARO TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND SIX MONTHS ENDED JUNE 30, 1996 AND 1997 (UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business. FARO Technologies, Inc. (the "Company") develops,
manufactures, markets and supports portable, software-driven, 3-D measurement
systems that are used in a broad range of manufacturing and industrial
applications. The Company has two wholly-owned subsidiaries, FARO Worldwide,
Inc. and FARO FRANCE, s.a.s., which distribute the Company's 3-D measurement
equipment throughout Europe through two primary offices located in France and
Germany. FARO FRANCE, s.a.s., commenced operations in July 1996.

Principles of Consolidation. The consolidated financial statements include
the accounts of the Company and all wholly-owned subsidiaries. All significant
intercompany transactions and balances have been eliminated.

Revenue Recognition, Product Warranty and Extended Maintenance
Contracts. Revenue related to the Company's 3-D measurement equipment is
recognized upon shipment. Extended maintenance plan revenues are recognized
ratably over the period services are performed. The Company warrants its
products against defects in design, materials and workmanship for one year. A
provision for estimated future costs relating to warranty expenses is recorded
when products are shipped. Costs relating to extended maintenance plans are
recognized as incurred.

For the years ended December 31, 1994, 1995 and 1996 export sales totaled
approximately $449,000, $2,135,000 and $2,610,000, respectively. One customer
accounted for approximately 10% of total sales for the year ended December 31,
1996.

Inventories. Inventories are stated at the lower of cost (determined on
the first-in, first-out method) or market value. In order to achieve a better
matching of production costs with the revenues generated in production, certain
fixed overhead costs and certain general and administrative costs that are
related to production are capitalized into inventory when they are incurred and
are charged to cost of sales as product costs at the time of sale.

Property and Equipment. Property and equipment are recorded at cost.
Depreciation is computed using the straight-line and declining-balance methods
over the estimated useful lives of the various classes of assets as follows:

<TABLE>
<S> <C>
Machinery and equipment..................................... 5 years
Furniture and fixtures...................................... 5 years
Computer equipment.......................................... 2 years
</TABLE>

Leasehold improvements are amortized on the straight-line basis over the lesser
of the life of the asset or term of the lease.

Patents. Patents are recorded at cost. Amortization is computed using the
straight-line method over the lives of the patents, which is 17 years. In
addition, unamortized patents of $192,570 relating to certain products sold in
the medical field were charged to amortization expense in 1995 due to the
discontinuance of those products.

Research and Development. Research and development costs incurred in the
discovery of new knowledge and the resulting translation of this new knowledge
into plans and designs for new products, prior to the attainment of the related
products' technological feasibility, are recorded as expenses in the period
incurred.

Product Design Costs. Prior to 1995, costs incurred in the refinement of
products after technological feasibility is attained were capitalized and
amortized using the straight-line method over the 5-year estimated lives of the
related products. However, based on the current rate of technological
development, products now

F-7
<PAGE> 53

FARO TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

have estimated lives of less than one year. As a result, the $531,186
unamortized balance of product design costs at January 1, 1995 was charged to
cost of product sales in 1995, and such costs incurred since that date are
recorded as costs in the period in which they are incurred.

Income Taxes. The Company utilizes the asset and liability method to
measure and record deferred income tax assets and liabilities. Under the asset
and liability method, deferred tax assets and liabilities are recognized for the
future consequences attributed to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases.

Private Placement Costs. Costs incurred relating to a terminated private
stock offering, in the amount of $146,541, were charged to general and
administrative expense in 1994.

Earnings Per Common Share and Common Equivalent Share. Earnings per common
share and common equivalent share for the years ended December 31, 1994, 1995
and 1996 were computed as follows: (i) 7,000,000 common shares issued and
outstanding each year, plus (ii) 149,690 common shares issuable under the 1997
stock options granted under the 1993 stock option plan based on the Treasury
Stock Method assuming an initial public offering price of $11.00 per share, plus
(iii) common shares issuable under the 1995 stock options granted under the 1993
stock option plan of 17,050 in 1995 and 199,352 in 1996, respectively, based on
the Treasury Stock Method assuming an initial public offering price of $11.00
per share.

The Company intends to file a registration statement with the Securities
and Exchange Commission for the initial public offering of 1,700,000 shares of
its common stock at an estimated price of $11 per share. The Company plans on
utilizing a portion of the proceeds from the sale of such stock to retire debt.
On a supplemental basis, for the year ended December 31, 1996 and the six months
ended June 30, 1997, net income per common share and common equivalent share
would have been $.23 and $.22, respectively, had such transaction been made
effective December 31, 1995.

Concentration of Credit Risk. Financial instruments which potentially
expose the Company to concentrations of credit risk consist principally of
operating demand deposit accounts. The Company's policy is to place its
operating demand deposit accounts with high credit quality financial
institutions.

Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

New Accounting Standards. Effective January 1, 1996, the Company adopted
the provisions of Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" (SFAS No. 121) which requires that long-lived assets and certain
intangibles to be held and used by the Company be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. The adoption of SFAS No. 121 did not have a
material impact on the Company.

Effective January 1, 1996, the Company adopted SFAS No. 123, "Accounting
for Stock-Based Compensation" (SFAS No. 123). SFAS No. 123 establishes a fair
value based method of accounting for stock-based employee compensation plans;
however, it also allows an entity to continue to measure compensation cost for
those plans using the intrinsic value based method of accounting prescribed by
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees." Under the fair value based method, compensation cost is measured
at the grant date based on the value of the award and is recognized over the
service period, which is usually the vesting period. The Company has elected to
continue to account for its employee stock compensation plans under APB Opinion
No. 25 with pro forma

F-8
<PAGE> 54

FARO TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

disclosures of net earnings and earnings per share, as if the fair value based
method of accounting defined in SFAS No. 123 has been applied. See Note 8.

In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" (SFAS No. 128).
This Statement establishes standards for computing and presenting earnings per
share ("EPS") and applies to all entities with publicly held common stock or
potential common stock. This Statement replaces the presentation of primary EPS
and fully diluted EPS with a presentation of basic EPS and diluted EPS,
respectively. Basic EPS excludes dilution and is computed by dividing earnings
available to common stockholders by the weighted-average number of common shares
outstanding for the period. Similar to fully diluted EPS, diluted EPS reflects
the potential dilution of securities that could share in the earnings. This
Statement is effective for the Company's financial statements for the year ended
December 31, 1997. The proforma effect of applying SFAS No. 128 is as follows:

<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
------------------------ ---------------
1994 1995 1996 1996 1997
------ ------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Basic income (loss) per common share.......... $(0.06) $ 0.23 $ 0.20 $ 0.10 $ 0.18
Diluted income (loss) per common share and
common equivalent share..................... (0.06) 0.22 0.19 0.09 0.17
</TABLE>

On June 30, 1997, the FASB issued SFAS No. 131, "Disclosure About Segments
of Enterprise and Related Information." This statement establishes additional
standards for segment reporting in the financial statements and is effective for
fiscal years beginning after December 15, 1997. Management has not determined
the effect of this statement on its financial statement disclosure.

Reclassifications. Certain reclassifications have been made in the 1994
and 1995 financial statements to conform to the 1996 presentation.

Interim Financial Information. Interim Financial Information at June 30,
1997 and for the six months ended June 30, 1996 and 1997 is unaudited. The
unaudited interim financial statements reflect all adjustments, consisting of
only normal recurring adjustments which are, in the opinion of management,
necessary to a fair statement of the results for the interim periods.
Information for the interim periods is not necessarily indicative of results to
be achieved for the full year.

2. ACCOUNTS AND NOTES RECEIVABLE

Accounts and notes receivable are net of an allowance for doubtful accounts
of $25,002, $5,655 and $9,534 as of December 31, 1994, 1995 and 1996,
respectively.

3. INVENTORIES

Inventories consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1995 1996 1997
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials...................................... $1,063,219 $1,888,227 $1,954,451
Finished goods..................................... 387,234 472,408 593,472
Sales demonstration................................ 617,834 938,109 1,230,695
---------- ---------- ----------
$2,068,287 $3,298,744 $3,778,618
========== ========== ==========
</TABLE>

F-9
<PAGE> 55

FARO TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. LONG-TERM DEBT

The Company has a loan agreement (the "Agreement") in the form of a term
note and a line of credit. The Agreement combines the equivalent of three
successive one-year term loans, each equal to that portion of the loan that will
be fully amortized in the ensuing year, with a line of credit equal to that
portion of the loan that will not be amortized in the ensuing year. The Company
has available borrowings under the line of credit in the amount of $443,177 as
of December 31, 1996. Principal is due in the amount of $611,111 in 1997,
$666,667 in 1998 and $223,489 in 1999. Interest accrues at the 30-day commercial
paper rate plus 2.7% (8.1% at December 31, 1996) and is payable monthly. The
loans are collateralized by the Company's accounts and notes receivable,
inventory, property and equipment, intangible assets, and deposits. The
Agreement contains restrictive covenants, including the maintenance of certain
amounts of working capital and tangible net worth and limits on loans to related
parties, and prohibits the Company from declaring dividends.

5. RELATED PARTY TRANSACTIONS

The Company leases its plant and office building from Xenon Research, Inc.
("Xenon"), a 44.3% shareholder. The lease expires on February 28, 2001, and the
Company has two five-year renewal options. The base rent during renewal periods
will reflect changes in the U.S. Bureau of Labor Statistics, Consumer Price
Index for all Urban Consumers. Rent expense under this lease was approximately
$148,000 for both 1994 and 1995 and $150,000 for 1996.

Related party loans payable consisted of the following:

Xenon Research, Inc. Revolving line of credit, which was repaid and
terminated in 1996. Interest was at prime plus 5% (13.5% at December 31,
1995) and amounted to $192,543 in 1994, $355,468 in 1995 and $185,585 in
1996.

Stockholder Loan. An unsecured noninterest bearing $100,000 note was
outstanding at December 31, 1995 and repaid during 1996.

6. INCOME TAXES

The components of the expense (benefit) for income taxes is comprised of
the following as of December 31:

<TABLE>
<CAPTION>
1994 1995 1996
---------- --------- ----------
<S> <C> <C> <C>
Current:
Federal.......................................... $ -- $ 23,000 $ 721,700
State............................................ -- -- 161,392
---------- --------- ----------
-- 23,000 883,092
---------- --------- ----------
Deferred:
Federal.......................................... (334,000) 221,100
State............................................ -- (31,000) 11,700
---------- --------- ----------
-- (365,000) 232,800
---------- --------- ----------
$ -- $(342,000) $1,115,892
========== ========= ==========
</TABLE>

F-10
<PAGE> 56

FARO TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Income taxes for the years ended December 31, 1994, 1995 and 1996 differ
from the amount computed by applying the federal statutory corporate rate to
income before income taxes. The differences are reconciled as follows:

<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ----------
<S> <C> <C> <C>
Tax expense (benefit) at statutory rate............. $(145,600) $ 428,000 $ 857,700
State income taxes, net of federal benefit.......... -- 46,000 114,200
Research and development credit..................... -- (30,000) --
Nondeductible items................................. -- -- 61,000
Other............................................... -- -- 82,992
Change in deferred tax asset valuation allowance.... 145,600 (786,000) --
--------- --------- ----------
Total income tax expense (benefit)........ $ -- $(342,000) $1,115,892
========= ========= ==========
</TABLE>

The components of the Company's net deferred tax asset at December 31, 1995
and 1996 are as follows:

<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Deferred tax assets:
Inventory write-down...................................... $ 97,000 $ --
Other..................................................... 14,000 9,400
Employee stock options.................................... 40,000 51,300
Unearned service revenue.................................. -- 186,200
Net operating loss carryforwards and alternative minimum
tax credits............................................ 197,000 --
Research and development credits.......................... 134,000 --
-------- --------
Gross deferred assets....................................... 482,000 246,900
======== ========
Deferred tax liabilities:
Patent amortization....................................... 83,000 88,200
Depreciation.............................................. 6,000 26,500
Other..................................................... 28,000 --
-------- --------
Gross deferred tax liabilities.............................. 117,000 114,700
-------- --------
Net deferred tax asset............................ $365,000 $132,200
======== ========
</TABLE>

7. COMMITMENTS

The following is a schedule of future minimum lease payments required under
noncancelable leases, including leases with related parties (see Note 5), in
effect at December 31, 1996:

<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
- ------------ --------
<S> <C>
1997...................................................... $236,200
1998...................................................... 205,600
1999...................................................... 168,400
2000...................................................... 166,700
2001...................................................... 27,800
--------
Total future minimum lease payments............. $804,700
========
</TABLE>

8. EMPLOYEE STOCK OPTION PLAN

In 1993, the Company adopted the 1993 Stock Option Plan (the "Plan"). The
Company reserved 703,100 shares of common stock for issuance to eligible
participants under the Plan. Options granted under

F-11
<PAGE> 57

FARO TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the Plan generally vest over a four-year period and are exercisable ten years
from the date of the grant. The exercisability of such options accelerates in
the event of an initial public offering of the Company's common stock. On
December 19, 1995, the Company granted options to purchase shares of common
stock of the Company to certain employees at an exercise price of $0.36. At
December 31, 1995, the estimated fair value of one share of common stock was
determined to be $1.07, based on a third-party offer for Company stock.

Compensation cost charged to operations was $0, $106,700 and $23,100 in
1994, 1995 and 1996 respectively. Compensation cost was based on the difference
between the estimated fair value of the stock and its exercise price, multiplied
by the number of shares vested in each year.

SFAS No. 123 Required Disclosure

If compensation cost for stock options was determined based on the fair
value at the grant dates for 1995 and 1996 consistent with the method prescribed
by SFAS No. 123, the Company's net income and income per share would have been
adjusted to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Net income:
As reported............................................... $1,599,657 $1,406,662
Pro forma................................................. 1,572,628 1,382,140
Income per share:
As reported............................................... $ 0.22 $ 0.19
Pro forma................................................. 0.22 0.19
</TABLE>

Under SFAS No. 123, the fair value of each option is estimated on the date
of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for options in 1995: dividend yield of 0%,
expected volatility of 90%, risk-free interest rate of 5.63%, and expected life
of 10 years. There were no stock options granted in 1996.

A summary of the status of options under the Company's stock-based
compensation plans as of December 31, 1995 and 1996, and changes during the
years ending on those dates is presented below:

<TABLE>
<CAPTION>
1995 1996
-------------------- -------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISED EXERCISED
OPTIONS PRICE OPTIONS PRICE
-------- --------- ------- ---------
<S> <C> <C> <C> <C>
Outstanding at beginning of year............... -- 210,902 $0.36
Granted........................................ 210,902 $0.36 --
Exercised...................................... -- --
Forfeited...................................... -- (20,390) 0.36
-------- -------
Outstanding at end of year..................... 210,902 0.36 190,512 0.36
======== =======
Grants exercisable at year-end................. -- --
Weighted-average fair value of options granted
during the year.............................. $225,700 --
</TABLE>

F-12
<PAGE> 58

FARO TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table summarizes information about the outstanding grants at
December 31, 1996:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------------
NUMBER WEIGHTED-
OUTSTANDING AVERAGE WEIGHTED-
AT REMAINING AVERAGE
EXERCISE DECEMBER 31, CONTRACTUAL EXERCISE
YEAR GRANTED PRICE 1996 LIFE PRICE
- ------------ -------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
1995......................................... $0.36 190,512 10 $0.36
</TABLE>

No options were exercisable as of December 31, 1996. Non-exercisable
options become exercisable in 2005 unless the Company completes a public
offering of its common stock. In that case, all vested options become
exercisable immediately and unvested options become exercisable immediately upon
vesting.

9. BENEFIT PLAN

During 1996, the Company established a defined contribution retirement plan
(401(k) Plan) for its employees, which provides benefits for all employees
meeting certain age and service requirements. The Company may make a
discretionary contribution each Plan year as determined by its Board of
Directors. Discretionary contributions or employer matches can be made to the
participant's account but cannot exceed 4% of the participant's annual
compensation. The Company made no contribution to the 401(k) Plan in 1996.

10. SUBSEQUENT EVENTS

All per share amounts, number of common shares and capital accounts in the
accompanying financial statements have been restated to give retroactive effect
for all periods presented for a 1 for 1.422272107 reverse stock split effective
June 30, 1997. The par value of the common stock was not changed. As a result,
$2,956, representing the reduction in par value for the shares no longer issued
was transferred to additional paid-in capital from common stock.

On January 1, 1997, the Company granted certain employees options to
purchase 140,269 shares of common stock at $3.57 per share, vesting over the
earlier to occur of ten years from the date of grant or a period of three years
commencing with an initial public offering of the Company's stock. The options
are exercisable upon the earlier to occur of (i) ten years from the date of
grant, or (ii) upon completion of vesting after the consummation of the
Company's initial public offering.

11. SUPPLEMENTAL INTERIM INFORMATION (UNAUDITED)

On May 1, 1997, as consideration for his serving on the Board of Directors,
a director was granted options for 52,732 shares of common stock at $0.36 per
share, exercisable upon the earlier to occur of (i) ten years from the date of
grant, or (ii) upon completion of the Company's initial public offering. Such
options are deemed to be immediately vested; consequently, the associated
compensation expense is reported in the six months ended June 30, 1997.

In July 1997, the Company adopted the 1997 Employee Stock Option Plan (the
"1997 Plan") that provides for the grant to key employees of the Company of
incentive or nonqualified stock options. An aggregate of 750,000 shares of
common stock are reserved for issuance pursuant to the 1997 Plan. The 1997 Plan
is administered by the Compensation Committee of the Board of Directors, which
has broad discretion in the granting of awards. The exercise price of all
options granted under the 1997 Plan must be at least equal to the fair market
value of the common stock on the date of grant. Options granted under the 1997
Plan will be exercisable after the period or periods specified in the option
agreement with respect to such grants and expire ten years from the date of
grant. As of the date of this Prospectus, no options have been granted under the
1997 Plan. It is anticipated that upon completion of this offering, Simon Raab
will be granted 80,000 options, Gregory A. Fraser will be granted 60,000 options
and approximately 74 other employees will be granted

F-13
<PAGE> 59

FARO TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

options to purchase a total of 220,000 shares of common stock at the initial
public offering price (except for options granted at 110% of the initial public
offering price to qualify for treatment as incentive stock options). These
options will become exercisable in one-third increments on each anniversary of
the date of grant, commencing in 1998.

In July 1997, the Company adopted the 1997 Non-Employee Director Stock
Option Plan (the "Non-Employee Plan") which provides for the grant of
nonqualified stock options to purchase up to 250,000 shares of common stock to
members of the Board of Directors who are not employees of the Company. As of
the date of this Prospectus, no options had been granted under the Non-Employee
Plan. Each outside director will be granted options to purchase 3,000 shares of
common stock upon the completion of this offering. Thereafter, on the date on
which a new outside director is first elected or appointed, he or she will
automatically be granted options to purchase 3,000 shares of common stock. Each
outside director also will be granted options to purchase 3,000 shares of common
stock annually on the day following the annual meeting of shareholders. All
options granted under the Non-Employee Plan will have an exercise price equal to
the then fair market value of the common stock. Options will become exercisable
in one-third increments on each anniversary of the date of grant.

In April 1997, the Company obtained a one-year unsecured $1.0 million line
of credit which bears interest at the 30-day commercial paper rate plus 2.65%
per annum (8.26% at June 30, 1997).

F-14
<PAGE> 60

======================================================

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH
OFFER TO SELL IS NOT AUTHORIZED OR IN WHICH THE PERSON IS NOT AUTHORIZED TO DO
SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.

------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
Use of Proceeds....................... 11
Dividend Policy....................... 11
Capitalization........................ 12
Dilution.............................. 13
Selected Consolidated Financial
Data................................ 14
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 16
Business.............................. 22
Management............................ 33
Principal and Selling Shareholders.... 37
Certain Transactions.................. 38
Description of Capital Stock.......... 39
Shares Eligible for Future Sale....... 41
Underwriting.......................... 42
Legal Matters......................... 43
Experts............................... 43
Additional Information................ 43
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>

------------------------

UNTIL , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING),
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
======================================================
======================================================

2,300,000 SHARES

[FARO LOGO]

COMMON STOCK

------------------------
PROSPECTUS
------------------------

RAYMOND JAMES &
ASSOCIATES, INC.

HANIFEN, IMHOFF INC.

, 1997

======================================================
<PAGE> 61

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

<TABLE>
<S> <C>
Securities and Exchange Commission filing fee............... $ 9,618
NASD filing fee............................................. 3,674
Nasdaq listing fee.......................................... 39,250
Transfer agent expenses and fees............................ 10,000
Printing and engraving...................................... 100,000
Accountants' fees and expenses.............................. 100,000
Consultants' fees and expenses.............................. 75,000
Legal fees and expenses..................................... 125,000
Miscellaneous............................................... 37,458
--------
Total............................................. $500,000
========
</TABLE>

- ---------------

* All of the above fees, costs and expenses above will be paid by the Company.
Other than the SEC filing fee and NASD filing fee, all fees and expenses are
estimated.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The Florida Business Corporation Act (the "Florida Act") permits a Florida
corporation to indemnify a present or former director or officer of the
corporation (and certain other persons serving at the request of the corporation
in related capacities) for liabilities, including legal expenses, arising by
reason of service in such capacity if such person shall have acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and in any criminal proceeding if such person had
no reasonable cause to believe his conduct was unlawful. However, in the case of
actions brought by or in the right of the corporation, no indemnification may be
made with respect to any matter as to which such director or officer shall have
been adjudged liable, except in certain limited circumstances.

The Company's Articles of Incorporation and Bylaws provide that the Company
shall indemnify directors and executive officers to the fullest extent now or
hereafter permitted by the Florida Act. In addition, the Company may enter into
Indemnification Agreements with its directors and executive officers in which
the Registrant has agreed to indemnify such persons to the fullest extent now or
hereafter permitted by the Florida Act.

The indemnification provided by the Florida Act and the Company's Bylaws is
not exclusive of any other rights to which a director or officer may be
entitled. The general effect of the foregoing provisions may be to reduce the
circumstances which an officer or director may be required to bear the economic
burden of the foregoing liabilities and expense.

The Company may obtain a liability insurance policy for its directors and
officers as permitted by the Florida Act which may extend to, among other
things, liability arising under the Securities Act.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

The Company has not sold any of its securities within the past three years.

II-1
<PAGE> 62

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<S> <C> <C>
1.1* -- Form of Underwriting Agreement
3.1 -- Form of Amended and Restated Articles of Incorporation of
the Company
3.2 -- Bylaws of the Company
4.1* -- Specimen Certificate for the Company's Common Stock
5.1* -- Opinion of Foley & Lardner
10.1 -- 1993 Stock Option Plan, as amended
10.2 -- 1997 Employee Stock Option Plan
10.3 -- 1997 Non-Employee Director Stock Option Plan
10.4 -- 1997 Non-Employee Directors' Fee Plan
10.5 -- Term WCMA Loan and Security Agreement dated September 24,
1996, between the Company and Merrill Lynch Business
Financial Services, Inc.
10.6 -- WCMA Note, Loan and Security Agreement dated April 23, 1997,
between the Company and Merrill Lynch Business Financial
Services, Inc.
10.7 -- Business Lease dated March 1, 1991, between the Company (as
successor-by-merger to FARO Medical Technologies (U.S.),
Inc.) and Xenon Research, Inc.
10.8 -- OEM Purchase Agreement dated June 7, 1996, between the
Company and Mitutoyo Corporation
10.9 -- Nonexclusive Unique Application Reseller Agreement dated
September 9, 1996, between the Company and Autodesk, Inc.
10.10 -- Form of Patent and Confidentiality Agreement between the
Company and each of its employees
11.1* -- Statement re computation of per share earnings
21.1 -- List of subsidiaries of the Company
23.1 -- Consent of Foley & Lardner (included in Exhibit 5.1)
23.2 -- Consent of Deloitte & Touche LLP
24.1 -- Power of Attorney relating to subsequent amendments
(included on the signature page of this Registration
Statement)
27.1 -- Financial Data Schedule -- six months ended June 30, 1997
(for SEC filing purposes only)
27.2 -- Financial Data Schedule -- year ended December 31, 1996 (for
SEC filing purposes only)
</TABLE>

- ---------------

* To be filed by amendment.

(b) Financial Statement Schedules.

Financial statement schedules have been omitted either because they are not
applicable or because the information that would be included in such schedules
is included elsewhere in this Registration Statement.

ITEM 17. UNDERTAKINGS.

The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the

II-2
<PAGE> 63

securities being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rules 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.

II-3
<PAGE> 64

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Orlando, and State of
Florida, on this 4th day of August, 1997.

FARO TECHNOLOGIES, INC.

By: /s/ SIMON RAAB
------------------------------------
Simon Raab
President and Chief Executive
Officer

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated. Each person whose signature appears below
constitutes and appoints Simon Raab and Gregory A. Fraser, and each of them
individually, his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him or her and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement and any Rule 462(b)
Registration Statement and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or either of them, or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>

/s/ SIMON RAAB Chairman of the Board of August 4, 1997
- ----------------------------------------------------- Directors, President and
Simon Raab Chief Executive Officer

/s/ GREGORY A. FRASER Director, Executive Vice August 4, 1997
- ----------------------------------------------------- President, Secretary,
Gregory A. Fraser Treasurer, Chief Financial
Officer

/s/ RONALD F. KISER Controller August 4, 1997
- -----------------------------------------------------
Ronald F. Kiser

/s/ HUBERT D'AMOURS Director August 4, 1997
- -----------------------------------------------------
Hubert d'Amours

/s/ PHILIP COLLEY Director August 5, 1997
- -----------------------------------------------------
Philip Colley

/s/ ALEXANDRE RAAB Director August 5, 1997
- -----------------------------------------------------
Alexandre Raab
</TABLE>

II-4
<PAGE> 65

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>

Director August 5, 1997
/s/ NORMAN H. SCHIPPER
- -----------------------------------------------------
Norman H. Schipper

/s/ MARTIN KOSHAR Director August 4, 1997
- -----------------------------------------------------
Martin Koshar

Director August , 1997
- -----------------------------------------------------
Andre Julien
</TABLE>

II-5
<PAGE> 66

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<S> <C> <C>
1.1* -- Form of Underwriting Agreement
3.1 -- Amended and Restated Articles of Incorporation of the
Company
3.2 -- Bylaws of the Company
4.1* -- Specimen Certificate for the Company's Common Stock
5.1* -- Opinion of Foley & Lardner
10.1 -- 1993 Stock Option Plan, as amended
10.2 -- 1997 Employee Stock Option Plan
10.3 -- 1997 Non-Employee Director Stock Option Plan
10.4 -- 1997 Non-Employee Directors' Fee Plan
10.5 -- Term WCMA Loan and Security Agreement dated September 24,
1996, between the Company and Merrill Lynch Business
Financial Services, Inc.
10.6 -- WCMA Note, Loan and Security Agreement dated April 23, 1997,
between the Company and Merrill Lynch Business Financial
Services, Inc.
10.7 -- Business Lease dated March 1, 1991, between the Company (as
successor-by-merger to FARO Medical Technologies (U.S.),
Inc.) and Xenon Research, Inc.
10.8 -- OEM Purchase Agreement dated June 7, 1996, between the
Company and Mitutoyo Corporation
10.9 -- Nonexclusive Unique Application Reseller Agreement dated
September 9, 1996, between the Company and Autodesk, Inc.
10.10 -- Form of Patent and Confidentiality Agreement between the
Company and each of its employees
11.1* -- Statement re computation of per share earnings
21.1 -- List of subsidiaries of the Company
23.1 -- Consent of Foley & Lardner (included in Exhibit 5.1)
23.2 -- Consent of Deloitte & Touche LLP
24.1 -- Power of Attorney relating to subsequent amendments
(included on the signature page of this Registration
Statement)
27.1 -- Financial Data Schedule -- six months ended June 30, 1997
(for SEC filing purposes only)
27.2 -- Financial Data Schedule -- year ended December 31, 1996 (for
SEC filing purposes only)
</TABLE>

- ---------------

* To be filed by amendment.

<PAGE> 1
EXHIBIT 3.1

RESTATED ARTICLES OF INCORPORATION
OF
FARO TECHNOLOGIES, INC.

Pursuant to Sections 607.1006 and 607.1007 of the Florida Business
Corporation Act (the "FBCA"), FARO Technologies, Inc. adopts these Restated
Articles of Incorporation:

FIRST: The name of the Corporation is FARO TECHNOLOGIES, INC.

SECOND: The Corporation's Articles of Incorporation are restated in their
entirety to read as follows:

ARTICLE 1

NAME

The name of the Corporation is: FARO TECHNOLOGIES, INC.

ARTICLE 2
BUSINESS AND ACTIVITIES

The Corporation may, and is authorized to, engage in any activity or
business now or hereafter permitted under the laws of the United States and of
the State of Florida.

ARTICLE 3
CAPITAL STOCK

3.1 Authorized Shares. The total number of shares of all classes of
capital stock that the Corporation shall have the authority to issue shall be
60,000,000 shares, of which 50,000,000 shares shall be Common Stock having a
par value of $0.001 per share ("Common Stock") and 10,000,000 shares shall be
Preferred Stock, having a par value of $0.001 per share ("Preferred Stock").
The Board of Directors is expressly authorized, pursuant to Section 607.0602 of
the FBCA, to provide for the classification and reclassification of any
unissued class or series of Common Stock or Preferred Stock and the issuance
thereof in one or more classes or series without the approval of the
shareholders of the Corporation, all within the limitations set forth in
Section 607.0601 of the FBCA.

3.2 Common Stock.

(A) Relative Rights. The Common Stock shall be subject to all of the
rights, privileges, preferences, and priorities of the Preferred Stock as set
forth in the Articles of Amendment to these Articles of Incorporation that may
hereafter be filed pursuant to Section 607.0602 of the FBCA to establish or
reclassify a class or series of the Preferred Stock. Except as otherwise
provided in these Articles of Incorporation, each share of Common Stock shall
have the same rights as, and be identical in all respects to, all of the other
shares of Common Stock.

<PAGE> 2

(B) Voting Rights. Except as otherwise provided by the FBCA or these
Articles of Incorporation, and except as may be determined by the Board of
Directors with respect to the Preferred Stock, only the holders of Common Stock
shall be entitled to vote for the election of directors of the Corporation and
for all other corporate purposes. Upon any such vote, each holder of Common
Stock shall, except as otherwise provided by the FBCA, be entitled to one vote
for each share of Common Stock held by such holder. Cumulative voting in the
election of directors shall not be permitted.

(C) Dividends. Whenever there shall have been paid, or declared
and set aside for payment, to the holders of the shares of any class of stock
having preference over the Common Stock as to the payment of dividends, the
full amount of dividends and of sinking fund or retirement payments, if any, to
which such holders are respectively entitled in preference to the Common Stock,
then the holders of record of the Common Stock, and the holders of any class or
series of stock entitled to participate therewith as to dividends, shall be
entitled to receive dividends, when, as, and if declared by the Board of
Directors, out of any assets legally available for the payment of dividends
thereon.

(D) Dissolution, Liquidation, Winding Up. In the event of any
dissolution, liquidation, or winding up of the Corporation, whether voluntary
or involuntary, the holders of record of the Common Stock then outstanding, and
all holders of any class or series of stock entitled to participate therewith
in whole or in part as to the distribution of assets, shall become entitled to
participate in the distribution of assets of the Corporation remaining after
the Corporation shall have paid, or set aside for payment, to the holders of
any class of stock having preference over the Common Stock in the event of
dissolution, liquidation, or winding up, the full preferential amounts, if any,
to which they are entitled and shall have paid or provided for payment of all
debts and liabilities of the Corporation.

3.3 Preferred Stock.

(A) Issuance, Designations, Powers. The Board of Directors is
expressly authorized, subject to the limitations prescribed by the FBCA and
these Articles of Incorporation, to provide, by resolution and by filing
Articles of Amendment to these Articles of Incorporation, which shall be
effective without shareholder action pursuant to Section 607.0602(4) of the
FBCA, for the issuance from time to time of the shares of Preferred Stock, to
reclassify the Preferred Stock or designate one or more series of such class
and provide for the issuance thereof, to establish from time to time the number
of shares to be included in each such class or series, to fix the designations,
powers, preferences, and other rights of each such class or series, and to fix
the qualifications, limitations, and restrictions thereon, including, but
without limiting the generality of the foregoing, the following:

(1) the number of shares constituting that class or series
and the distinctive designation of that class or series;

2
<PAGE> 3

(2) the dividend rate on the shares of that class
or series, whether dividends shall be cumulative, noncumulative, or partially
cumulative and, if so, from which date or dates, and the relative rights of
priority, if any, of payments of dividends on shares of that class or series;

(3) whether that class or series shall have voting rights,
in addition to the voting rights provided by the FBCA, and, if so, the terms of
such voting rights;

(4) whether that class or series shall have conversion
privileges, and, if so, the terms and conditions of such conversion, including
provision for adjustment of the conversion rate in such events as the Board of
Directors shall determine;

(5) whether or not the shares of that class or series shall
be redeemable, and, if so, the terms and conditions of such redemption,
including the dates upon or after which they shall be redeemable, and the
amount per share payable in case of redemption, which amount may vary under
different conditions and at different redemption dates as the Board of
Directors shall determine;

(6) whether that class or series shall have a
sinking fund for the redemption or purchase of shares of that class or series,
and, if so, the terms and amount of such sinking fund;

(7) the rights of the shares of that class or
series in the event of voluntary or involuntary liquidation, dissolution, or
winding up of the Corporation, and the relative rights of priority, if any, of
payment of shares of that class or series; and

(8) any other relative powers, preferences, and
rights of that class or series, and qualifications, limitations, or
restrictions on that class or series.

(B) Dissolution, Liquidation, Winding Up. In the event of any
liquidation, dissolution, or winding up of the Corporation, whether voluntary
or involuntary, the holders of Preferred Stock of each class or series shall be
entitled to receive only such amount or amounts as shall have been fixed by the
Articles of Amendment to these Articles of Incorporation or by the resolution
or resolutions of the Board of Directors providing for the issuance of such
class or series.

3.4 No Preemptive Rights. Except as the Board of Directors may
otherwise determine, no shareholder of the Corporation shall have any
preferential or preemptive right to subscribe for or purchase from the
Corporation any new or additional shares of capital stock, or securities
convertible into shares of capital stock, of the Corporation, whether now or
hereafter authorized.

<PAGE> 4

ARTICLE 4
BOARD OF DIRECTORS

4.1 Classification. Except as otherwise provided pursuant to the
provisions of these Articles of Incorporation or Articles of Amendment filed
pursuant to Section 3.3 hereof relating to the rights of the holders of any
class or series of Preferred Stock, voting separately by class or series, to
elect additional directors under specified circumstances, the number of
directors of the Corporation shall be as fixed from time to time by or pursuant
to these Articles of Incorporation or by bylaws of the Corporation (the
"Bylaws"). The directors, other than those who may be elected by the holders of
any class or series of Preferred Stock voting separately by class or series,
shall be classified, with respect to the time for which they severally hold
office, into three classes, Class I, Class II and Class III, each of which
shall be as nearly equal in number as possible, and shall be adjusted from time
to time in the manner specified in the Bylaws to maintain such proportionality.
Each initial director in Class I shall hold office for a term expiring at the
2000 annual meeting of the shareholders; each initial director in Class II
shall hold office for a term expiring at the 1999 annual meeting of the
shareholders; and each initial director in Class III shall hold office for a
term expiring at the 1998 annual meeting of the shareholders. Notwithstanding
the foregoing provisions of this Section 4.1, each director shall serve until
such director's successor is duly elected and qualified or until such
director's earlier death, resignation, or removal. At each annual meeting of
the shareholders, the successors to the class of directors whose term expires
at that meeting shall be elected to hold office for a term expiring at the
annual meeting of the shareholders held in the third year following the year of
their election and until their successors shall have been duly elected and
qualified or until such director's earlier death, resignation, or removal.

4.2 Removal.

(A) Removal For Cause. Except as otherwise provided pursuant to the
provisions of these Articles of Incorporation or Articles of Amendment filed
pursuant to Section 3.3 hereof relating to the rights of the holders of any
class or series of Preferred Stock, voting separately by class or series, to
elect directors under specified circumstances, any director or directors may be
removed from office at any time, but only for cause (as defined in Section
4.2(B) hereof) and only by the affirmative vote, at a special meeting of the
shareholders called for such a purpose, of not less than sixty-six and
two-thirds percent (66 2/3%) of the total number of votes of the then
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors, voting together as a single class, but
only if notice of such proposed removal was contained in the notice of such
meeting. At least 30 days prior to such special meeting of the shareholders,
written notice shall be sent to the director or directors whose removal will be
considered at such meeting. Any vacancy on the Board of Directors resulting
from such removal or otherwise shall be filled only by vote of a majority of
the directors then in office, although less than a quorum, and any director so
chosen shall hold office until the next election of the class for which such
director shall have been chosen and until his or her successor shall have been
elected and qualified or until any such director's earlier death, resignation,
or removal.

4
<PAGE> 5

(B) "Cause" Defined. For the purposes of this Section 4.2,
"cause" shall mean (i) misconduct as a director of the Corporation or any
subsidiary of the Corporation which involves dishonesty with respect to a
substantial or material corporate activity or corporate assets, or (ii)
conviction of an offense punishable by one or more years of imprisonment (other
than minor regulatory infractions and traffic violations that do not materially
and adversely affect the Corporation).

4.3 Change of Number of Directors. In the event of any increase or
decrease in the authorized number of directors, the newly created or eliminated
directorships resulting from such increase or decrease shall be apportioned by
the Board of Directors among the three classes of directors so as to maintain
such classes as nearly equal as possible. No decrease in the number of
directors constituting the Board of Directors shall shorten the term of any
incumbent director.

4.4 Directors Elected by Holders of Preferred Stock. Notwithstanding
the foregoing, whenever the holders of any one or more classes or series of
Preferred Stock issued by the Corporation shall have the right, voting
separately by class or series, to elect one or more directors at an annual or
special meeting of shareholders, the election, term of office, filling of
vacancies, and other features of such directorships shall be governed by the
terms of these Articles of Incorporation, as amended by Articles of Amendment
applicable to such classes or series of Preferred Stock, and such directors so
elected shall not be divided into classes pursuant to this Article 4 unless
expressly provided by the Articles of Amendment applicable to such classes or
series of Preferred Stock.

4.5 Exercise of Business Judgment. In discharging his or her duties as
a director of the Corporation, a director may consider such factors as the
director considers relevant, including the long-term prospects and interests of
the Corporation and its shareholders, the social, economic, legal, or other
effects of any corporate action or inaction upon the employees, suppliers, or
customers of the Corporation or its subsidiaries, the communities and society
in which the Corporation or its subsidiaries operate, and the economy of the
State of Florida and the United States.

4.6 Number of Directors. The number of directors constituting the
Board of Directors of the Corporation is eight. The number of directors may be
increased or decreased from time to time as provided in the Bylaws, but in no
event shall the number of directors be less than three or more than 15.

ARTICLE 5
ACTION BY SHAREHOLDERS

5.1 Call For Special Meeting. Special meetings of the shareholders of
the Corporation may be called at any time, but only by (a) the President or
Chairman of the Board of the Corporation, (b) a majority of the directors in
office, although less than a quorum, and (c) the holders of at least fifty
percent (50%) of the total number of votes of the then outstanding shares

<PAGE> 6

of capital stock of the Corporation entitled to vote generally in the election
of directors, voting together as a single class.

5.2 Shareholder Action by Written Consent. Any action required or
permitted to be taken by the shareholders of the Corporation must be effected
at a duly called annual or special meeting of the shareholders, and may not be
effected by any consent in writing by such shareholders, unless such written
consent is effected by the holders of at least sixty-six and two-thirds percent
(66 2/3%) of the total number of votes of the then outstanding shares of
capital stock of the Corporation entitled to vote generally in the election of
directors, voting together as a single class.

ARTICLE 6
INDEMNIFICATION

6.1 Provision of Indemnification. The Corporation shall, to the
fullest extent permitted or required by the FBCA, including any amendments
thereto (but in the case of any such amendment, only to the extent such
amendment permits or requires the Corporation to provide broader
indemnification rights than prior to such amendment), indemnify its Directors
and Executive Officers against any and all Liabilities, and advance any and all
reasonable Expenses, incurred thereby in any Proceeding to which any such
Director or Executive Officer is a Party or in which such Director or Executive
Officer is deposed or called to testify as a witness because he or she is or
was a Director or Executive Officer of the Corporation. The rights to
indemnification granted hereunder shall not be deemed exclusive of any other
rights to indemnification against Liabilities or the advancement of Expenses
which a Director or Executive Officer may be entitled under any written
agreement, Board of Directors' resolution, vote of shareholders, the FBCA, or
otherwise. The Corporation may, but shall not be required to, supplement the
foregoing rights to indemnification against Liabilities and advancement of
Expenses by the purchase of insurance on behalf of any one or more of its
Directors or Executive Officers whether or not the Corporation would be
obligated to indemnify or advance Expenses to such Director or Executive
Officer under this Article. For purposes of this Article, the term "Directors"
includes former directors of the Corporation and any director who is or was
serving at the request of the Corporation as a director, officer, employee, or
agent of another corporation, partnership, joint venture, trust, or other
enterprise, including, without limitation, any employee benefit plan (other
than in the capacity as an agent separately retained and compensated for the
provision of goods or services to the enterprise, including, without
limitation, attorneys-at-law, accountants, and financial consultants). For
purposes of this Article, the term "Executive Officers" includes those
individuals who are or who were at any time "executive officers" of the
Corporation as defined in Securities and Exchange Commission Rule 3b-7
promulgated under the Securities Exchange Act of 1934, as amended. All other
capitalized terms used in this Article 6 and not otherwise defined herein have
the meaning set forth in Section 607.0850 of the FBCA. The provisions of this
Article 6 are intended solely for the benefit of the indemnified parties
described herein and their heirs and personal representatives and shall not
create any rights in

6
<PAGE> 7

favor of third parties. No amendment to or repeal of this Article 6 shall
diminish the rights of indemnification provided for herein prior to such
amendment or repeal.

ARTICLE 7
AMENDMENTS

7.1 Articles of Incorporation. Notwithstanding any other
provision of these Articles of Incorporation or the Bylaws of the
Corporation (and notwithstanding that a lesser percentage may be specified by
law) the affirmative vote of sixty-six and two-thirds percent (66 2/3%) of the
total number of votes of the then outstanding shares of the capital stock of
the Corporation entitled to vote generally in the election of directors, voting
together as a single class, shall be required (unless separate voting by
classes is required by the FBCA, in which event the affirmative vote of
sixty-six and two-thirds percent (66 2/3%) of the number of shares of each
class or series entitled to vote as a class shall be required), to amend or
repeal, or to adopt any provision inconsistent with the purpose or intent of,
Articles 4, 5, 6, or this Article 7 of these Articles of Incorporation. Notice
of any such proposed amendment, repeal, or adoption shall be contained in the
notice of the meeting at which it is to be considered. Subject to the
provisions set forth herein, the Corporation reserves the right to amend,
alter, repeal, or rescind any provision contained in these Articles of
Incorporation in the manner now or hereafter prescribed by law.

7.2 Bylaws. The shareholders of the Corporation may adopt or amend a
bylaw which fixes a greater quorum or voting requirement for shareholders (or
voting groups of shareholders) than is required by the FBCA. The adoption or
amendment of a bylaw that adds, changes, or deletes a greater quorum or voting
requirement for shareholders must meet the same quorum or voting requirement
and be adopted by the same vote and voting groups required to take action under
the quorum or voting requirement then in effect or proposed to be adopted,
whichever is greater.

ARTICLE 8
REGISTERED OFFICE AND AGENT

The address of the Registered Office of the Corporation is
101 E. Kennedy Blvd., Ste 4100, Tampa, Florida 33602 and the Registered Agent
at such address is Richard A. Schlosser.

ARTICLE 9
PRINCIPAL OFFICE AND MAILING ADDRESS

The address of the Principal Office of the Corporation and its mailing
address is 125 Technology Park, Lake Mary, Florida 32746. The location of the
Principal Office and the mailing address shall be subject to change as may be
provided in the Bylaws.

THIRD: The foregoing restatement of the Corporation's Articles of
Incorporation amends the Corporation's Articles of Incorporation and was
adopted and approved by a majority

7
<PAGE> 8

of the shareholders of the Corporation pursuant to a written consent dated
_____________, 1997 and the number of votes cast by the shareholders was
sufficient for approval.

FOURTH: The foregoing restatement of the Corporation's Articles of
Incorporation will become effective upon the filing of these Restated Articles
of Incorporation with the Florida Department of State.

IN WITNESS WHEREOF, these Restated Articles of Incorporation
have been signed on behalf of the Corporation this________day of
_____________, 1997.

---------------------
Simon Raab, President

<PAGE> 1
EXHIBIT 3.2

BYLAWS

FARO TECHNOLOGIES, INC.
(A FLORIDA CORPORATION)

<PAGE> 2

TABLE OF CONTENTS

<TABLE>
<CAPTION>
ARTICLE 1
DEFINITIONS
Page
----
<S> <C> <C>
Section 1.1 Definitions......................................................... 1

ARTICLE 2
OFFICES

Section 2.1 Principal and Business Offices...................................... 1
Section 2.2 Registered Office................................................... 1

ARTICLE 3
SHAREHOLDERS

Section 3.1 Annual Meeting...................................................... 1
Section 3.2 Special Meetings.................................................... 2
Section 3.3 Place of Meeting.................................................... 3
Section 3.4 Notice of Meeting................................................... 3
Section 3.7 Shareholders' List for Meetings..................................... 5
Section 3.8 Quorum.............................................................. 5
Section 3.9 Voting of Shares.................................................... 6
Section 3.10 Vote Required....................................................... 6
Section 3.11 Conduct of Meeting.................................................. 6
Section 3.12 Inspectors of Election.............................................. 6
Section 3.13 Proxies............................................................. 7
Section 3.14 Action by Shareholders Without Meeting.............................. 7
Section 3.15 Acceptance of Instruments Showing Shareholder Action................ 8

ARTICLE 4
BOARD OF DIRECTORS

Section 4.1 General Powers and Number........................................... 9
Section 4.2 Qualifications...................................................... 9
Section 4.3 Term of Office...................................................... 9
Section 4.4 Nominations of Directors............................................ 9
Section 4.5 Removal............................................................. 10
Section 4.6 Resignation......................................................... 11
Section 4.7 Vacancies........................................................... 11
Section 4.8 Compensation........................................................ 11
Section 4.9 Regular Meetings.................................................... 11
</TABLE>

<PAGE> 3

<TABLE>

<S> <C> <C>
Section 4.10 Special Meetings.................................................... 11
Section 4.11 Notice.............................................................. 12
Section 4.12 Waiver of Notice.................................................... 12
Section 4.13 Quorum and Voting................................................... 12
Section 4.14 Conduct of Meetings................................................. 12
Section 4.15 Committees.......................................................... 13
Section 4.16 Action Without Meeting.............................................. 13

ARTICLE 5
OFFICERS

Section 5.1 Number.............................................................. 14
Section 5.2 Election and Term of Office......................................... 14
Section 5.3 Removal............................................................. 14
Section 5.4 Resignation......................................................... 14
Section 5.5 Vacancies........................................................... 14
Section 5.6 Chairman of the Board............................................... 14
Section 5.7 President........................................................... 15
Section 5.8 Vice Presidents..................................................... 15
Section 5.9 Secretary........................................................... 16
Section 5.10 Treasurer........................................................... 16
Section 5.11 Assistant Secretaries and Assistant Treasurers...................... 16
Section 5.12 Other Assistants and Acting Officers................................ 16
Section 5.13 Salaries............................................................ 16

ARTICLE 6
CONTRACTS, CHECKS AND DEPOSITS; SPECIAL CORPORATE ACTS

Section 6.1 Contracts........................................................... 17
Section 6.2 Checks, Drafts, etc................................................. 17
Section 6.3 Deposits............................................................ 17
Section 6.4 Voting of Securities Owned by Corporation........................... 17

ARTICLE 7
CERTIFICATES FOR SHARES; TRANSFER OF SHARES

Section 7.1 Consideration for Shares............................................ 17
Section 7.2 Certificates for Shares............................................. 18
Section 7.3 Transfer of Shares.................................................. 18
Section 7.4 Restrictions on Transfer............................................ 19
Section 7.5 Lost, Destroyed, or Stolen Certificates............................. 19
Section 7.6 Stock Regulations................................................... 19

ARTICLE 8
SEAL

Section 8.1 Seal................................................................ 19

</TABLE>

<PAGE> 4

ARTICLE 9
BOOKS AND RECORDS

<TABLE>
<S> <C> <C>
Section 9.1 Books and Records................................................... 19
Section 9.2 Shareholders' Inspection Rights..................................... 19
Section 9.3 Distribution of Financial Information............................... 20
Section 9.4 Other Reports....................................................... 20

ARTICLE 10
INDEMNIFICATION

Section 10.1 Provision of Indemnification........................................ 20

ARTICLE 11
AMENDMENTS

Section 11.1 Power to Amend...................................................... 20

</TABLE>

iii

<PAGE> 5

ARTICLE 1
DEFINITIONS

Section 1.1 Definitions. The following terms shall have the
following meanings for purposes of these bylaws:

"Act" means the Florida Business Corporation Act, as it may be amended
from time to time, or any successor legislation thereto.

"Corporation" means FARO Technologies, Inc., a Florida corporation.

"Deliver" or "delivery" includes delivery by hand; United States mail;
facsimile, telegraph, teletype or other form of electronic transmission, with
written confirmation or other acknowledgment of receipt; and private mail
carriers handling nationwide mail services.

"Principal office" means the office (within or without the State of
Florida) where the Corporation's principal executive offices are located, as
designated in the Articles of Incorporation until an annual report has been
filed with the Florida Department of State, and thereafter as designated in the
annual report.

ARTICLE 2
OFFICES

Section 2.1 Principal and Business Offices. The Corporation may have
such principal and other business offices, either within or without the State of
Florida, as the Board of Directors may designate or as the business of the
Corporation may require from time to time.

Section 2.2 Registered Office. The registered office of the
Corporation required by the Act to be maintained in the State of Florida
may but need not be identical with the principal office if located in the State
of Florida, and the address of the registered office may be changed from time to
time by the Board of Directors or by the registered agent. The business office
of the registered agent of the Corporation shall be identical to such registered
office.

ARTICLE 3
SHAREHOLDERS

Section 3.1 Annual Meeting.

(a) Call by Directors. The annual meeting of shareholders
shall be held within four months after the close of each fiscal year of the
Corporation on a date and at a time and place designated by the Board of
Directors, for the purpose of electing directors and for the transaction of such
other business as may come before the meeting. If the election of directors
shall not be held on the day fixed as herein provided for any annual meeting of
shareholders, or at any adjournment thereof, the Board of Directors shall cause
the election to be held at a special meeting of shareholders as soon thereafter
as is practicable. The failure to hold the annual meeting of the shareholders
within the time stated in these bylaws shall not

<PAGE> 6

affect the terms of office of the officers or directors of the Corporation or
the validity of any corporate action.

(b) Business At Annual Meeting. At an annual meeting of the
shareholders of the Corporation, only such business shall be conducted as shall
have been properly brought before the meeting. To be properly brought before an
annual meeting, business must be (1) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors, (2)
otherwise properly brought before the meeting by or at the direction of the
Board of Directors, or (3) otherwise properly brought before the meeting by a
shareholder. For business to be properly brought before an annual meeting by a
shareholder, the shareholder must have given timely notice thereof in writing to
the Secretary of the Corporation. To be timely, a shareholder's notice shall be
received at the principal business office of the Corporation no later than the
date designated for receipt of shareholders' proposals in a prior public
disclosure made by the Corporation. If there has been no such prior public
disclosure, then to be timely, a shareholder's notice must be delivered to or
mailed and received at the principal business office of the Corporation not less
than 60 days nor more than 90 days prior to the annual meeting of shareholders;
provided, however, that in the event that less than 70 days' notice of the date
of the meeting is given to shareholders by notice or prior public disclosure,
notice by the shareholders, to be timely, must be received by the Corporation
not later than the close of business on the tenth day following the day on which
the Corporation gave notice or made a public disclosure of the date of the
annual meeting of the shareholders. A shareholder's notice to the Secretary
shall set forth as to each matter the shareholder proposes to bring before the
annual meeting (a) a brief description of the business desired to be brought
before the annual meeting and the reasons for conducting such business at the
annual meeting, (b) the name and address, as they appear on the Corporation's
stock books, of the shareholders proposing such business, (c) the class and
number of shares of the Corporation which are beneficially owned by the
shareholder, (d) any material interest of the shareholder in such business, and
(e) the same information required by clauses (b), (c) and (d) above with respect
to any other shareholder that, to the knowledge of the shareholder proposing
such business, supports such proposal. Notwithstanding anything in these bylaws
to the contrary, no business shall be conducted at an annual meeting except in
accordance with the procedures set forth in this Section . The Chairman of an
annual meeting shall, if the facts warrant, determine and declare to the annual
meeting that a matter of business was not properly brought before the meeting in
accordance with the provisions of this Section , and if the Chairman shall so
determine, the Chairman shall so declare at the meeting and any such business
not properly brought before the meeting shall not be transacted.

Section 3.2 Special Meetings.

(a) Call by Directors or President. Special meetings of
shareholders of the Corporation, for any purpose or purposes, may be called by
the Board of Directors, the Chairman of the Board (if any) or the President.

(b) Call by Shareholders. The Corporation shall call a special
meeting of shareholders in the event that the holders of at least fifty percent
(50%) of all of the votes entitled to be cast on any issue proposed to be
considered at the proposed special meeting sign, date, and deliver to the
Secretary one or more written demands for the meeting
2

<PAGE> 7

describing one or more purposes for which it is to be held. The Corporation
shall give notice of such a special meeting within 60 days after the date
that the demand is delivered to the Corporation.

Section 3.3 Place of Meeting. The Board of Directors may designate any
place, either within or without the State of Florida, as the place of meeting
for any annual or special meeting of shareholders. If no designation is made,
the place of meeting shall be the principal office of the Corporation.

Section 3.4 Notice of Meeting.

(a) Content and Delivery. Written notice stating the date,
time, and place of any meeting of shareholders and, in the case of a special
meeting, the purpose or purposes for which the meeting is called, shall be
delivered not less than ten days nor more than 60 days before the date of the
meeting by or at the direction of the President or the Secretary, or the officer
or persons duly calling the meeting, to each shareholder of record entitled to
vote at such meeting and to such other persons as required by the Act. Unless
the Act requires otherwise, notice of an annual meeting need not include a
description of the purpose or purposes for which the meeting is called. If
mailed, notice of a meeting of shareholders shall be deemed to be delivered when
deposited in the United States mail, addressed to the shareholder at his or her
address as it appears on the stock record books of the Corporation, with postage
thereon prepaid.

(b) Notice of Adjourned Meetings. If an annual or special
meeting of shareholders is adjourned to a different date, time, or place, the
Corporation shall not be required to give notice of the new date, time, or place
if the new date, time, or place is announced at the meeting before adjournment;
provided, however, that if a new record date for an adjourned meeting is or must
be fixed, the Corporation shall give notice of the adjourned meeting to persons
who are shareholders as of the new record date who are entitled to notice of the
meeting.

(c) No Notice Under Certain Circumstances. Notwithstanding the
other provisions of this Section, no notice of a meeting of shareholders need be
given to a shareholder if: (1) an annual report and proxy statement for two
consecutive annual meetings of shareholders, or (2) all, and at least two,
checks in payment of dividends or interest on securities during a 12 month
period have been sent by first-class, United States mail, addressed to the
shareholder at his or her address as it appears on the share transfer books of
the Corporation, and returned undeliverable. The obligation of the Corporation
to give notice of a shareholders' meeting to any such shareholder shall be
reinstated once the Corporation has received a new address for such shareholder
for entry on its share transfer books.

Section 3.5 Waiver of Notice.

(a) Written Waiver. A shareholder may waive any notice
required by the Act or these bylaws before or after the date and time stated for
the meeting in the notice. The waiver shall be in writing and signed by the
shareholder entitled to the notice, and be delivered to the Corporation for
inclusion in the minutes or filing with the corporate records. Neither the

<PAGE> 8

business to be transacted at nor the purpose of any regular or special meeting
of shareholders need be specified in any written waiver of notice.

(b) Waiver by Attendance. A shareholder's attendance at a
meeting, in person or by proxy, waives objection to all of the following: (1)
lack of notice or defective notice of the meeting, unless the shareholder at the
beginning of the meeting objects to holding the meeting or transacting business
at the meeting; and (2) consideration of a particular matter at the meeting that
is not within the purpose or purposes described in the meeting notice, unless
the shareholder objects to considering the matter when it is presented.

Section 3.6 Fixing of Record Date.

(a) General. The Board of Directors may fix in advance a date
as the record date for the purpose of determining shareholders entitled to
notice of a shareholders' meeting, entitled to vote, or take any other action.
In no event may a record date fixed by the Board of Directors be a date
preceding the date upon which the resolution fixing the record date is adopted
or a date more than 70 days before the date of meeting or action requiring a
determination of shareholders.

(b) Special Meeting. The record date for determining
shareholders entitled to demand a special meeting shall be the close of business
on the date the first shareholder delivers his or her demand to the Corporation.

(c) Shareholder Action by Written Consent. If no prior action
is required by the Board of Directors pursuant to the Act, the record date for
determining shareholders entitled to take action without a meeting shall be the
close of business on the date the first signed written consent with respect to
the action in question is delivered to the Corporation, but if prior action is
required by the Board of Directors pursuant to the Act, such record date shall
be the close of business on the date on which the Board of Directors adopts the
resolution taking such prior action unless the Board of Directors otherwise
fixes a record date. Any action of the shareholders of the Corporation taken
without a meeting shall be effected only upon the written consent of
shareholders made in accordance with Section 3.14.

(d) Absence of Board Determination for Shareholders' Meeting.
If the Board of Directors does not determine the record date for determining
shareholders entitled to notice of and to vote at an annual or special
shareholders' meeting, such record date shall be the close of business on the
day before the first notice with respect thereto is delivered to shareholders.

(e) Adjourned Meeting. A record date for determining
shareholders entitled to notice of or to vote at a shareholders' meeting is
effective for any adjournment of the meeting unless the Board of Directors fixes
a new record date, which it must do if the meeting is adjourned to a date more
than 120 days after the date fixed for the original meeting.

<PAGE> 9

Section 3.7 Shareholders' List for Meetings.

(a) Preparation and Availability. After a record date for a
meeting of shareholders has been fixed, the Corporation shall prepare an
alphabetical list of the names of all of the shareholders entitled to notice of
the meeting. The list shall be arranged by class or series of shares, if any,
and show the address of and number of shares held by each shareholder. Such list
shall be available for inspection by any shareholder for a period of ten days
prior to the meeting or such shorter time as exists between the record date and
the meeting date, and continuing through the meeting, at the Corporation's
principal office, at a place identified in the meeting notice in the city where
the meeting will be held, or at the office of the Corporation's transfer agent
or registrar, if any. A shareholder or his or her agent may, on written demand,
inspect the list, subject to the requirements of the Act, during regular
business hours and at his or her expense, during the period that it is available
for inspection pursuant to this Section. A shareholder's written demand to
inspect the list shall describe with reasonable particularity the purpose for
inspection of the list, and the Corporation may deny the demand to inspect the
list if the Secretary determines that the demand was not made in good faith and
for a proper purpose or if the list is not directly connected with the purpose
stated in the shareholder's demand, all subject to the requirements of Section
607.1602(3) of the Act. Notwithstanding anything herein to the contrary, the
Corporation shall make the shareholders' list available at any annual meeting or
special meeting of shareholders and any shareholder or his or her agent or
attorney may inspect the list at any time during the meeting or any adjournment
thereof.

(b) Prima Facie Evidence. The shareholders' list is prima
facie evidence of the identity of shareholders entitled to examine the
shareholders' list or to vote at a meeting of shareholders.

(c) Failure to Comply. If the requirements of this Section
have not been substantially complied with, or if the Corporation refuses to
allow a shareholder or his or her agent or attorney to inspect the shareholders'
list before or at the meeting, on the demand of any shareholder, in person or by
proxy, who failed to get such access, the meeting shall be adjourned until such
requirements are complied with.

(d) Validity of Action Not Affected. Refusal or failure to
prepare or make available the shareholders' list shall not affect the validity
of any action taken at a meeting of shareholders.

Section 3.8 Quorum.

(a) What Constitutes a Quorum. Shares entitled to vote as a
separate voting group may take action on a matter at a meeting only if a quorum
of those shares exists with respect to that matter. If the Corporation has only
one class of stock outstanding, such class shall constitute a separate voting
group for purposes of this Section. Except as otherwise provided in the Act, a
majority of the votes entitled to be cast on the matter shall constitute a
quorum of the voting group for action on that matter.

<PAGE> 10

(b) Presence of Shares. Once a share is represented for any
purpose at a meeting, other than for the purpose of objecting to holding the
meeting or transacting business at the meeting, it is considered present for
purposes of determining whether a quorum exists for the remainder of the meeting
and for any adjournment of that meeting unless a new record date is or must be
set for the adjourned meeting.

(c) Adjournment in Absence of Quorum. Where a quorum is not
present, the holders of a majority of the shares represented and who would be
entitled to vote at the meeting if a quorum were present may adjourn such
meeting from time to time.

Section 3.9 Voting of Shares. Except as provided in the Articles of
Incorporation or the Act, each outstanding share, regardless of class, is
entitled to one vote on each matter voted on at a meeting of shareholders.

Section 3.10 Vote Required.

(a) Matters Other Than Election of Directors. If a quorum
exists, except in the case of the election of directors, action on a matter
shall be approved by a majority of the votes cast at such meeting, unless the
Act or the Articles of Incorporation require a greater number of affirmative
votes.

(b) Election of Directors. Each director shall be elected by a
plurality of the votes cast by the shares entitled to vote in the election of
directors at a meeting at which a quorum is present. Each shareholder who is
entitled to vote at an election of directors has the right to vote the number of
shares owned by him or her for as many persons as there are directors to be
elected. Shareholders do not have a right to cumulate their votes for directors.

Section 3.11 Conduct of Meeting. The Chairman of the Board of
Directors, and if there be none, or in his or her absence, the President, and in
his or her absence, a Vice President in the order provided under the Section of
these bylaws titled "Vice Presidents," and in their absence, any person chosen
by the shareholders present shall call a shareholders' meeting to order and
shall act as presiding officer of the meeting, and the Secretary of the
Corporation shall act as secretary of all meetings of the shareholders, but, in
the absence of the Secretary, the presiding officer may appoint any other person
to act as secretary of the meeting. The presiding officer of the meeting shall
have broad discretion in determining the order of business at a shareholders'
meeting. The presiding officer's authority to conduct the meeting shall include,
but in no way be limited to, recognizing shareholders entitled to speak, calling
for the necessary reports, stating questions and putting them to a vote, calling
for nominations, and announcing the results of voting. The presiding officer
also shall take such actions as are necessary and appropriate to preserve order
at the meeting. The rules of parliamentary procedure need not be observed in the
conduct of shareholders' meetings.

Section 3.12 Inspectors of Election. Inspectors of election may be
appointed by the Board of Directors to act at any meeting of shareholders at
which any vote is taken. If inspectors of election are not so appointed, the
presiding officer of the meeting may, and on the request of any shareholder
shall, make such appointment. Each inspector, before entering upon the discharge
of his or her duties, shall take and sign an oath faithfully to execute the
6

<PAGE> 11

duties of inspector at such meeting with strict impartiality and according to
the best of his or her ability. The inspectors of election shall determine the
number of shares outstanding, the voting rights with respect to each, the shares
represented at the meeting, the existence of a quorum, and the authenticity,
validity, and effect of proxies; receive votes, ballots, consents, and waivers;
hear and determine all challenges and questions arising in connection with the
vote; count and tabulate all votes, consents, and waivers; determine and
announce the result; and do such acts as are proper to conduct the election or
vote with fairness to all shareholders. No inspector, whether appointed by the
Board of Directors or by the person acting as presiding officer of the meeting,
need be a shareholder. The inspectors may appoint and retain other persons or
entities to assist the inspectors in the performance of the duties of the
inspectors. On request of the person presiding at the meeting, the inspectors
shall make a report in writing of any challenge, question or matter determined
by them and execute a certificate of any fact found by them.

Section 3.13 Proxies.

(a) Appointment. At all meetings of shareholders, a
shareholder may vote his or her shares in person or by proxy. A shareholder may
appoint a proxy to vote or otherwise act for the shareholder by signing an
appointment form, either personally or by his or her attorney-in-fact. If an
appointment form expressly provides, any proxy holder may appoint, in writing, a
substitute to act in his or her place. A telegraph, telex, or a cablegram, a
facsimile transmission of a signed appointment form, or a photographic,
photostatic, or equivalent reproduction of a signed appointment form is a
sufficient appointment form.

(b) When Effective. An appointment of a proxy is effective
when received by the Secretary or other officer or agent of the Corporation
authorized to tabulate votes. An appointment is valid for up to 11 months unless
a longer period is expressly provided in the appointment form. An appointment of
a proxy is revocable by the shareholder unless the appointment form
conspicuously states that it is irrevocable and the appointment is coupled with
an interest.

Section 3.14 Action by Shareholders Without Meeting.

(a) Requirements for Written Consent. Any action required or
permitted by the Act to be taken at any annual or special meeting of
shareholders may be taken without a meeting, without prior notice, and without a
vote if one or more written consents describing the action taken shall be signed
and dated by the holders of at least sixty-six and two-thirds percent (66 2/3%)
of the total number of votes of the then outstanding shares of capital stock of
the Corporation entitled to vote generally in the election of directors, voting
together as a single class. Such consents must be delivered to the principal
office of the Corporation in Florida, the Corporation's principal place of
business, the Secretary, or another officer or agent of the Corporation having
custody of the books in which proceedings of meetings of shareholders are
recorded. No written consent shall be effective to take the corporate action
referred to therein unless, within 60 days of the date of the earliest dated
consent delivered in the manner required herein, written consents signed by the
number of holders required to take action are delivered to the Corporation by
delivery as set forth in this Section.

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(b) Revocation of Written Consents. Any written consent may
be revoked prior to the date that the Corporation receives the required number
of consents to authorize the proposed action. No revocation is effective unless
in writing and until received by the Corporation at its principal office in
Florida or its principal place of business, or received by the Secretary or
other officer or agent having custody of the books in which proceedings of
meetings of shareholders are recorded.

(c) Same Effect as Vote at Meeting. A consent signed under
this Section has the effect of a meeting vote and may be described as such in
any document. Whenever action is taken by written consent pursuant to this
Section, the written consent of the shareholders consenting thereto or the
written reports of inspectors appointed to tabulate such consents shall be filed
with the minutes of proceedings of shareholders.

Section 3.15 Acceptance of Instruments Showing Shareholder Action. If
the name signed on a vote, consent, waiver, or proxy appointment corresponds to
the name of a shareholder, the Corporation, if acting in good faith, may accept
the vote, consent, waiver, or proxy appointment and give it effect as the act of
a shareholder. If the name signed on a vote, consent, waiver, or proxy
appointment does not correspond to the name of a shareholder, the Corporation,
if acting in good faith, may accept the vote, consent, waiver, or proxy
appointment and give it effect as the act of the shareholder if any of the
following apply:

(a) The shareholder is an entity and the name signed purports
to be that of an officer or agent of the entity;

(b) The name signed purports to be that of a administrator,
executor, guardian, personal representative, or conservator representing the
shareholder and, if the Corporation requests, evidence of fiduciary status
acceptable to the Corporation is presented with respect to the vote, consent,
waiver, or proxy appointment;

(c) The name signed purports to be that of a receiver or
trustee in bankruptcy, or assignee for the benefit of creditors of the
shareholder and, if the Corporation requests, evidence of this status acceptable
to the Corporation is presented with respect to the vote, consent, waiver, or
proxy appointment;

(d) The name signed purports to be that of a pledgee,
beneficial owner, or attorney-in-fact of the shareholder and, if the Corporation
requests, evidence acceptable to the Corporation of the signatory's authority to
sign for the shareholder is presented with respect to the vote, consent, waiver,
or proxy appointment; or

(e) Two or more persons are the shareholder as cotenants or
fiduciaries and the name signed purports to be the name of at least one of the
co-owners and the person signing appears to be acting on behalf of all
co-owners.

The Corporation may reject a vote, consent, waiver, or proxy appointment if the
Secretary or other officer or agent of the Corporation who is authorized to
tabulate votes, acting in good faith, has reasonable basis for doubt about the
validity of the signature on it or about the signatory's authority to sign for
the shareholder.

<PAGE> 13

ARTICLE 4
BOARD OF DIRECTORS

Section 4.1 General Powers and Number. All corporate powers shall be
exercised by or under the authority of, and the business and affairs of the
Corporation managed under the direction of, the Board of Directors. The
Corporation shall have eight directors initially. The number of directors may be
increased or decreased from time to time by vote of a majority of the Board of
Directors, but shall never be less than three nor more than 15.

Section 4.2 Qualifications. Directors must be natural persons who
are 18 years of age or older but need not be residents of the State of Florida
or shareholders of the Corporation.

Section 4.3 Term of Office. The directors shall be classified, with
respect to the time for which they severally hold office, into three classes,
Class I, Class II and Class III, each of which shall be as nearly equal in
number as possible. Class I shall be established for a term expiring at the
annual meeting of shareholders to be held in 2000 and shall consist initially of
three directors. Class II shall be established for a term expiring at the annual
meeting of shareholders to be held in 1999 and shall consist initially of three
directors. Class III shall be established for a term expiring at the annual
meeting of shareholders to be held in 1998 and shall consist initially of two
directors. Each director shall hold office until his or her successors are
elected and qualified, or until such director's earlier death, resignation or
removal as hereinafter provided. At each annual meeting of the shareholders of
the Corporation, the successors of the class of directors whose terms expire at
that meeting shall be elected to hold office for a term expiring at the annual
meeting of shareholders held in the third year following the year of their
election. Unless otherwise provided in the Articles of Incorporation, when the
number of directors of the Corporation is changed, the Board of Directors shall
determine the class or classes to which the increased or decreased number of
directors shall be apportioned; provided, however, that no decrease in the
number of directors shall affect the term of any director then in office.

Section 4.4 Nominations of Directors. Except as otherwise provided
pursuant to the provisions of the Articles of Incorporation or Articles of
Amendment relating to the rights of the holders of any class or series of
Preferred Stock, voting separately by class or series, to elect directors under
specified circumstances, nominations of persons for election to the Board of
Directors may be made by the Chairman of the Board on behalf of the Board of
Directors or by any shareholder of the Corporation entitled to vote for the
election of directors at the annual meeting of the shareholders who complies
with the notice provisions set forth in this Section . To be timely, a
shareholder's notice shall be received at the principal business office of the
Corporation no later than the date designated for receipt of shareholders'
proposals in a prior public disclosure made by the Corporation. If there has
been no such prior public disclosure, then to be timely, a shareholder's
nomination must be delivered to or mailed and received at the principal business
office of the Corporation not less than 60 days nor more than 90 days prior to
the annual meeting of shareholders; provided, however, that in the event that
less than 70 days' notice of the date of the meeting is given to the
shareholders or prior public disclosure of the date of the meeting is made,
notice by the shareholder to be timely must be so received not later than the
close of business on the tenth day following the day

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<PAGE> 14

on which such notice of the date of the annual meeting was mailed or such public
disclosure was made. A shareholder's notice to the Secretary shall set forth (a)
as to each person the shareholder proposes to nominate for election or
re-election as a director, (i) the name, age, business address and residence
address of such proposed nominee, (ii) the principal occupation or employment of
such person, (iii) the class and number of shares of capital stock of the
Corporation which are beneficially owned by such person, and (iv) any other
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (including without limitation such person's written consent to being
named in the proxy statement as a nominee and to serving as a director if
elected); and (b) as to the shareholder giving notice (i) the name and address,
as they appear on the Corporation's books, of the shareholder proposing such
nomination, and (ii) the class and number of shares of stock of the Corporation
which are beneficially owned by the shareholder. No person shall be eligible for
election as a director of the Corporation unless nominated in accordance with
the procedures set forth in this Section . The Chairman of the meeting shall, if
the facts warrant, determine and declare to the annual meeting that a nomination
was not made in accordance with the provisions of this Section , and if the
Chairman shall so determine, the Chairman shall so declare at the meeting and
the defective nomination shall be disregarded.

Section 4.5 Removal.

(a) Generally. Except as otherwise provided pursuant to the
provisions of the Articles of Incorporation or Articles of Amendment relating to
the rights of the holders of any class or series of Preferred Stock, voting
separately by class or series, to elect directors under specified circumstances,
any director or directors may be removed from office at any time, but only for
cause (as defined in Section hereof) and only by the affirmative vote, at a
special meeting of the shareholders called for such a purpose, of not less than
sixty-six and two-thirds percent (66 2/3%) of the total number of votes of the
then outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors, voting together as a single class, but
only if notice of such proposed removal was contained in the notice of such
meeting. At least 30 days prior to such special meeting of shareholders, written
notice shall be sent to the director or directors whose removal will be
considered at such meeting. Any vacancy on the Board of Directors resulting from
such removal or otherwise shall be filled only by vote of a majority of the
directors then in office, although less than a quorum, and any director so
chosen shall hold office until the next election of the class for which such
directors shall have been chosen and until his or her successor shall have been
elected and qualified or until any such director's earlier death, resignation or
removal.

(b) "Cause" Defined. For the purposes of this Section ,
"cause" shall mean (i) misconduct as a director of the Corporation or any
subsidiary of the Corporation which involves dishonesty with respect to a
substantial or material corporate activity or corporate assets, or (ii)
conviction of an offense punishable by one or more years of imprisonment (other
than minor regulatory infractions and traffic violations which do not materially
and adversely affect the Corporation).

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Section 4.6 Resignation. A director may resign at any time by
delivering written notice to the Board of Directors or its Chairman (if any) or
to the Corporation. A director's resignation is effective when the notice is
delivered unless the notice specifies a later effective date.

Section 4.7 Vacancies.

(a) Who May Fill Vacancies. Except as provided below, whenever
any vacancy occurs on the Board of Directors, including a vacancy resulting from
an increase in the number of directors, it may be filled by the affirmative vote
of a majority of the remaining directors though less than a quorum of the Board
of Directors. Any director elected in accordance with the preceding sentence
shall hold office until his or her successor is duly elected and qualified, and
such successor shall complete such director's remaining term.

(b) Directors Electing by Voting Groups. Whenever the holders
of shares of any voting group are entitled to elect a class of one or more
directors by the provisions of the Articles of Incorporation, vacancies in such
class may be filled by holders of shares of that voting group or by a majority
of the directors then in office elected by such voting group or by a sole
remaining director so elected. If no director elected by such voting group
remains in office, unless the Articles of Incorporation provide otherwise,
directors not elected by such voting group may fill vacancies.

(c) Prospective Vacancies. A vacancy that will occur at a
specific later date, because of a resignation effective at a later date or
otherwise, may be filled before the vacancy occurs, but the new director may not
take office until the vacancy occurs.

Section 4.8 Compensation. The Board of Directors, irrespective of any
personal interest of any of its members, may establish reasonable compensation
of all directors for services to the Corporation as directors, officers, or
otherwise, or may delegate such authority to an appropriate committee. The Board
of Directors also shall have authority to provide for or delegate authority to
an appropriate committee to provide for reasonable pensions, disability or death
benefits, and other benefits or payments, to directors, officers, and employees
and to their families, dependents, estates, or beneficiaries on account of prior
services rendered to the Corporation by such directors, officers, and employees.

Section 4.9 Regular Meetings. A regular meeting of the Board of
Directors shall be held without other notice than this bylaw immediately after
the annual meeting of shareholders and each adjourned session thereof. The place
of such regular meeting shall be the same as the place of the meeting of
shareholders which precedes it, or such other suitable place as may be announced
at such meeting of shareholders. The Board of Directors may provide, by
resolution, the date, time, and place, either within or without the State of
Florida, for the holding of additional regular meetings of the Board of
Directors without notice other than such resolution.

Section 4.10 Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Board (if any), the President or
not less than one-third (1/3) of the members of the Board of Directors. The
person or persons calling the meeting may fix any

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<PAGE> 16

place, either within or without the State of Florida, as the place for holding
any special meeting of the Board of Directors, and if no other place is fixed,
the place of the meeting shall be the principal office of the Corporation in the
State of Florida.

Section 4.11 Notice. Special meetings of the Board of Directors must be
preceded by at least two days' notice of the date, time, and place of the
meeting. The notice need not describe the purpose of the special meeting.

Section 4.12 Waiver of Notice. Notice of a meeting of the Board of
Directors need not be given to any director who signs a waiver of notice either
before or after the meeting. Attendance of a director at a meeting shall
constitute a waiver of notice of such meeting and waiver of any and all
objections to the place of the meeting, the time of the meeting, or the manner
in which it has been called or convened, except when a director states, at the
beginning of the meeting or promptly upon arrival at the meeting, any objection
to the transaction of business because the meeting is not lawfully called or
convened.

Section 4.13 Quorum and Voting. A quorum of the Board of Directors
consists of a majority of the number of directors prescribed by these bylaws (or
if no number is prescribed, the number of directors in office immediately before
the meeting begins). If a quorum is present when a vote is taken, the
affirmative vote of a majority of directors present is the act of the Board of
Directors. A director who is present at a meeting of the Board of Directors or a
committee of the Board of Directors when corporate action is taken is deemed to
have assented to the action taken unless: (a) he or she objects at the beginning
of the meeting (or promptly upon his or her arrival) to holding it or
transacting specified business at the meeting; or (b) he or she votes against or
abstains from the action taken.

Section 4.14 Conduct of Meetings.

(a) Presiding Officer. The Board of Directors may elect from
among its members a Chairman of the Board of Directors, who shall preside at
meetings of the Board of Directors. The Chairman, and if there be none, or in
his or her absence, the President, and in his or her absence, a Vice President
in the order provided under the Section of these bylaws titled "Vice
Presidents," and in his or her absence, any director chosen by the directors
present, shall call meetings of the Board of Directors to order and shall act as
presiding officer of the meeting.

(b) Minutes. The Secretary of the Corporation shall act as
secretary of all meetings of the Board of Directors but in the absence of the
Secretary, the presiding officer may appoint any other person present to act as
secretary of the meeting. Minutes of any regular or special meeting of the Board
of Directors shall be prepared and distributed to each director.

(c) Adjournments. A majority of the directors present, whether
or not a quorum exists, may adjourn any meeting of the Board of Directors to
another time and place. Notice of any such adjourned meeting shall be given to
the directors who are not present at the time of the adjournment and, unless the
time and place of the adjourned meeting are announced at the time of the
adjournment, to the other directors.

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(d) Participation by Conference Call or Similar Means. The
Board of Directors may permit any or all directors to participate in a regular
or a special meeting by, or conduct the meeting through the use of, any means of
communication by which all directors participating may simultaneously hear each
other during the meeting. A director participating in a meeting by this means is
deemed to be present in person at the meeting.

Section 4.15 Committees. The Board of Directors, by resolution adopted
by a majority of the full Board of Directors, may designate from among its
members an Executive Committee and one or more other committees, which may
include, by way of example and not as a limitation, a Compensation Committee
(for the purpose of establishing and implementing an executive compensation
policy) and an Audit Committee (for the purpose of examining and considering
matters relating to the financial affairs of the Corporation). Each committee
shall have two or more members, who serve at the pleasure of the Board of
Directors, provided that the Compensation Committee and the Audit Committee
shall consist of at least two Independent Directors. For purposes of this
section, "Independent Director" shall mean a person other than an officer or
employee of the Corporation or any subsidiary of the Corporation or any other
individual having a relationship which, in the opinion of the Board of
Directors, would interfere with the exercise of independent judgment in carrying
out the responsibilities of a director. To the extent provided in the resolution
of the Board of Directors establishing and constituting such committees, such
committees shall have and may exercise all the authority of the Board of
Directors, except that no such committee shall have the authority to:

(a) approve or recommend to shareholders actions or proposals
required by the Act to be approved by shareholders;

(b) fill vacancies on the Board of Directors or any committee
thereof;

(d) authorize or approve the reacquisition of shares unless
pursuant to a general formula or method specified by the Board of Directors; or

(e) authorize or approve the issuance or sale or contract for
the sale of shares, or determine the designation and relative rights,
preferences, and limitations of a voting group except that the Board of
Directors may authorize a committee (or a senior executive officer of the
Corporation) to do so within limits specifically prescribed by the Board of
Directors.

The Board of Directors, by resolution adopted in accordance with this Section,
may designate one or more directors as alternate members of any such committee,
who may act in the place and stead of any absent member or members at any
meeting of such committee. The provisions of these bylaws which govern meetings,
notice and waiver of notice, and quorum and voting requirements of the Board of
Directors apply to committees and their members as well.

<PAGE> 18

Section 4.16 Action Without Meeting. Any action required or permitted
by the Act to be taken at a meeting of the Board of Directors or a committee
thereof may be taken without a meeting if the action is taken by all members of
the Board or of the committee. The action shall be evidenced by one or more
written consents describing the action taken, signed by each director or
committee member and retained by the Corporation. Such action shall be
effective when the last director or committee member signs the consent, unless
the consent specifies a different effective date. A consent signed under this
Section has the effect of a vote at a meeting and may be described as such in
any document.

ARTICLE 5
OFFICERS

Section 5.1 Number. The principal officers of the Corporation shall be
a Chairman, a President, the number of Vice Presidents, if any, as authorized
from time to time by the Board of Directors, a Secretary, and a Treasurer, each
of whom shall be elected by the Board of Directors. Such other officers and
assistant officers as may be deemed necessary may be elected or appointed by the
Board of Directors. The Board of Directors may also authorize any duly appointed
officer to appoint one or more officers or assistant officers. The same
individual may simultaneously hold more than one office.

Section 5.2 Election and Term of Office. The officers of the
Corporation to be elected by the Board of Directors shall be elected annually by
the Board of Directors at the first meeting of the Board of Directors held after
each annual meeting of the shareholders. If the election of officers shall not
be held at such meeting, such election shall be held as soon thereafter as is
practicable. Each officer shall hold office until his or her successor shall
have been duly elected or until his or her prior death, resignation, or removal.

Section 5.3 Removal. The Board of Directors may remove any officer
and, unless restricted by the Board of Directors, an officer may remove andy
officer or assistant officer appointed by that officer, at any time, with or
without cause and notwithstanding the contract rights, if any, of the officer
removed. The appointment of an officer does not of itself create contract
rights.

Section 5.4 Resignation. An officer may resign at any time by
delivering notice to the Corporation. The resignation shall be effective when
the notice is delivered, unless the notice specifies a later effective date and
the Corporation accepts the later effective date. If a resignation is made
effective at a later date and the Corporation accepts the future effective date,
the pending vacancy may be filled before the effective date but the successor
may not take office until the effective date.

Section 5.5 Vacancies. A vacancy in any principal office because of
death, resignation, removal, disqualification, or otherwise, shall be filled as
soon thereafter as practicable by the Board of Directors for the unexpired
portion of the term.

Section 5.6 Chairman of the Board. The Chairman of the Board (the
"Chairman") shall be a member of the Board of Directors of the Corporation and
shall preside over all meetings of the Board of Directors and shareholders of
the Corporation. The Chairman shall have

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authority, subject to such rules as may be prescribed by the Board of Directors,
to appoint such agents and employees of the Corporation as he or she shall deem
necessary, to prescribe their powers, duties and compensation, and to delegate
authority to them. Such agents and employees shall hold office at the direction
of the Chairman. The Chairman shall have authority to sign certificates for
shares of the Corporation the issuance of which shall have been authorized by
resolution of the Board of Directors, and to execute and acknowledge, on behalf
of the Corporation, all deeds, mortgages, bonds, contracts, leases, reports, and
all other documents or instruments necessary or proper to be executed in the
course of the Corporation's regular business, or which shall be authorized by
resolution of the Board of Directors; and, except as otherwise provided by law
or the Board of Directors, the Chairman may authorize the President or any Vice
President or other officer or agent of the Corporation to execute and
acknowledge such documents or instruments in his or her place and stead. In
general, he or she shall perform all duties as may be prescribed by the Board of
Directors from time to time.

Section 5.7 President. The President shall be the chief executive
officer of the Corporation and, subject to the direction of the Board of
Directors, shall in general supervise and control all of the business and
affairs of the Corporation. If the Chairman of the Board is not present, the
President shall preside at all meetings of the Board of Directors and
shareholders. The President shall have authority, subject to such rules as may
be prescribed by the Board of Directors, to appoint such agents and employees of
the Corporation as he or she shall deem necessary, to prescribe their powers,
duties and compensation, and to delegate authority to them. Such agents and
employees shall hold office at the discretion of the President. The President
shall have authority to sign certificates for shares of the Corporation the
issuance of which shall have been authorized by resolution of the Board of
Directors, and to execute and acknowledge, on behalf of the Corporation, all
deeds, mortgages, bonds, contracts, leases, reports, and all other documents or
instruments necessary or proper to be executed in the course of the
Corporation's regular business, or which shall be authorized by resolution of
the Board of Directors; and, except as otherwise provided by law or the Board of
Directors, the President may authorize any Vice President or other officer or
agent of the Corporation to execute and acknowledge such documents or
instruments in his or her place and stead. In general he or she shall perform
all duties incident to the office of President and such other duties as may be
prescribed by the Board of Directors from time to time.

Section 5.8 Vice Presidents. In the absence of the President or in the
event of the President's death, inability or refusal to act, or in the event for
any reason it shall be impracticable for the President to act personally, the
Vice President, if any (or in the event there be more than one Vice President,
the Vice Presidents in the order designated by the Board of Directors, or in the
absence of any designation, then in the order of their election), shall perform
the duties of the President, and when so acting, shall have all the powers of
and be subject to all the restrictions upon the President. Any Vice President
may sign certificates for shares of the Corporation the issuance of which shall
have been authorized by resolution of the Board of Directors; and shall perform
such other duties and have such authority as from time to time may be delegated
or assigned to him or her by the President or by the Board of Directors. The
execution of any instrument of the Corporation by any Vice President shall be
conclusive evidence, as to third parties, of his or her authority to act in the
stead of the

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<PAGE> 20

President. The Corporation may have one or more Executive Vice Presidents and
one or more Senior Vice Presidents, who shall be Vice Presidents for purposes
hereof.

Section 5.9 Secretary. The Secretary shall: (a) keep, or cause
to be kept, minutes of the meetings of the shareholders and of the Board of
Directors (and of committees thereof) in one or more books provided for that
purpose (including records of actions taken by the shareholders or the Board of
Directors (or committees thereof) without a meeting); (b) be custodian of the
corporate records and of the seal of the Corporation, if any, and if the
Corporation has a seal, see that it is affixed to all documents the execution of
which on behalf of the Corporation under its seal is duly authorized; (c)
authenticate the records of the Corporation; (d) maintain a record of the
shareholders of the Corporation, in a form that permits preparation of a list of
the names and addresses of all shareholders, by class or series of shares and
showing the number and class or series of shares held by each shareholder; (e)
have general charge of the stock transfer books of the Corporation; and (f) in
general perform all duties incident to the office of Secretary and have such
other duties and exercise such authority as from time to time may be delegated
or assigned by the President or by the Board of Directors.

Section 5.10 Treasurer. The Treasurer shall: (a) have charge and
custody of and be responsible for all funds and securities of the Corporation;
(b) maintain appropriate accounting records; (c) receive and give receipts for
moneys due and payable to the Corporation from any source whatsoever, and
deposit all such moneys in the name of the Corporation in such banks, trust
companies, or other depositaries as shall be selected in accordance with the
provisions of these bylaws; and (d) in general perform all of the duties
incident to the office of Treasurer and have such other duties and exercise such
other authority as from time to time may be delegated or assigned by the
President or by the Board of Directors. If required by the Board of Directors,
the Treasurer shall give a bond for the faithful discharge of his or her duties
in such sum and with such surety or sureties as the Board of Directors shall
determine.

Section 5.11 Assistant Secretaries and Assistant Treasurers. There
shall be such number of Assistant Secretaries and Assistant Treasurers as the
Board of Directors may from time to time authorize. The Assistant Treasurers
shall respectively, if required by the Board of Directors, give bonds for the
faithful discharge of their duties in such sums and with such sureties as the
Board of Directors shall determine. The Assistant Secretaries and Assistant
Treasurers, in general, shall perform such duties and have such authority as
shall from time to time be delegated or assigned to them by the Secretary or the
Treasurer, respectively, or by the President or the Board of Directors.

Section 5.12 Other Assistants and Acting Officers. The Board of
Directors shall have the power to appoint, or to authorize any duly appointed
officer of the Corporation to appoint, any person to act as assistant to any
officer, or as agent for the Corporation in his or her stead, or to perform the
duties of such officer whenever for any reason it is impracticable for such
officer to act personally, and such assistant or acting officer or other agent
so appointed by the Board of Directors or an authorized officer shall have the
power to perform all the duties of the office to which he or she is so appointed
to be an assistant, or as to which he or she is so appointed to act, except as
such power may be otherwise defined or restricted by the Board of Directors or
the appointing officer.

<PAGE> 21

Section 5.13 Salaries. The salaries of the principal officers shall be
fixed from time to time by the Board of Directors or by a duly authorized
committee thereof, and no officer shall be prevented from receiving such salary
by reason of the fact that he or she is also a director of the Corporation.

ARTICLE 6
CONTRACTS, CHECKS AND DEPOSITS; SPECIAL CORPORATE ACTS

Section 6.1 Contracts. The Board of Directors may authorize any
officer or officers, or any agent or agents to enter into any contract
or execute or deliver any instrument in the name of and on behalf of the
Corporation, and such authorization may be general or confined to specific
instances. In the absence of other designation, all deeds, mortgages, and
instruments of assignment or pledge made by the Corporation shall be executed in
the name of the Corporation by the President or one of the Vice Presidents; the
Secretary or an Assistant Secretary, when necessary or required, shall attest
and affix the corporate seal, if any, thereto; and when so executed no other
party to such instrument or any third party shall be required to make any
inquiry into the authority of the signing officer or officers.

Section 6.2 Checks, Drafts, etc. All checks, drafts or other orders
for the payment of money, notes, or other evidences of indebtedness issued
in the name of the Corporation, shall be signed by such officer or officers,
agent or agents of the Corporation and in such manner as shall from time to time
be determined by or under the authority of a resolution of the Board of
Directors.

Section 6.3 Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies, or other depositaries as may be selected by or
under the authority of a resolution of the Board of Directors.

Section 6.4 Voting of Securities Owned by Corporation. Subject always
to the specific directions of the Board of Directors, (a) any shares or other
securities issued by any other corporation and owned or controlled by the
Corporation may be voted at any meeting of security holders of such other
corporation by the President of the Corporation if he or she be present, or in
his or her absence by any Vice President of the Corporation who may be present,
and (b) whenever, in the judgment of the President, or in his or her absence, of
any Vice President, it is desirable for the Corporation to execute a proxy or
written consent in respect of any such shares or other securities, such proxy or
consent shall be executed in the name of the Corporation by the President or one
of the Vice Presidents of the Corporation, without necessity of any
authorization by the Board of Directors, affixation of corporate seal, if any,
or countersignature or attestation by another officer. Any person or persons
designated in the manner above stated as the proxy or proxies of the Corporation
shall have full right, power, and authority to vote the shares or other
securities issued by such other corporation and owned or controlled by the
Corporation the same as such shares or other securities might be voted by the
Corporation.

<PAGE> 22

ARTICLE 7
CERTIFICATES FOR SHARES; TRANSFER OF SHARES

Section 7.1 Consideration for Shares. The Board of Directors may
authorize shares to be issued for consideration consisting of any tangible or
intangible property or benefit to the Corporation, including cash, promissory
notes, services performed, promises to perform services evidenced by a written
contract, or other securities of the Corporation. Before the Corporation issues
shares, the Board of Directors shall determine that the consideration
received or to be received for the shares to be issued is adequate. The
determination of the Board of Directors is conclusive insofar as the adequacy of
consideration for the issuance of shares relates to whether the shares are
validly issued, fully paid, and nonassessable. The Corporation may place in
escrow shares issued for future services or benefits or a promissory note, or
make other arrangements to restrict the transfer of the shares, and may credit
distributions in respect of the shares against their purchase price, until the
services are performed, the note is paid, or the benefits are received. If the
services are not performed, the note is not paid, or the benefits are not
received, the Corporation may cancel, in whole or in part, the shares escrowed
or restricted and the distributions credited.

Section 7.2 Certificates for Shares. Every holder of shares in the
Corporation shall be entitled to have a certificate representing all shares to
which he or she is entitled unless the Board of Directors authorizes the
issuance of some or all shares without certificates. Any such authorization
shall not affect shares already represented by certificates until the
certificates are surrendered to the Corporation. If the Board of Directors
authorizes the issuance of any shares without certificates, within a reasonable
time after the issue or transfer of any such shares, the Corporation shall send
the shareholder a written statement of the information required by the Act or
the Articles of Incorporation to be set forth on certificates, including any
restrictions on transfer. Certificates representing shares of the Corporation
shall be in such form, consistent with the Act, as shall be determined by the
Board of Directors. Such certificates shall be signed (either manually or in
facsimile) by the President or any Vice President or any other persons
designated by the Board of Directors and may be sealed with the seal of the
Corporation or a facsimile thereof. All certificates for shares shall be
consecutively numbered or otherwise identified. The name and address of the
person to whom the shares represented thereby are issued, with the number of
shares and date of issue, shall be entered on the stock transfer books of the
Corporation. Unless the Board of Directors authorizes shares without
certificates, all certificates surrendered to the Corporation for transfer shall
be canceled and no new certificate shall be issued until the former certificate
for a like number of shares shall have been surrendered and canceled, except as
provided in these bylaws with respect to lost, destroyed, or stolen
certificates. The validity of a share certificate is not affected if a person
who signed the certificate (either manually or in facsimile) no longer holds
office when the certificate is issued.

Section 7.3 Transfer of Shares. Prior to due presentment of a
certificate for shares for registration of transfer, the Corporation may treat
the registered owner of such shares as the person exclusively entitled to vote,
to receive notifications, and otherwise to have and exercise all the rights and
power of an owner. Where a certificate for shares is presented to the
Corporation with a request to register a transfer, the Corporation shall not be
liable to the owner or any other person suffering loss as a result of such
registration of transfer if (a) there

<PAGE> 23

were on or with the certificate the necessary endorsements, and (b) the
Corporation had no duty to inquire into adverse claims or has discharged any
such duty. The Corporation may require reasonable assurance that such
endorsements are genuine and effective and compliance with such other
regulations as may be prescribed by or under the authority of the Board of
Directors.

Section 7.4 Restrictions on Transfer. The face or reverse side of
each certificate representing shares shall bear a conspicuous notation as
required by the Act or the Articles of Incorporation of the restrictions imposed
by the Corporation upon the transfer of such shares.

Section 7.5 Lost, Destroyed, or Stolen Certificates. Unless the Board
of Directors authorizes shares without certificates, where the owner claims that
certificates for shares have been lost, destroyed, or wrongfully taken, a new
certificate shall be issued in place thereof if the owner (a) so requests before
the Corporation has notice that such shares have been acquired by a bona fide
purchaser, (b) files with the Corporation a sufficient indemnity bond if
required by the Board of Directors or any principal officer, and (c) satisfies
such other reasonable requirements as may be prescribed by or under the
authority of the Board of Directors.

Section 7.6 Stock Regulations. The Board of Directors shall have the
power and authority to make all such further rules and regulations not
inconsistent with law as they may deem expedient concerning the issue, transfer,
and registration of shares of the Corporation.

ARTICLE 8
SEAL

Section 8.1 Seal. The Board of Directors may provide for a corporate
seal for the Corporation.

ARTICLE 9
BOOKS AND RECORDS

Section 9.1 Books and Records.

(a) The Corporation shall keep as permanent records minutes of
all meetings of the shareholders and Board of Directors, a record of all actions
taken by the shareholders or Board of Directors without a meeting, and a record
of all actions taken by a committee of the Board of Directors in place of the
Board of Directors on behalf of the Corporation.

(b) The Corporation shall maintain accurate accounting
records.

(c) The Corporation or its agent shall maintain a record of
the shareholders in a form that permits preparation of a list of the names and
addresses of all shareholders in alphabetical order by class of shares showing
the number and series of shares held by each.

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<PAGE> 24

(d) The Corporation shall keep a copy of all written
communications within the preceding three years to all shareholders generally or
to all shareholders of a class or series, including the financial statements
required to be furnished by the Act, and a copy of its most recent annual report
delivered to the Department of State.

Section 9.2 Shareholders' Inspection Rights. Shareholders are
entitled to inspect and copy records of the Corporation as permitted by the Act.

Section 9.3 Distribution of Financial Information. The Corporation
shall prepare and disseminate financial statements to shareholders as required
by the Act.

Section 9.4 Other Reports. The Corporation shall disseminate such
other reports to shareholders as are required by the Act, including reports
regarding indemnification in certain circumstances and reports regarding the
issuance or authorization for issuance of shares in exchange for promises to
render services in the future.

ARTICLE 10
INDEMNIFICATION

Section 10.1 Provision of Indemnification. The Corporation shall, to
the fullest extent permitted or required by the Act, including any amendments
thereto (but in the case of any such amendment, only to the extent such
amendment permits or requires the Corporation to provide broader indemnification
rights than prior to such amendment), indemnify its Directors and Executive
Officers against any and all Liabilities, and advance any and all reasonable
Expenses, incurred thereby in any Proceeding to which any such Director or
Executive Officer is a Party or in which such Director or Executive Officer is
deposed or called to testify as a witness because he or she is or was a Director
or Executive Officer of the Corporation. The rights to indemnification granted
hereunder shall not be deemed exclusive of any other rights to indemnification
against Liabilities or the advancement of Expenses which a Director or Executive
Officer may be entitled under any written agreement, Board of Directors'
resolution, vote of shareholders, the Act, or otherwise. The Corporation may,
but shall not be required to, supplement the foregoing rights to indemnification
against Liabilities and advancement of Expenses by the purchase of insurance on
behalf of any one or more of its Directors or Executive Officers whether or not
the Corporation would be obligated to indemnify or advance Expenses to such
Director or Executive Officer under this Article. For purposes of this Article,
the term "Directors" includes former directors of the Corporation and any
director who is or was serving at the request of the Corporation as a director,
officer, employee, or agent of another corporation, partnership, joint venture,
trust, or other enterprise, including, without limitation, any employee benefit
plan (other than in the capacity as an agent separately retained and compensated
for the provision of goods or services to the enterprise, including, without
limitation, attorneys-at-law, accountants, and financial consultants). The term
"Executive Officers" includes those individuals who are or were at any time
"executive officers" of the Corporation as defined in Securities and Exchange
Commission Rule 3b-7 promulgated under the Securities Exchange Act of 1934, as
amended. All other capitalized terms used in this Article and not otherwise
defined herein have the meaning set forth in Section 607.0850, Florida Statutes
(1995). The provisions of this Article are intended solely for the benefit of
the indemnified parties described herein, their heirs and personal

<PAGE> 25

representatives and shall not create any rights in favor of third parties. No
amendment to or repeal of this Article shall diminish the rights of
indemnification provided for herein prior to such amendment or repeal.

ARTICLE 11
AMENDMENTS

Section 11.1 Power to Amend. These bylaws may be amended or repealed by
either the Board of Directors or the shareholders, unless the Act reserves the
power to amend these bylaws generally or any particular bylaw provision, as the
case may be, exclusively to the shareholders or unless the shareholders, in
amending or repealing these bylaws generally or any particular bylaw provision,
provide expressly that the Board of Directors may not amend or repeal these
bylaws or such bylaw provision, as the case may be. The affirmative vote of
sixty-six and two-thirds percent (66 2/3%) of the total number of votes of the
then outstanding shares of the capital stock of the Corporation entitled to vote
generally in the election of directors, voting together as a single class, shall
be required to amend these bylaws. The shareholders of the Corporation may adopt
or amend a bylaw provision which fixes a greater quorum or voting requirement
for shareholders (or voting groups of shareholders) than is required by the Act.
The adoption or amendment of a bylaw provision that adds, changes or deletes a
greater quorum or voting requirement for shareholders must meet the same quorum
or voting requirement and be adopted by the same vote and voting groups required
to take action under the quorum or voting requirement then in effect or proposed
to be adopted, whichever is greater.

<PAGE> 1

Exhibit 10.1

FARO TECHNOLOGIES, INC.

1993 STOCK OPTION PLAN

ARTICLE I

General

1.1 Purpose. This incentive stock option and nonqualified stock
option plan (the "Plan") is established to promote the interests of FARO
TECHNOLOGIES, INC. (the "Corporation") and its stockholders by enabling the
Corporation, through the granting of stock options, to attract and retain
personnel for the Corporation and its subsidiaries, and to provide additional
incentive to such personnel to increase their stock ownership in the
Corporation. It is intended that those options issued pursuant to the
provisions of the Plan relating to incentive stock options shall constitute
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended, and the regulations promulgated thereunder,
or any statute or regulation of similar import.

1.2 Administration.

(a) The incentive stock option and nonqualified stock
option provisions of the Plan shall be administered by the Board of Directors
of the Corporation, and the Board of Directors may delegate such administration
to a committee appointed by the Board of Directors of the Corporation (the
"Committee"). The Committee shall consist of not less than two (2) nor more
than five (5) persons, each of whom shall be a member of the Corporation's
Board of Directors not eligible to receive any stock option under the Plan.
The Board of Directors may from time to time remove members from, or add
members to, the Committee. Vacancies on the Committee, howsoever caused, shall
be filled by the Board of Directors. In the event that the Board of Directors
elects not to delegate such administration to the Committee, all references
herein to the Committee shall be deemed to refer to the Board of Directors.

(b) The Committee shall select one of its members as
chairman, and shall hold meetings at such time and places as it may determine.
The acts of a majority of the Committee at which a quorum is present, or acts
reduced to or approved in writing by a majority of the members of the
Committee, shall be valid acts of the Committee.

(c) Subject to the provisions of the Plan, the Committee
shall have full authority, in its discretion: (1) to determine the employees of
the Corporation and its subsidiaries to whom stock options shall be granted;
(2) to determine the time or times at which stock options shall be granted; (3)
to determine whether an eligible employee shall be granted an incentive stock
option, a nonqualified stock option or any combination thereof; (4) to
determine the option price of the shares subject to each stock option; (5) to
determine the time or times when each stock option becomes exercisable and the
duration of any stock option period; and (6) to interpret the Plan and the
stock options granted hereunder, and to prescribe, amend and

<PAGE> 2

rescind rules and regulations with respect thereto. The interpretation and
construction by the Committee of any provision of the Plan over which it has
discretionary authority or of any option granted hereunder shall be final and
conclusive.

(d) No member of the Committee shall be liable for any
action or determination made in good faith with respect to the Plan or any
stock option granted hereunder.

1.3 Eligible Employees. A stock option may be granted to any
employee of the Corporation or of a subsidiary (who may or may not be an
officer or member of the Board of Directors), with the exceptions only of (a)
with respect to the incentive stock options granted under the Plan, employees
who cannot qualify for the benefits of incentive stock options under Section
422 of the Internal Revenue Code of 1986, as amended, and (b) with respect to
all provisions of the Plan, members of the Committee and and other members of
the Board of Directors who are not otherwise employees of the Corporation.

1.4 Stock Subject to the Plan.

(a) The stock subject to the stock options under the Plan
shall be shares of common stock of the Corporation, par value $0.001 per share,
which shares may be, in whole or in part, either authorized but unissued shares
or issued shares held in the treasury. The aggregate number of shares that may
be issued upon the exercise of stock options granted under the Plan shall not
exceed 500,000 shares of common stock, which limitation shall be subject to
adjustment as provided in Article IV of the Plan.

(b) If a stock option is surrendered or for any other
reason ceases to be exercisable in whole or in part, the shares of common stock
that are subject to such option, but as to which the option has not been
exercised, shall again become available for offering under the Plan.

ARTICLE II

Terms and Conditions of Incentive Stock Options

Any incentive stock option ("ISO") granted pursuant to the Plan shall
be authorized by the Committee and shall be evidenced by certificates or
agreements in such form as the Committee from time to time shall approve, which
certificates or agreements shall comply with and be subject to the terms and
conditions hereinafter specified.

2.1 Number of Shares. Each ISO shall state the number of shares
to which it pertains.

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<PAGE> 3

2.2 Option Price. Each ISO shall state the option price, which
price shall be determined by the Committee in its discretion. In no event,
however, shall such price be less than 100% of the fair market value of the
shares of common stock of the Corporation (determined under Article IV of the
Plan) on the date of the granting of the ISO; or, in the case of an individual
who owns (at the time the option is granted) more than 10% of the total
combined voting power of all classes of stock of the Corporation or of a parent
or subsidiary corporation (a "10% stockholder"), shall such price be less than
110% of such fair market value.

2.3 Method of Payment. Each ISO shall state the method of payment
of the ISO price upon the exercise of the ISO. The method of payment stated in
the ISO shall include payment (a) in United States dollars in cash or by check,
bank draft or money order payable to the order of the Corporation, or (b) in
the discretion OF and in the manner determined by the Committee, by the
delivery of shares of common stock of the Corporation already owned by the
optionee, or (c) by any other legally permissible means acceptable to the
Committee at the time of grant of the ISO, or (d) in the discretion of the
Committee, through a combination of (a), (b) and (c) of this paragraph 2.3. If
the option price is paid in whole or in part through the delivery of shares of
common stock, the decision of the Committee with respect to the fair market
value of such shares shall be final and conclusive.

2.4 Term and Exercise of Options. No ISO shall be exercisable
either in whole or in part prior to twelve (12) months from the date it is
granted. No ISO shall be exercisable after the expiration of ten (10) years
from the date it is granted; or, in the case of a 10% stockholder, no ISO shall
be exercisable after the expiration of five (5) years from the date it is
granted. Not less than one hundred (100) shares may be exercised at any one
time unless the number exercised is the total number at the time exercisable
under the ISO.

Within the limits described above, the Committee may impose additional
requirements on the exercise of ISOs, including, but without limitation, the
number of shares covered by the ISO that become eligible to be exercised in any
year and the expiration date of the option. Subject to the provisions of the
Plan and any other terms and conditions the Committee deems appropriate, the
Committee in its discretion also may accelerate the time at which an ISO may be
exercised if, under previously established exercise terms, such ISO was not
immediately exercisable in full.

2.5 Additional Limitations on Exercise of Options. An optionee
may hold and exercise more than one ISO, but only on the terms and subject to
the restrictions hereafter set forth. The aggregate fair market value
(determined as of the time an ISO is granted) of the common stock of the
Corporation with respect to which ISOs are exercisable for the first time by
any employee in any calendar year under the Plan and under all other incentive
stock option plans of the Corporation and any parent and subsidiary
corporations of the Corporation (as those terms are defined in Section 425 of
the Internal Revenue Code of 1986, as amended) shall not exceed $100,000.

3
<PAGE> 4

2.6 Notice of Grant of Option. Upon the granting of any ISO to an
employee, the Committee shall promptly cause such employee to be notified of
the fact that such ISO has been granted. The date on which the Committee
approves the grant of an ISO shall be considered to be the date on which such
ISO is granted.

2.7 Death or Other Termination of Employment.

(a) In the event that an optionee (i) shall cease to be
employed by the Corporation or a subsidiary because of his discharge for
dishonesty, or because he violated any material provision of any employment or
other agreement between him and the Corporation or a subsidiary, or (ii) shall
voluntarily resign or terminate his employment with the Corporation or a
subsidiary under or followed by such circumstances as would constitute a breach
of any material provision of any employment or other agreement between him and
the Corporation or a subsidiary, or (iii) shall have committed an act of
dishonesty not discovered by the Corporation or a subsidiary prior to the
cessation, of his employment but that would have resulted in his discharge if
discovered prior to such date, or (iv) shall, either before or after cessation
of his employment with the Corporation or a subsidiary, without the written
consent of his employer or former employer, use (except for the benefit of his
employer or former employer) or disclose to any other person any confidential
information relating to the continuation or proposed continuation of his
employer's or former employer's business or any trade secrets of the
Corporation or a subsidiary obtained as a result of or in connection with such
employment, or (v) shall, either before or after the cessation of his
employment with the Corporation or a subsidiary, without the written consent of
his employer or former employer, directly or indirectly, give advice to, or
serve as an employee, director, officer, partner or trustee of, or in any
similar capacity with, or otherwise directly or indirectly participate in the
management, operation, or control of, or have any direct or indirect financial
interest in, any corporation, partnership, or other organization that directly
or indirectly competes in any respect with the Corporation or its subsidiaries,
then forthwith from the happening of any such event, any ISO then held by him
shall terminate and become void to the extent that it then remains unexercised.
In the event that an optionee shall cease to be employed by the Corporation or
a subsidiary for any reason other than his death or one or more of the reasons
set forth in the immediately preceding sentence, subject to the conditions that
no option shall be exercisable after the expiration of ten (10) years from the
date it is granted, or, in the case of a 10% stockholder, five (5) years from
the date it is granted, such optionee shall have the right to exercise the ISO
at any time within three (3) months after such termination of employment to the
extent his right to exercise such ISO had accrued pursuant to this Article II
at the date of such termination and had not previously been exercised; such
three-month limit shall be increased to one (1) year for any optionee who
ceases to be employed by the Corporation or a subsidiary because he is disabled
(within the meaning of Section 22 (e) (3) of the Internal Revenue Code of 1986,
as amended) or who dies during the three month period, and the ISO may be
exercised within such extended time limit by the optionee or, in the case of
death, the personal representative of the optionee or by any person or persons
who shall have acquired the ISO directly from the optionee by bequest or
inheritance. Whether an authorized leave of absence or absence for military or

4
<PAGE> 5

governmental service shall constitute termination of employment for purposes of
the Plan shall be determined by the Committee, whose determination shall be
final and conclusive.

(b) In the event that an optionee shall die while in the
employ of the Corporation or a parent or subsidiary corporation and shall not
have fully exercised any ISO, the ISO may be exercised, subject to the
conditions that no ISO shall be exercisable after the expiration of ten (10)
years from the date it is granted, or, in the case of a 10% stockholder, five
(5) years from the date it is granted, to the extent that the optionee's right
to exercise such ISO had accrued pursuant to this Article II at the time of his
death and had not previously been exercised, at any time within one (1) year
after the optionee's death, by the personal representative of the optionee or
by any person or persons who shall have acquired the ISO directly from the
optionee by bequest or inheritance, in the case of death.

(d) During the lifetime of the optionee, the ISO shall be
exercisable only by him and shall not be assignable or transferable and no
other person shall acquire any rights therein.

2.8 Rights as a Stockholder. An optionee shall have no rights as
a stockholder with respect to any shares covered by his ISO until the date of
the issuance of a stock certificate to him for such shares after exercise of
the ISO. No adjustment shall be made for dividends (ordinary or extraordinary,
whether in cash, securities or other property) or distributions or other rights
for which the record date is prior to the date such stock certificate is
issued, except as provided in Article IV.

2.9 Modification, Extension and Renewal of Options. Subject to
the terms and conditions and within the limitations of the Plan, the Committee
may modify, extend or renew outstanding ISOs granted under the Plan, or accept
the surrender of outstanding ISOs (to the extent not theretofore exercised) and
authorize the granting of new options in substitution therefor (to the extent
not theretofore exercised. The Committee shall not, however, modify any
outstanding ISOs so as to specify a lower option price or accept the surrender
of outstanding ISOs and authorize the granting of new options in substitution
therefor specifying a lower option price. Notwithstanding the foregoing,
however, no modification of an ISO shall, without the consent of the optionee,
alter or impair any of the rights or obligations under any ISO theretofore
granted under the Plan.

2.10 Listing and Registration of Shares. Each ISO shall be subject
to the requirement that if at any time the Committee shall determine, in its
discretion, that the listing, registration or Qualification of the shares
covered thereby upon any securities exchange or under any state or federal
laws, or the consent or approval of any governmental regulatory body, is
necessary or desirable as a condition of, or in connection with, the granting
of such ISO or the issuance or purchase of shares thereunder, such ISO may not
be exercised unless and until such listing,

5
<PAGE> 6

registration, qualification, consent or approval shall have been effected or
obtained free of any conditions not acceptable to the Committee.
Notwithstanding anything in the Plan to the contrary, if the provisions of this
paragraph 2.10 become operative, and if, as a result thereof, the exercise of
an ISO is delayed, then and in that event, the term of the ISO shall not be
affected.

2.11 Other Provisions. The ISO certificates or agreements
authorized under the Plan shall contain such other provisions, including,
without limitation, restrictions upon the exercise of the ISO, as the Committee
shall deem advisable. Any such certificate or agreement shall contain such
limitations and restrictions upon the exercise of the ISO as shall be necessary
in order that such ISO will be an incentive stock option as defined in Section
422 of the Internal Revenue Code of 1986, as amended, or to conform to any
change in the law.

ARTICLE III

Terms and Conditions of Nonqualified Stock Options

Any nonqualified stock option ("NSO") granted pursuant to the Plan
shall be authorized by the committee and shall be evidenced by certificates or
agreements in such form as the Committee from time to time shall approve, which
certificates or agreements shall comply with and be subject to the terms and
conditions hereinafter specified.

3.1 Number of Shares. Each NSO shall state the number of shares
to which it pertains.

3.2 Option Price. Each NSO shall state the option price, which
price shall be determined by the Committee in its discretion.

3.3 Method of Payment. Each NSO shall state the method of payment
of the NSO price upon the exercise of the NSO.

3.4 Term, Exercise and Transfer of Options.

(a) No NSO shall be exercisable after the expiration of
ten (10) years from the date it is granted. Not less than one hundred (100)
shares may be exercised at any one time unless the number exercised is the
total number at the time exercisable under the NSO. Within the limits
described above, the Committee may impose additional requirements on the
exercise of NSOs.

(b) No NSO shall be transferable by the optionee
otherwise than by will or the laws of descent and distribution.

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<PAGE> 7

(c) During the lifetime of the optionee, the NSO shall be
exercisable only by him and shall not be assignable or transferable and no
other person shall acquire any rights therein.

3.5 Notice Grant of Option. Upon the granting of any NSO to an
employee, the committee shall promptly cause such employee to be notified of
the fact that such NSO has been granted. The date on which the Committee
approves the grant of an NSO shall be considered to be the date on which such
NSO is granted.

3.6 Rights as a Stockholder. An optionee shall have no rights as
a stockholder with respect to any shares covered by his NSO until the date of
the issuance of a stock certificate to him for such shares after exercise of
the NSO. No adjustment shall be made for dividends (ordinary or extraordinary,
whether in cash, securities or other property) or distributions or other rights
for which the record date is prior to the date such stock certificate is
issued, except as provided in Article IV.

ARTICLE IV

Miscellaneous

4.1 Stock Adjustments.

(a) In the event of any increase or decrease in the
number of issued shares of common stock of the Corporation resulting from a
stock split or other division or consolidation of shares or the payment of a
stock dividend (but only on the common stock) or any other increase or decrease
in the number of such shares effected without any receipt of consideration by
the Corporation, then, in any such event, the number of shares of common stock
that remain available under the Plan, the number of shares of common stock
covered by each outstanding option, and the purchase price per share of common
stock covered by each outstanding option shall be proportionately and
appropriately adjusted for any such increase or decrease.

(b) Subject to any required action by the stockholders,
if any change occurs in the shares of common stock of the Corporation by reason
of any recapitalization, reorganization, merger, consolidation, split-up,
combination or exchange of shares, or of any similar change affecting the
shares of common stock of the Corporation, then, in any such event, the number
and type of shares covered by each. outstanding option, and the purchase price
per share of common stock covered by each outstanding option, shall be
proportionately and appropriately adjusted for any such change. A dissolution
or liquidation of the Corporation shall cause each outstanding option to
terminate.

(c) In the event of a change in the common stock of the
Corporation as presently constituted that is limited to a change of all of its
authorized shares with par value into

7
<PAGE> 8

the same number of shares with a different par value or without par value, the
shares resulting from any change shall be deemed to be shares of common stock
within the meaning of the Plan.

(d) To the extent that the foregoing adjustments relate
to stock or securities of the Corporation, such adjustments shall be made by,
and in the discretion of, the Committee, whose determination in that respect
shall be final, binding and conclusive; provided, however, that any ISO granted
pursuant to this Plan shall not be adjusted in a manner that causes such ISO to
fail to continue to qualify as an incentive stock option within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended.

(e) Except as hereinabove expressly provided in this
paragraph 4.1, an optionee shall have no rights by reason of any division or
consolidation of shares of stock of any class or the payment of any stock
dividend or any other increase or decrease in number of shares of stock of any
class or by reason of any dissolution, liquidation, merger or consolidation, or
spin-off of assets or stock of another corporation; and any issuance by the
Corporation of shares of stock of any class, securities convertible into shares
of stock of any class or warrants or options for shares of stock of any class,
shall not affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of common stock subject to the
option.

(f) The grant of any option pursuant to the Plan shall
not affect in any way the right or power of the Corporation to make
adjustments, reclassifications, reorganizations or changes of its capital or
business structure or to merge or to consolidate, or to dissolve, to liquidate,
to sell, or to transfer all or any part of its business or assets.

4.2 Fair Market Value of Stock. For purposes of this Plan, the
"fair market value of the shares of the common stock of the Corporation" shall
mean the closing price, on the date of grant of any ISO (or, if there is no
closing price, then the closing bid price), of the Corporation's common stock
as reported on the Composite Tape, or if not reported thereon, then such price
as reported in the trading reports of the principal securities exchange in the
United States on which such stock is listed, or if such stock is not listed on
a securities exchange in the United States, the closing price on the
over-the-counter market as reported by the National Association of Securities
Dealers Automated Quotation System (NASDAQ), or NASDAQ's successor, or if not
reported on NASDAQ, the fair market value of such stock as determined by the
Committee in good faith and based on all relevant factors.

4.3 Term of the Plan. The ISOs and NSOs may be granted pursuant
to the provisions of the Plan from time to time within a period of ten (10)
years from the date the Plan is adopted by the Board of Directors of the
Corporation, or the date the Plan is approved by the stockholders, whichever is
earlier.

4.4 Amendment of the Plan. The Board of Directors of the
Corporation may, insofar as permitted by law, from time to time, with respect
to any shares at the time not subject to stock options, suspend, discontinue or
terminate the Plan or revise or amend it in any respect

8
<PAGE> 9

whatsoever. However, the Plan may not, without the approval of the
stockholders, be amended in any manner that will cause incentive stock options
issued under it to fail to meet the requirements of incentive stock options as
defined in Section 422 of the Internal Revenue Code of 1986, as amended.

4.5 Incentive Stock Option Plan. Except as provided in the Plan,
the Plan shall not affect the terms and conditions of any incentive stock
options heretofore or hereafter granted to any employee of the Corporation
under any incentive stock Option plan of the Corporation or any parent or
subsidiary corporation; nor shall the Plan affect any of the rights of any
employee to whom such incentive stock option or options have been granted.

4.6 Application of Funds. The proceeds received by the
Corporation from the sale of common stock pursuant to stock Options will be
used for general corporate purposes.

4.7 No Obligation to Exercise. The granting of any stock option
under the Plan shall impose no obligation upon any optionee to exercise such
stock option.

4.8 No Implied Rights to Employees. The existence of the Plan,
and the granting of options under the Plan, shall in no way give any employee
the right to continued employment, give any employee the right to receive any
options or any additional options under the Plan, or otherwise provide any
employee any rights not specifically set forth in the Plan or in any options
granted under the Plan.

4.9 Approval of Stockholders. The Plan shall not take effect
until approved by the holders of a majority of the outstanding shares of
common stock of the Corporation, which approval must occur within the period
beginning twelve (12) months before and ending twelve (12) months after the
date the Plan is adopted by the Board of Directors.

Date Plan Approved Date Plan Approved
by Directors: by Stockholders:

January 26, 1993 January 26, 1993

9
<PAGE> 10
FIRST AMENDMENT TO FARO TECHNOLOGIES, INC.
1993 STOCK OPTION PLAN
----------------------

Upon recommendation by the Board of Directors of FARO Technologies,
Inc. (the "Corporation") and subject to the adoption by the stockholders of
the Corporation, the following sets forth and constitutes an amendment to the
FARO Technologies, Inc. 1993 Stock Option Plan (the "Plan").

1. Section 1.3 - Eligible Employees. Section 1.3 of the Plan is
amended by deleting the current language of Section 1.3 in its entirety and
substituting the following therefor, to wit:

"1.3 Eligible Employees. A stock option may be granted to any
employee of the Corporation or of a subsidiary (who may or may
not be an officer or member of the Board of Directors), or to
any member of the Board of Directors who is not an employee of
the Corporation, with the exception only of, with respect to the
incentive stock options granted under the Plan, employees or
nonemployee directors who cannot qualify for the benefits of
incentive stock options under Section 422 of the Internal
Revenue Code of 1986, as amended."

2. Section 1.4 - Stock Subject to the Plan. The Plan is further
amended by increasing the maximum aggregate number of shares that may be issued
upon the exercise of stock options granted under the Plan by 500,000 shares,
which has the effect of setting the aggregate amount of shares available for
issuance pursuant to options granted under the Plan at 1,000,000 shares.

3. All Other Terms Unaffected. Except as otherwise set forth in this
Amendment, the terms and provisions of the Plan shall remain in full force and
effect and not otherwise affected hereby.

IN WITNESS WHEREOF, the undersigned officer of the Corporation
certifies the recommendation by the Board of Directors and the approval by the
requisite number of stockholders of the Corporation of this Amendment.

Date Plan Approved by Directors Date Plan Approved by Shareholders
and Recommended to Shareholders

- -------------------------------------- ---------------------------------

Certified by:
-------------------------

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

<PAGE> 1
EXHIBIT 10.2

FARO TECHNOLOGIES, INC.

1997 EMPLOYEE STOCK OPTION PLAN

<PAGE> 2

TABLE OF CONTENTS
<TABLE>
<CAPTION>

PAGE

<S> <C>
1. PURPOSE OF PLAN............................................................................... 1

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

3. LIMITS ON OPTIONS............................................................................. 2

4. GRANTING OF OPTIONS........................................................................... 3

5. TERMS OF STOCK OPTIONS........................................................................ 3

6. EFFECT OF CHANGES IN CAPITALIZATION........................................................... 5

7. DELIVERY AND PAYMENT FOR SHARES; REPLACEMENT OPTIONS.......................................... 6

8. NO CONTINUATION OF EMPLOYMENT AND DISCLAIMER OF RIGHTS........................................ 7

9. ADMINISTRATION................................................................................ 7

10. NO RESERVATION OF SHARES...................................................................... 8

11. AMENDMENT OF PLAN............................................................................. 8

12. TERMINATION OF PLAN........................................................................... 9

13. EFFECTIVE DATE................................................................................ 9

</TABLE>

<PAGE> 3

FARO TECHNOLOGIES, INC.
1997 EMPLOYEE STOCK OPTION PLAN

1. PURPOSE OF PLAN

The purpose of this Plan is to enable FARO Technologies, Inc. (the
"Company") and its Subsidiaries to compete successfully in attracting,
motivating and retaining Employees with outstanding abilities by making it
possible for them to purchase Shares on terms that will give them a direct and
continuing interest in the future success of the businesses of the Company and
its Subsidiaries and encourage them to remain in the employ of the Company or
one or more of its Subsidiaries. Each Option is intended to be an Incentive
Stock Option, except to the extent that (a) any such Option would exceed the
limitations set forth in Section hereof and (b) for Options specifically
designated at the time of grant as not being Incentive Stock Options.

2. DEFINITIONS

For purposes of the Plan, except where the context clearly indicates
otherwise, the following terms shall have the meanings set forth below:

(a) "Board" means the Board of Directors of the Company.

(b) "Code" means the United States Internal Revenue Code of 1986,
as amended.

(d) "Effective Date" means the effective date of any registration
statement with respect to the Shares under the Securities Exchange Act
of 1934, as amended.

(e) "Employee" means a person who is regularly employed on a
salary basis by the Company or any Subsidiary, including an officer or
director of the Company or any Subsidiary who is also an employee of
the Company or a Subsidiary.

(f) "Fair Market Value" means, with respect to a Share, if the
Shares are then listed and traded on a registered national or regional
securities exchange, or quoted on The National Association of
Securities Dealers' Automated Quotation System (including The Nasdaq
Stock Market's National Market), the average closing price of a Share
on such exchange or quotation system for the five trading days
immediately preceding the date of grant of an Option, or, if Fair
Market Value is used herein in connection with any event other than
the grant of an Option, then such average closing price for the five
trading days immediately preceding the date of such event. If the
Shares are not traded on a registered securities exchange or quoted in
such a quotation system, the Committee shall determine the Fair Market
Value of a Share.

<PAGE> 4

(g) "Incentive Stock Option" means an option granted under this
Plan and which is an incentive stock option within the meaning of
section 422 of the Code, or the corresponding provision of any
subsequently enacted tax statute.

(h) "Option" means an option granted under this Plan, whether or
not such option is an Incentive Stock Option.

(i) "Optionee" means any person who has been granted an Option
which Option has not expired or been fully exercised or surrendered.

(j) "Plan" means the Company's 1997 Employee Stock Option Plan.

(k) "Rule 16b-3" means Rule 16b-3 promulgated pursuant to Section
16(b) of the Securities Exchange Act of 1934, as amended, or any
successor rule.

(l) "Share" means one share of voting common stock, par value
$.01 per share, of the Company, and such other stock or securities
that may be substituted therefor pursuant to Section hereof.

(m) "Subsidiary" means any "subsidiary corporation" within the
meaning of Section 424(f) of the Code.

3. LIMITS ON OPTIONS

(a) The total number of Shares with respect to which Options may
be granted under the Plan shall not exceed in the aggregate 500,000
Shares, subject to adjustment as provided in Section hereof. If any
Option expires, terminates or is terminated for any reason prior to
its exercise in full, the Shares that were subject to the unexercised
portion of such Option shall be available for future grants under the
Plan.

(b) No Incentive Stock Option shall be granted to any Employee
who at the time such option is granted, owns capital stock of the
Company possessing more than 10% of the total combined voting power or
value of all classes of capital stock of the Company or any
Subsidiary, determined in accordance with the provisions of Section
422(b)(6) and 424(d) of the Code, unless the option price at the time
such Incentive Stock Option is granted is at least 110 percent (110%)
of the Fair Market Value of the Shares subject to the Incentive Stock
Option and such Incentive Stock Option is not exercisable by its terms
after the expiration of five (5) years from the date of grant.

(c) An Incentive Stock Option shall be granted hereunder only to
the extent that the aggregate Fair Market Value (determined at the
time the Incentive Stock Option is granted) of the Shares with respect
to which such Incentive Stock Option and any other "incentive stock
option" (within the meaning of Section 422 of the Code) are
exercisable

<PAGE> 5

for the first time by any Optionee during any calendar year (under the
Plan and all other plans of the Optionee's employer corporation and
its parent and subsidiary corporations within the meaning of Section
422(d) of the Code) does not exceed $100,000. This limitation shall be
applied by taking Incentive Stock Options and any such other
"incentive stock options" into account in the order in which such
Incentive Stock Options and any such other "incentive stock options"
were granted.

(d) No Optionee shall, in any calendar year, be granted
Options to purchase more than 150,000 Shares. Options granted to the
Optionee and cancelled during the same calendar year shall be counted
against such maximum number of Shares. In the event that the number of
Options which may be granted is adjusted as provided in the Plan, the
above limit shall automatically be adjusted in the same ratio.

4. GRANTING OF OPTIONS

The Committee is authorized to grant Options to selected Employees
pursuant to the Plan beginning on the Effective Date. Subject to the provisions
of the Plan, the Committee shall have exclusive authority to select the
Employees to whom Options will be awarded under the Plan, to determine the
number of Shares to be included in such Options, and to determine such other
terms and conditions of Options, including terms and conditions which may be
necessary to qualify Incentive Stock Options as "incentive stock options" under
Section 422 of the Code. The date on which the Committee approves the grant of
an Option shall be considered the date on which such Option is granted, unless
the Committee provides for a specific date of grant which is subsequent to the
date of such approval.

5. TERMS OF STOCK OPTIONS

Subject to Section hereof, the terms of Options granted under this Plan
shall be as follows:

(a) The exercise price of each Share subject to an Option
shall be fixed by the Committee. Notwithstanding the prior sentence,
the option exercise price of an Incentive Stock Option shall be fixed
by the Committee but shall in no event be less than 100% of the Fair
Market Value of the Shares subject to such Option.

(b) Options shall not be assignable or transferable by the
Optionee other than by will or by the laws of descent and distribution
except that the Optionee may, with the consent of the Committee,
transfer without consideration Options that do not constitute Incentive
Stock Options to the Optionee's spouse, children or grandchildren (or
to one or more trusts for the benefit of any such family members or to
one or more partnerships in which any such family members are the only
partners).

<PAGE> 6

(c) Each Option shall expire and all rights thereunder shall
end at the expiration of such period (which shall not be more than ten
(10) years) after the date on which it was granted as shall be fixed by
the Committee, subject in all cases to earlier expiration as provided
in subsections (d) and (e) of this Section .

(d) During the life of an Optionee, an Option shall be
exercisable only by such Optionee (or Optionee's permitted assignee in
the case of Options that do not constitute Incentive Stock Options) and
only within one (1) month after the termination of the Optionee's
employment with the Company or a Subsidiary, other than by reason of
the Optionee's death, permanent disability or retirement with the
consent of the Company or a Subsidiary as provided in subsection (e) of
this Section , but only if and to the extent the Option was exercisable
immediately prior to such termination, and subject to the provisions of
subsection (c) of this Section . If the Optionee's employment is
terminated for cause, or the Optionee terminates his employment with
the Company, Options granted at any one time by the Company which have
not become exercisable with respect to all such Options (even if a
portion of such Options have become exercisable) shall terminate
immediately on the date of termination of employment. Cause shall have
the meaning set forth in any employment agreement then in effect
between the Optionee and the Company or any of its Subsidiaries, or if
the Optionee does not have any employment agreement, cause shall mean
(i) if the Optionee engages in conduct which has caused, or is
reasonably likely to cause, demonstrable and serious injury to the
Company, or (ii) if the Optionee is convicted of a felony, as evidenced
by a binding and final judgment, order or decree of a court of
competent jurisdiction, which substantially impairs the Optionee's
ability to perform his or her duties to the Company.

(e) If an Optionee: (i) dies while employed by the Company or
a Subsidiary or within the period when an Option could have otherwise
been exercised by the Optionee; (ii) terminates employment with the
Company or a Subsidiary by reason of the "permanent and total
disability" (within the meaning of Section 22(e)(3) of the Code) of
such Optionee; or (iii) terminates employment with the Company or a
Subsidiary as a result of such Optionee's retirement, provided that the
Company or such Subsidiary has consented in writing to such Optionee's
retirement, then, in each such case, such Optionee, or the duly
authorized representatives of such Optionee (or Optionee's permitted
assignee in the case of Options that do not constitute Incentive Stock
Options), shall have the right, at any time within three (3) months
after the death, disability or retirement of the Optionee, as the case
may be, and prior to the termination of the Option pursuant to
subsection (c) of this Section , to exercise any Option to the extent
such Option was exercisable by the Optionee immediately prior to such
Optionee's death, disability or retirement. In the discretion of the
Committee, the three-month period referenced in the immediately
preceding sentence may be extended for a period of up to one year.

<PAGE> 7

(f) Subject to the foregoing terms and to such additional
terms regarding the exercise of an Option as the Committee may fix at
the time of grant, an Option may be exercised in whole at one time or
in part from time to time.

(g) Options granted pursuant to the Plan shall be evidenced by
an agreement in writing setting forth the material terms and conditions
of the grant, including, but not limited to, the number of Shares
subject to options. Option agreements covering Options need not contain
similar provisions; provided, however, that all such option agreements
shall comply with the terms of the Plan.

(h) The Committee is authorized to modify, amend or waive any
conditions or other restrictions with respect to Options, including
conditions regarding the exercise of Options.

6. EFFECT OF CHANGES IN CAPITALIZATION

(a) If the number of outstanding Shares is increased or
decreased or changed into or exchanged for a different number or kind
of shares or other securities of the Company by reason of any
recapitalization, reclassification, stock split, combination of shares,
exchange of shares, stock dividend or other distribution payable in
capital stock, or other increase or decrease in such shares effected
without receipt of consideration by the Company, a proportionate and
appropriate adjustment shall be made by the Committee in (i) the
aggregate number of Shares subject to the Plan, (ii) the maximum number
of Shares for which Options may be granted to any Employee during any
calendar year, and (iii) the number and kind of shares for which
Options are outstanding, so that the proportionate interest of the
Optionee immediately following such event shall, to the extent
practicable, be the same as immediately prior to such event. Any such
adjustment in outstanding Options shall not change the aggregate option
price payable with respect to Shares subject to the unexercised portion
of the Options outstanding but shall include a corresponding
proportionate adjustment in the option price per Share.

(b) Subject to Section hereof, if the Company shall be the
surviving corporation in any reorganization, merger, share exchange or
consolidation of the Company with one or more other corporations or
other entities, any Option theretofore granted shall pertain to and
apply to the securities to which a holder of the number of Shares
subject to such Option would have been entitled immediately following
such reorganization, merger, share exchange or consolidation, with a
corresponding proportionate adjustment of the option price per Share so
that the aggregate option price thereafter shall be the same as the
aggregate option price of the Shares remaining subject to the Option
immediately prior to such reorganization, merger, share exchange or
consolidation.

<PAGE> 8

(c) In the event of: (i) the adoption of a plan of
reorganization, merger, share exchange or consolidation of the Company
with one or more other corporations or other entities as a result of
which the holders of the Shares as a group would receive less than
fifty percent (50%) of the voting power of the capital stock or other
interests of the surviving or resulting corporation or entity; (ii) the
adoption of a plan of liquidation or the approval of the dissolution of
the Company; (iii) the approval by the Board of an agreement providing
for the sale or transfer (other than as a security for obligations of
the Company or any Subsidiary) of substantially all of the assets of
the Company; or (iv) the acquisition of more than twenty percent (20%)
of the outstanding Shares by any person within the meaning of Rule
13(d)(3) under the Securities Exchange Act of 1934, as amended, if such
acquisition is not preceded by a prior expression of approval by the
Board, then, in each such case, any Option granted hereunder shall
become immediately exercisable in full, subject to any appropriate
adjustments in the number of Shares subject to such Option and the
option price, regardless of any provision contained in the Plan or any
stock option agreement with respect thereto limiting the exercisability
of the Option for any length of time. Notwithstanding the foregoing, if
a successor corporation or other entity as contemplated in clause (i)
or (iii) of the preceding sentence agrees to assume the outstanding
Options or to substitute substantially equivalent options, then the
outstanding Options issued hereunder shall not be immediately
exercisable, but shall remain exercisable in accordance with the terms
of the Plan and the applicable stock option agreements.

(d) Adjustments under this Section relating to Shares or
securities of the Company shall be made by the Committee, whose
determination in that respect shall be final and conclusive. Options
subject to grant or previously granted under the Plan at the time of
any event described in this Section shall be subject to only such
adjustments as shall be necessary to maintain the proportionate
interest of the options and preserve, without exceeding, the value of
such options. No fractional Shares or units of other securities shall
be issued pursuant to any such adjustment, and any fractions resulting
from any such adjustment shall be eliminated in each case by rounding
upward to the nearest whole Share or unit.

(e) The grant of an Option pursuant to the Plan shall not
affect or limit in any way the right or power of the Company to make
adjustments, reclassifications, reorganizations or changes of its
capital or business structure or to merge, consolidate, dissolve or
liquidate, or to sell or transfer all or any part of its business or
assets.

7. DELIVERY AND PAYMENT FOR SHARES; REPLACEMENT OPTIONS

(a) No Shares shall be delivered upon the exercise of an
Option until the option price for the Shares acquired has been paid in
full. No Shares shall be issued or transferred under the Plan unless
and until all legal requirements applicable to the issuance or transfer
of such Shares have been complied with to the satisfaction of the
Committee

<PAGE> 9

and adequate provision has been made by the Optionee for satisfying
any applicable federal, state or local income or other taxes incurred
by reason of the exercise of the Option. Any Shares issued by the
Company to an Optionee upon exercise of an Option may be made
only in strict compliance with and in accordance with applicable state
and federal securities laws.

(b) Payment of the option price for the Shares purchased
pursuant to the exercise of an Option and of any applicable withholding
taxes shall be made, as determined by the Committee and set forth in
the option agreement pertaining to such Option: (i) in cash or by check
payable to the order of the Company; (ii) through the tender to the
Company of Shares, which Shares shall be valued, for purposes of
determining the extent to which the option price has been paid thereby,
at their Fair Market Value on the date of exercise; or (iii) by a
combination of the methods described in (a) and (b) hereof; provided,
however, that the Committee may in its discretion impose and set forth
in the option agreement pertaining to an Option such limitations or
prohibitions on the use of Shares to exercise Options as it deems
appropriate. The Committee also may authorize payment in accordance
with a cashless exercise program under which, if so instructed by the
Optionee, Shares may be issued directly to the Optionee's broker upon
receipt of the option price in cash from the broker.

(c) To the extent that the payment of the exercise price for
the Shares purchased pursuant to the exercise of an Option is made with
Shares as provided in Section hereof, then, at the discretion of the
Committee, the Optionee may be granted a replacement Option under the
Plan to purchase a number of Shares equal to the number of Shares
tendered as permitted in Section hereof, with an exercise price per
Share equal to the Fair Market Value on the date of grant of such
replacement Option and with a term extending to the expiration date of
the original Option.

8. NO CONTINUATION OF EMPLOYMENT AND DISCLAIMER OF RIGHTS

No provision in the Plan or in any Option granted or option agreement
entered into pursuant to the Plan shall be construed to confer upon any
individual the right to remain in the employ of the Company or any Subsidiary,
or to interfere in any way with the right and authority of the Company or any
Subsidiary either to increase or decrease the compensation of any individual at
any time, or to terminate any employment or other relationship between any
individual and the Company or any Subsidiary. The Plan shall in no way be
interpreted to require the Company to transfer any amounts to a third party
trustee or otherwise hold any amounts in trust or escrow for payment to any
Optionee or beneficiary under the terms of the Plan. An Optionee shall have none
of the rights of a shareholder of the Company until all or some of the Shares
covered by an Option are fully paid and issued to such Optionee.

<PAGE> 10

9. ADMINISTRATION

(a) The Plan is intended to comply with Rule 16b-3. Subject to
the provisions of subsection (b) of this Section , the Plan shall be
administered by the Committee which shall interpret the Plan and make
all other determinations necessary or advisable for its administration,
including such rules and regulations and procedures as it deems
appropriate. The Committee shall consist of not fewer than two members
of the Board each of whom shall qualify (at the time of appointment to
the Committee and during all periods of service on the Committee) in
all respects as a "disinterested person" as defined in Rule 16b-3 and
as an outside director as defined in Section 162(m) of the Code and
regulations thereunder. Subject to the provisions of subsection (b) of
this Section , in the event of a disagreement as to the interpretation
of the Plan or any amendment hereto or any rule, regulation or
procedure hereunder or as to any right or obligation arising from or
related to the Plan, the decision of the Committee shall be final and
binding upon all persons in interest, including the Company, the
Optionee and the Company's shareholders.

(b) Notwithstanding any provision of the Plan to the contrary,
if any determination or interpretation to be made by the Committee with
regard to any question arising under the Plan or any option agreement
entered into hereunder is not required to be made by the Committee
under Rule 16b-3, such determination or interpretation may be made by
the Board, and shall be final and binding upon all persons in interest,
including the Company, the Optionee and the Company's shareholders;
provided, however, that the Board shall not make any such determination
or interpretation that would result in the Plan's noncompliance with
Rule 16b-3.

(c) No member of the Committee or the Board shall be liable
for any action taken or decision made, or any failure to take any
action, in good faith with respect to the Plan or any Option granted or
option agreement entered into hereunder.

10. NO RESERVATION OF SHARES

The Company shall be under no obligation to reserve or to retain in its
treasury any particular number of Shares in connection with its obligations
hereunder.

11. AMENDMENT OF PLAN

The Board, without further action by the shareholders, may amend this
Plan from time to time as it deems desirable and shall make any amendments which
may be required so that Options intended to be Incentive Stock Options shall at
all times continue to be Incentive Stock Options for purpose of the Code;
provided, however, that no amendment shall be made without shareholder approval
if such approval would be required to comply with Rule 16b-3 or the Code.

<PAGE> 11

12. TERMINATION OF PLAN

This Plan shall terminate ten (10) years from the Effective Date. The
Board may, in its discretion, suspend or terminate the Plan at any time prior to
such date, but such termination or suspension shall not adversely affect any
right or obligation with respect to any outstanding Option.

13. EFFECTIVE DATE

The Plan shall become effective on the Effective Date and Options
hereunder may be granted at any time on or after that date. If the shareholders
of the Company fail to approve the Plan within one year after the Effective
Date, any Incentive Stock Option granted hereunder shall be null, void and of no
effect.

<PAGE> 1
EXHIBIT 10.3

FARO TECHNOLOGIES, INC.

1997 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN

<PAGE> 2

TABLE OF CONTENTS
<TABLE>
<CAPTION>

PAGE

<S> <C> <C>
1. PURPOSE OF PLAN............................................................................... 1

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

3. LIMITS ON OPTIONS............................................................................. 2

4. GRANTING AND TERMS OF OPTIONS................................................................. 2

5. EFFECT OF CHANGES IN CAPITALIZATION........................................................... 4

6. DELIVERY AND PAYMENT FOR SHARES............................................................... 5

7. NO CONTINUATION AS A DIRECTOR AND DISCLAIMER OF RIGHTS........................................ 6

8. ADMINISTRATION................................................................................ 6

9. NO RESERVATION OF SHARES...................................................................... 6

10. AMENDMENT OF PLAN............................................................................. 6

11. TERMINATION OF PLAN........................................................................... 6

12. EFFECTIVE DATE................................................................................ 7

</TABLE>

<PAGE> 3

FARO TECHNOLOGIES, INC.
1997 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN

1. PURPOSE OF PLAN

The purpose of this Plan is to enable FARO Technologies, Inc. (the
"Company") and its Subsidiaries to compete successfully in attracting,
motivating and retaining Non-Employee Directors with outstanding abilities by
making it possible for them to purchase Shares on terms that will give them a
direct and continuing interest in the future success of the businesses of the
Company and its Subsidiaries and encourage them to remain as directors of the
Company or one or more of its Subsidiaries.

2. DEFINITIONS

For purposes of the Plan, except where the context clearly indicates
otherwise, the following terms shall have the meanings set forth below:

(a) "Board" means the Board of Directors of the Company.

(b) "Code" means the United States Internal Revenue Code of 1986,
as amended.

(c) "Effective Date" means the effective date of any registration
statement with respect to the Shares under the Securities Exchange Act of 1934,
as amended.

(d) "Fair Market Value" means, with respect to a Share, if the Shares
are then listed and traded on a registered national or regional securities
exchange, or quoted on The National Association of Securities Dealers' Automated
Quotation System (including The Nasdaq Stock Market's National Market), the
average closing price of a Share on such exchange or quotation system for the
five trading days immediately preceding the date of grant of an Option, or, if
Fair Market Value is used herein in connection with any event other than the
grant of an Option, then such average closing price for the ten trading days
immediately preceding the date of such event. If the Shares are not traded on a
registered securities exchange or quoted in such a quotation system, the Board
shall determine the Fair Market Value of a Share.

(e) "Non-Employee Director" shall mean any member of the Company's
Board of Directors who is not an employee of the Company or any Subsidiary.

(f) "Option" means an option granted under this Plan, which Option
shall not be an incentive stock option within the meaning of Section 422 of the
Code, or the corresponding provision of any subsequently enacted tax statute.

<PAGE> 4

(g) "Optionee" means any person who has been granted an Option which
Option has not expired or been fully exercised or surrendered.

(h) "Plan" means the Company's 1997 Non-Employee Director Stock Option
Plan.

(i) "Rule 16b-3" means Rule 16b-3 promulgated pursuant to Section 16(b)
of the Securities Exchange Act of 1934, as amended, or any successor rule.

(j) "Share" means one share of voting common stock, par value $.01 per
share, of the Company, and such other stock or securities that may be
substituted therefor pursuant to Section hereof.

(k) "Subsidiary" means any "subsidiary corporation" within the meaning
of Section 424(f) of the Code.

3. LIMITS ON OPTIONS

The total number of Shares with respect to which Options may be granted
under the Plan shall not exceed in the aggregate 250,000 Shares, subject to
adjustment as provided in Section 5 hereof. If any Option expires, terminates
or is terminated for any reason prior to its exercise in full, the Shares that
were subject to the unexercised portion of such Option shall be available for
future grants under the Plan.

4. GRANTING AND TERMS OF OPTIONS

(a) Each Non-Employee Director shall on the Effective Date
automatically be granted an Option to purchase 3,000 Shares. Thereafter, on the
date on which a Non-Employee Director, other than a Non-Employee Director who is
serving as such on the Effective Date, is first elected or appointed as a
Non-Employee Director during the existence of the Plan, such Non-Employee
Director shall automatically be granted an Option to purchase 3,000 Shares.

(b) Each Non-Employee Director (if he or she continues to serve in such
capacity) shall, on the day following the annual meeting of shareholders in each
year during the time the Plan is in effect, automatically be granted an Option
to purchase 3,000 Shares; provided, however, that a person who is first elected
as a Non-Employee Director on the date of an annual meeting of shareholders and
who receives on that date an option pursuant to Section hereof shall not be
eligible to begin to receive grants pursuant to this Section until the day
following the next succeeding annual meeting of shareholders.

(c) Notwithstanding the provisions of Section and hereof, Options shall
be automatically granted to Non-Employee Directors under the Plan only for so
long as the Plan remains in effect and a sufficient number of Shares are
available hereunder for the granting of such Options.

<PAGE> 5

(d) The exercise price of each Share subject to an Option shall be
equal to 100% of the Fair Market Value of the Shares on the date of grant of
such Option.

(e) Options shall not be assignable or transferable by the Optionee
other than by will or by the laws of descent and distribution except that the
Optionee may, with the consent of the Board of Directors, transfer without
consideration Options to the Optionee's spouse, children or grandchildren (or to
one or more trusts for the benefit of any such family members or to one or more
partnerships in which any such family members are the only partners).

(f) Each Option shall expire and all rights thereunder shall end at the
expiration of ten (10) years after the date on which it was granted, subject in
all cases to earlier expiration as provided in subsections (g) and (h) of this
Section .

(g) During the life of an Optionee, an Option shall be exercisable only
by such Optionee and only within one (1) month after the date on which the
Optionee ceases to be a Non-Employee Director, other than by reason of the
Optionee's death or resignation from the Board with the consent of the Company
as provided in subsection (h) of this Section , but only if and to the extent
the Option was exercisable immediately prior to such date, and subject to the
provisions of the subsections (f) and (i) of this Section . If the Optionee is
removed as a Director for cause (as defined in the Company's Articles of
Incorporation, as amended from time to time), all Options of the Optionee shall
terminate immediately on the date of removal.

(h) If an Optionee: (i) dies while a Non-Employee Director or within
the period when an Option could have otherwise been exercised by the Optionee;
or (ii) ceases to be a Non- Employee Director as a result of such Optionee's
resignation from the Board, provided that the Company has consented in writing
to such Optionee's resignation, then, in each such case, such Optionee, or the
duly authorized representatives of such Optionee, shall have the right, at any
time within one (1) year after the death or after such resignation of the
Optionee, as the case may be, and prior to the termination of the Option
pursuant to subsections (f) and (i) of this Section , to exercise any Option to
the extent such Option was exercisable by the Optionee immediately prior to such
Optionee's death or resignation.

(i) The Optionee may exercise the Option (subject to the limitations on
exercise set forth in subsection (f) of this Section ), in whole or in part, as
follows: (i) the Option may not be exercised to any extent prior to one (1) year
following the date of grant; and (ii) the Option may be exercised to the extent
of 331/3% of the Shares subject to such Option after one year following the date
of grant and may be exercised to the extent of an additional 331/3% of the
Shares subject to such Option after each of the second and third years following
the date of grant; provided, however, that in the event a Director serves his
entire initial term as a Director, all Options granted prior to such time shall
become immediately exercisable.

3
<PAGE> 6

(j) An Option may be exercised in whole at one time or in part from
time to time, subject to subsection (i) of this Section .

(k) Options granted pursuant to the Plan shall be evidenced by an
agreement in writing setting forth the material terms and conditions of the
grant, including, but not limited to, the number of Shares subject to Options.

(l) Options granted under the Plan on terms other than those by
sections 4(a) through 4(k) above may only be granted upon specific approval of
each grant by the Board of Directors of the Company.

5. EFFECT OF CHANGES IN CAPITALIZATION

(a) If the number of outstanding Shares is increased or decreased or
changed into or exchanged for a different number or kind of shares or other
securities of the Company by reason of any recapitalization, reclassification,
stock split, combination of shares, exchange of shares, stock dividend or other
distribution payable in capital stock, or other increase or decrease in such
shares effected without receipt of consideration by the Company, a proportionate
and appropriate adjustment shall be made by the Board of Directors in (i) the
number and type of Shares subject to the Plan and which thereafter may be made
the subject of Options under the Plan pursuant to Section 3 hereof (but without
any adjustment in the number of Shares that are the subject of Options to be
granted under the Plan pursuant to Section 4.(a) and 4.(b) hereof) and (ii) the
number and kind of shares for which Options are outstanding, so that the
proportionate interest of the Optionee immediately following such event shall,
to the extent practicable, be the same as immediately prior to such event. Any
such adjustment in outstanding Options shall not change the aggregate option
price payable with respect to Shares subject to the unexercised portion of the
Options outstanding but shall include a corresponding proportionate adjustment
in the option price per Share. Any change in capitalization of the Company under
this section shall not change the number of Shares that will be the subject of
Options to be granted under Sections 4.(a) and 4.(b) hereof subsequent to the
change in capitalization.

(b) Subject to Section hereof, if the Company shall be the surviving
corporation in any reorganization, merger, share exchange or consolidation of
the Company with one or more other corporations or other entities, any Option
theretofore granted shall pertain to and apply to the securities to which a
holder of the number of Shares subject to such Option would have been entitled
immediately following such reorganization, merger, share exchange or
consolidation, with a corresponding proportionate adjustment of the option price
per Share so that the aggregate option price thereafter shall be the same as the
aggregate option price of the Shares remaining subject to the Option immediately
prior to such reorganization, merger, share exchange or consolidation.

<PAGE> 7

of the assets of the Company; or (iv) the acquisition of more than twenty
percent (20%) of the outstanding shares by any person within the meaning of Rule
13(d)(3) under the Securities Exchange Act of 1934 if such acquisition is not
preceded by a prior expression of approval by the Board, then, in each such
case, any Option granted hereunder shall become immediately exercisable in full,
subject to any appropriate adjustments in the number of Shares subject to such
Option and the option price, regardless of any provision contained in the Plan
with respect thereto limiting the exercisability of the Option for any length of
time. Notwithstanding the foregoing, if a successor corporation or other entity
as contemplated in clause (i) or (iii) of the preceding sentence agrees to
assume the outstanding Options or to substitute substantially equivalent
options, then the outstanding Options issued hereunder shall not be immediately
exercisable, but shall remain exercisable in accordance with the terms of the
Plan and the applicable stock option agreements.

(d) Adjustments under this Section relating to Shares or securities of
the Company shall be made by the Board, whose determination in that respect
shall be final and conclusive. Options subject to grant or previously granted
under the Plan at the time of any event described in this Section shall be
subject to only such adjustments as shall be necessary to maintain the
proportionate interest of the Options and preserve, without exceeding, the value
of such Options. No fractional Shares or units of other securities shall be
issued pursuant to any such adjustment, and any fractions resulting from any
such adjustment shall be eliminated in each case by rounding upward to the
nearest whole Share or unit.

(e) The grant of an Option pursuant to the Plan shall not affect or
limit in any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge, consolidate, dissolve or liquidate, or to sell or
transfer all or any part of its business or assets.

6. DELIVERY AND PAYMENT FOR SHARES

(a) No Shares shall be delivered upon the exercise of an Option until
the option price for the Shares acquired has been paid in full. No shares shall
be issued or transferred under the Plan unless and until all legal requirements
applicable to the issuance or transfer of such Shares have been complied with to
the satisfaction of the Board. Any Shares issued by the Company to an Optionee
upon exercise of an Option may be made only in strict compliance with and in
accordance with applicable state and federal securities laws.

(b) Payment of the option price for the Shares purchased pursuant to
the exercise of an Option shall be made: (i) in cash or by check payable to the
order of the Company; (ii) through the tender to the Company of Shares, which
Shares shall be valued, for purposes of determining the extent to which the
option price has been paid thereby, at their Fair Market Value on the date of
exercise; or (iii) by a combination of the methods described in (i) and (ii)
hereof. Payment also may be made in accordance with a cashless exercise program
under which, if so instructed by the

<PAGE> 8

Optionee, Shares may be issued directly to the Optionee's broker upon receipt of
the option price in cash from the broker.

7. NO CONTINUATION AS A DIRECTOR AND DISCLAIMER OF RIGHTS

No provision in the Plan or in any Option granted or option agreement
entered into pursuant to the Plan shall be construed to confer upon any
individual the right to remain a director of the Company or any Subsidiary. The
Plan shall in no way be interpreted to require the Company to transfer any
amounts to a third party trustee or otherwise hold any amounts in trust or
escrow for payment to any Optionee or beneficiary under the terms of the Plan.
An Optionee shall have none of the rights of a shareholder of the Company until
all or some of the Shares covered by an Option are fully paid and issued to such
Optionee.

8. ADMINISTRATION

The Plan is intended to meet the requirements of Rule 16b-3(c)(2)(ii)
adopted under the Securities Exchange Act of 1934, as amended, and accordingly
is intended to be self-governing. To this end, the Plan requires no
discretionary action by any administrative body with regard to any transaction
under the Plan. To the extent, if any, that any questions of interpretation
arise, these shall be resolved by the Board.

9. NO RESERVATION OF SHARES

The Company shall be under no obligation to reserve or to retain in its
treasury any particular number of Shares in connection with its obligations
hereunder.

10. AMENDMENT OF PLAN

The Board, without further action by the shareholders, may amend this
Plan from time to time as it deems desirable; provided, that (i) no such
amendment shall be made without shareholder approval if such approval would be
required to comply with Rule 16b-3 and (ii) the provisions of Sections and shall
not be amended more than once every six months, other than to comport with
changes in the Code, the Employee Retirement Income Security Act of 1974, as
amended, or the rules and regulations promulgated thereunder.

11. TERMINATION OF PLAN

<PAGE> 9

12. EFFECTIVE DATE

The Plan shall become effective on the Effective Date and Options
hereunder may be granted at any time on or after that date, subject to approval
of the Plan by the Company's shareholders within one year after the Effective
Date by a majority of the votes cast at a duly held meeting of the shareholders
of the Company at which a quorum representing a majority of all outstanding
stock is present, either in person or by proxy, and in a manner that satisfies
the requirements of Rule 16b-3. Upon approval of the Plan by the shareholders of
the Company as set forth above, all Options granted under the Plan on or after
the Effective Date shall be fully effective as if the shareholders of the
Company had approved the Plan on the Effective Date.

<PAGE> 1
EXHIBIT 10.4

FARO TECHNOLOGIES, INC.
1997 NON-EMPLOYEE DIRECTORS' FEE PLAN

1. ESTABLISHMENT. FARO Technologies, Inc. (the "Company") hereby
establishes a plan for the members of its Board of Directors who are
not employees of (i) the Company, or (ii) any of its subsidiaries
("Non-Employee Directors"), as described herein, which shall be known
as the FARO TECHNOLOGIES, INC. 1997 NON-EMPLOYEE DIRECTORS' FEE PLAN
(the "Plan").

2. PURPOSE. The purpose of the Plan is to advance the Company's growth and
success, and to advance its interests by attracting and retaining
well-qualified Non-Employee Directors upon whose judgment the Company
is largely dependent for the successful conduct of its operations and
by providing such individuals with incentives to put forth maximum
efforts for the long-term success of the Company's business.

3. EFFECTIVE DATE OF THE PLAN. The effective date of the Plan (the
"Effective Date") is the later of (i) the date of its approval by the
shareholders of the Company, or (ii) the effective date of any
registration statement with respect to the common stock of the Company
("Common Stock") under the Securities Exchange Act of 1934, as amended.

4. STOCK SUBJECT TO THE PLAN. Subject to adjustment in accordance with
the provisions of paragraph, the total number of shares of Common
Stock available for awards during the term of this Plan shall be
250,000 shares. Shares of Common Stock to be delivered under the Plan
shall be made available from presently authorized but unissued Common
Stock or authorized and issued shares of Common Stock reacquired and
held as treasury shares, or a combination thereof. In no event shall
the Company be required to issue fractional shares of Common Stock
under the Plan. Whenever under the terms of the Plan a fractional
share of Common Stock would otherwise be required to be issued, there
shall be issued in lieu thereof one full share of Common Stock.

5. ADMINISTRATION.

(a) The Plan shall be administered by a committee (the
"Committee") appointed from time to time by the Board of
Directors consisting of not less than two members of the Board
of Directors who do not qualify as Non-Employee Directors.

(b) Subject to the express provisions of the Plan, the Committee
shall have authority to interpret the Plan, to the extent
provided by law.

(c) Neither the Committee nor any member thereof shall be liable
for any act, omission, interpretation, construction or
determination made in connection with the Plan in good faith.

<PAGE> 2

6. ELECTION TO RECEIVE ANNUAL RETAINER FEES IN SHARES.

(a) Share Election. Subject to paragraph , each Non-Employee
Director may elect (a "Share Election") to receive all or any
portion of any annual retainer fee, committee fees, or meeting
fees earned in each calendar year for services on the Board of
Directors (collectively, the "Retainer Fees"), in the form of
Common Stock. A Share Election, or a modification or
revocation of a Share Election by a subsequent Share Election,
shall be effective with respect to Retainer Fees earned
commencing on the first day of the calendar month following
the date that the election is delivered. A Share Election
(including a modification or revocation of a Share Election by
a subsequent Share Election) must be in writing and delivered
to the Secretary of the Company as specified in the preceding
sentence, except that (A) a Share Election with respect to
Retainer Fees to be earned in 1997 may be made at any time
until the date 30 days after the Effective date of the Plan
and (B) any Non-Employee Director who commences his or her
directorship subsequent to January 1 of a calendar year (a
"New Director") may make a Share Election during the 30-day
period immediately following the commencement of his or her
directorship. A Share Election, once made, shall remain in
effect, and be irrevocable, unless modified or revoked by a
subsequent Share Election in accordance with the provisions
hereof.

(b) Transfer of Shares. Shares of Common Stock issuable to a
Non-Employee Director with respect to a Share Election shall
be transferred to such Non- Employee Director effective as of
the last business day of each fiscal quarter in which the
Retainer Fees are earned. The total number of shares of Common
Stock to be so transferred shall be determined by dividing
one-quarter of the annual Retainer Fees by the Fair Market
Value of a share of Common Stock. For purposes of this Plan,
"Fair Market Value" means if the Common Stock is then listed
and traded on a registered national or regional securities
exchange, or quoted on The National Association of Securities
Dealers' Automated Quotation System (including The Nasdaq
Stock Market's National Market), the average closing price of
a share on such exchange or quotation system for the five
trading days immediately preceding the last business day of
the applicable quarter (or such other relevant date as may be
specifically set forth herein). If the Common Stock is not
traded on a registered securities exchange or quoted on such a
quotation system, the Committee shall determine the Fair
Market Value of a share. The Retainer Fees payable for a
quarter shall be proportionately adjusted for a Non-Employee
Director who does not serve as a director for the entire
quarter.

7. DEFERRAL ELECTION.

(a) Deferral Election. Each Non-Employee Director may elect (a
"Deferral Election") to defer receiving all or any portion of
the shares of Common Stock that would otherwise be transferred
pursuant to paragraph , or any of his or her Retainer Fees
that would otherwise be payable in cash. A Deferral Election
must be in

2
<PAGE> 3

writing and delivered to the Secretary of the Company prior to
the calendar year in which the Retainer Fees to which the
Deferral Election relates are earned, except that (A) a
Deferral Election with respect to 1997 may be made at any time
until the date 30 days after the Effective Date of the Plan
and (B) any New Director may make a Deferral Election during
the 30-day period immediately following the commencement of
his or her directorship. A Deferral Election once made shall
be irrevocable for the calendar year with respect to which it
is made and shall remain in effect, and be irrevocable, for
future calendar years unless modified or revoked by a
subsequent Deferral Election in accordance with the provisions
hereof.

(b) Accounts. A Non-Employee Director who makes a Deferral
Election with respect to a Share Election shall have the
number of deferred shares of Common Stock (including fractions
of a share) credited to a "Share Account" for the Non-
Employee Director in the form of "Share Units." A Non-Employee
Director who makes a Deferral Election with respect to
Retainer Fees that are not subject to a Share Election shall
have the amount of deferred Retainer Fees credited to a "Cash
Account" for the Non-Employee Director. Collectively, the
amounts deferred in a Non-Employee Director's Share Account
and Cash Account shall hereafter be referred to as the
"Deferred Amounts."

(c) Cash Dividends and Share Accounts. Whenever cash dividends are
paid by the Company on outstanding Common Stock, on the
payment date therefor there shall be credited to the
Non-Employee Director's Share Account a number of additional
Share Units equal to (i) the aggregate dividend that would be
payable on outstanding shares of Common Stock equal to the
number of Share Units credited to such Share Account on the
record date for the dividend, divided by (ii) the Fair Market
Value of a share of Common Stock as of the last business day
immediately preceding the date of payment of the dividend.

(d) Cash Accounts. At the election of a Non-Employee Director, a
Director's Cash Account shall be (i) credited with interest at
an annual rate equal to the sum of the daily interest earned
at a rate equal to the yield from time to time on U.S.
Treasury obligations maturing in seven years as reported in
The Wall Street Journal (Eastern Edition) and compounded
monthly, or such other rate specified by the Committee, or
(ii) credited or debited with the annual investment returns
relating to such investment vehicle or vehicles as may be made
available by the Committee from time to time, if any, and
selected by the Non-Employee Director, or such combination of
(i) and (ii) as the Non-Employee Director designates by
written notice to the Secretary of the Company.

(e) Distributions. Subject to subsection , a Non-Employee
Director's Deferred Amounts shall become payable as soon as
practicable following the earliest of (i) the date irrevocably
selected by the Non-Employee Director in his or her Deferral

<PAGE> 4

Election, (ii) the Non-Employee Director's death or (iii) the
Non-Employee Director's total and permanent disability, as
determined by the Committee.

(f) Form of Payments. All payments from a Share Account shall be
made in shares of Common Stock by converting Share Units into
Common Stock on a one-for-one basis. All payments from a Cash
Account shall be made in cash.

(g) Manner of Payments. Subject to subsection , in his or her
Deferral Election, each Non-Employee Director shall elect to
receive payment of his or her Deferred Amounts either in a
lump sum or in two to fifteen substantially equal annual
installments. In the event of a Non-Employee Director's death,
payment of the remaining portion of the Director's Deferred
Amounts will be made to the director's beneficiary in a lump
sum as soon as practicable following the director's death.

(h) Hardship Distribution. Notwithstanding any Deferral Election,
in the event of severe financial hardship to a Non-Employee
Director resulting from a sudden and unexpected illness,
accident or disability of the Non-Employee Director or other
similar extraordinary and unforeseeable circumstances arising
as a result of events beyond the control of the Non-Employee
Director, all as determined by the Committee, a Non-Employee
Director may withdraw a portion of the Share Units in his or
her Share Account and/or cash in his or her Cash Account by
providing written notice to the Secretary of the Company.
Withdrawals of amounts shall only be permitted to the extent
reasonably necessary to meet the emergency need due to the
severe financial hardship.

(i) Designation of Beneficiary. Each Non-Employee Director or
former Non- Employee Director entitled to payment of Deferred
Amounts hereunder from time to time may designate any
beneficiary or beneficiaries (who may be designated
concurrently, contingently, or successively) to whom any such
Deferred Amounts are to be paid in case of the Non-Employee
Director's death before receipt of any or all of such Deferred
Amounts. Any designation will revoke all prior designations by
the Non-Employee Director or former Non-Employee Director,
shall be in a form prescribed by the Company and will be
effective only when filed by the Non-Employee Director or
former Non-Employee Director, during his or her lifetime, in
writing with the Secretary of the Company. References in this
Plan to a director's "beneficiary" at any date shall include
such persons designated as concurrent beneficiaries on the
director's beneficiary designation form then in effect. In the
absence of any such designation, any balance remaining in a
Non-Employee Director's or former Non-Employee Director's
Share Account and/or Cash Account at the time of the
director's death shall be paid to such director's estate in a
lump sum.

(j) No Account Transfers. A Non-Employee Director may not transfer
or convert a Share Account to a Cash Account or vice versa.

4
<PAGE> 5

(k) Changes With Respect to Distributions. With the consent of the
Company, a Non-Employee Director may (i) postpone the date on
which Deferred Amounts are to become payable pursuant to
subsection , or (ii) change the manner in which the Deferred
Amounts are to be paid pursuant to subsection ,
provided in each case that any such change is made prior to
the calendar year in which such payments are to commence.

(l) No Assets. No stock, cash or other property will be
deliverable to a Non- Employee Director in respect of the
Non-Employee Director's Deferred Amounts until the date or
dates identified pursuant to this Section , and all Deferred
Amounts shall be reflected in one or more unfunded accounts
established for the Non-Employee Director by the Company.
Payment of the Company's obligation will be from general
funds, and no special assets (stock, cash or otherwise) have
been or will be set aside as security for this obligation.

(m) No Transfers. A Non-Employee Director's rights to payments
under this Section are not subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, or garnishment by a Non-Employee Director's
creditors or the creditors of his or her beneficiaries,
whether by operation of law or otherwise, and any attempted
sale, transfer, assignment, pledge, or encumbrance with
respect to such payment shall be null and void, and shall be
without legal effect and shall not be recognized by the
Company.

(n) Unsecured Creditor. The right of a Non-Employee Director to
receive payments under this Section is that of a general,
unsecured creditor of the Company, and the obligation of the
Company to make payments constitutes a mere promise by the
Company to pay such benefits in the future. Further, the
arrangements contemplated by this Section are intended to be
unfunded for tax purposes and for purposes of Title I of
ERISA.

8. ADJUSTMENT PROVISIONS. If the number of outstanding shares of Common
Stock is increased or decreased or changed into or exchanged for a
different number or kind of shares or other securities of the Company
by reason of any merger, consolidation, recapitalization,
reclassification, stock split, combination of shares, exchange of
shares, stock dividend or other distribution payable in capital stock,
or other increase or decrease in such shares effected without receipt
of consideration by the Company, a proportionate and appropriate
adjustment shall be made by the Company in the number and kind of
shares reserved for issuance under the Plan and in the number of Share
Units credited to each Non-Employee Director's Share Account as is
necessary to preserve, without exceeding, the value reflected by the
Non-Employee Director's Share Account.

9. TERMINATION AND AMENDMENT OF PLAN. The Plan shall terminate ten (10)
years from the date that it is adopted by the Board of Directors,
unless sooner terminated as hereinafter provided. The Board of
Directors may at any time terminate the Plan. The Board of Directors
may amend the Plan as it shall deem advisable including (without
limiting the

5
<PAGE> 6

generality of the foregoing) any amendments deemed by the Board of
Directors to be necessary or advisable to assure conformity of the Plan
with any requirements of state and federal laws or regulations now or
hereafter in effect; provided, however, that (a) the Board of Directors
may not, without further approval by the shareholders of the Company,
make any modifications which, under Rule 16b-3, require such approval
and (b) no amendment shall affect adversely any of the rights of any
Non- Employee Director, without such Non-Employee Director's consent,
under any election theretofore in effect under the Plan.

10. RIGHTS AS A SHAREHOLDER. A Non-Employee Director shall have no rights
as a shareholder with respect to Common Stock granted under this Plan
until the date of issuance of the stock certificate to him. Except as
provided in paragraph , no adjustment will be made for dividends or
other rights for which the record date is prior to the date such Common
Stock is issued. The shares of Common Stock granted to each
Non-Employee Director are not transferable by the recipient for a
period of six months after the Grant Date (or, for a director elected
between Grant Dates, the date of the director's election), except in
the event of the death or disability of the recipient. All certificates
evidencing shares granted to a Non-Employee Director shall bear an
appropriate legend evidencing such transfer restrictions.

11. GOVERNING LAW. The Plan, all awards hereunder, and all determinations
made and actions taken pursuant to the Plan shall be governed by the
internal laws of the state in which the Company is incorporated, to the
extent not otherwise governed by the Internal Revenue Code or the laws
of the United States.

12. UNFUNDED PLAN. This Plan shall be unfunded. No person shall have any
rights greater than those of a general creditor of the Company.

13. WITHHOLDING. The Company shall have the right to deduct from all
amounts deferred pursuant to a Deferral Election and/or payments made
under the Plan any federal, state, or local income taxes or FICA
required to be withheld with respect to such compensation. Each
Non-Employee Director shall be entitled to irrevocably elect, at least
six months prior to the date shares of Common Stock would otherwise be
delivered hereunder, to have the Company withhold shares of Common
Stock having an aggregate Fair Market Value as of such date equal to
the amount required to be withheld.

14. CHANGE OF CONTROL. Anything in this Plan to the contrary
notwithstanding, upon the occurrence of a Change of Control: (a) all
Share Units credited to any Non-Employee Director's Share Account shall
be converted into Common Stock and together with all Deferred Amounts
credited to a Cash Account shall be transferred as soon as practicable
in a lump sum to each Non-Employee Director; and (b) any Retainer Fees
earned in respect of the fiscal quarter in which the Change of Control
occurs shall be paid in cash as soon as practicable. For purposes of
the Plan, a "Change of Control" means: (i) the adoption of a plan of
reorganization, merger, share exchange or consolidation of the Company
with one or more other corporations or other entities as a result of
which the holders of Common Stock as a group would receive less than
fifty percent (50%) of the

<PAGE> 7

voting power of the capital stock or other interests of the surviving
or resulting corporation or entity; (ii) the adoption of a plan of
liquidation or the approval of the dissolution of the Company; (iii)
the approval by the Board of Directors of an agreement providing for
the sale or transfer of the assets of the Company; or (iv) the
acquisition of more than twenty percent (20%) of the outstanding shares
by any person within the meaning of Rule 13(d)(3) under the Securities
Exchange Act of 1934 if such acquisition is not preceded by a prior
expression of approval by the Board.

<PAGE> 1
EXHIBIT 10.5

TERM WCMA(R) LOAN AND SECURITY AGREEMENT

TERM WCMA LOAN AND SECURITY AGREEMENT ("Loan Agreement') dated as of September
24, 1996, between FARO TECHNOLOGIES, INC., a corporation organized and existing
under the laws of the State of Florida having its principal office at 125
Technology Park, Lake Mary, FL 32746 ("Customer"), and MERRILL LYNCH BUSINESS
FINANCIAL SERVICES INC., a corporation organized and existing under the laws of
the State of Delaware having its principal office at 33 West Monroe Street,
Chicago, IL 60603 ("MLBFS").

In accordance with that certain WORKING CAPITAL MANAGEMENTS(R) ACCOUNT AGREEMENT
NO. 74007J98 ("WCMA Agreement') between Customer and MLBFS' affiliate, MERRILL
LYNCH, PIERCE, FENNER & SMITH INCORPORATED ("MLPF&S"), Customer has subscribed
to the WCMA Program described in the WCMA Agreement. The WCMA Agreement is by
this reference incorporated as a part hereof. In conjunction therewith, Customer
has requested that MLBFS make the Term WCMA Loan hereinafter described (the
"Loan"); and, subject to the terms and conditions herein set forth, MLBFS has
agreed to make the Loan to Customer.

The Loan combines the equivalent of three successive one-year term loans, each
equal to that portion of the Loan that will be fully amortized in the ensuing
year, with a line of credit under the WCMA Program ("WCMA Line of Credit') equal
to that portion of the Loan that will not be amortized in the ensuing year.
Subject to the terms hereof, each year after the initial funding there will be
an additional funding on account of the term portion of the Loan, with the
proceeds deposited into Customers WCMA Account concurrently with a corresponding
reduction in the maximum WCMA Line of Credit.

This structure provides Customer with substantially the same initial funding and
loan amortization as a conventional term loan. However, unlike most conventional
term loans, it permits both a prepayment in whole or in part at any time without
penalty, and, subject to the terms and conditions herein set forth, a
reborrowing on a revolving basis of any such amounts prepaid on account of the
WCMA Line of Credit portion of the Loan. The structure of the Loan therefore
enables Customer at its option to use any free cash balances that it may have
from time to time to reduce interest expense on the line of credit portion of
the Loan without impairing its working capital.

Accordingly, and in consideration of the premises and of the mutual covenants of
the parties hereto, Customer and MLBFS hereby agree as follows:

ARTICLE 1. DEFINITIONS

1.1 SPECIFIC TERMS. In addition to terms defined elsewhere in this Loan
Agreement, when used herein the following terms shall have the following
meanings:

(a) "Account Debtor' shall mean any party who is or may become obligated
with respect to an Account or Chattel Paper.

<PAGE> 2

(b) "Additional Agreements" shall mean all agreements, instruments,
documents and opinions other than this Loan Agreement, whether with or from
Customer or any other party, which are contemplated hereby or otherwise
reasonably required by MLBFS in connection herewith, or which evidence the
creation, guaranty or collateralization of any of the Obligations or the
granting or perfection of liens or security interests upon the Collateral or any
other collateral for the Obligations, and shall include, without limitation, the
Term WCMA Note.

(c) "Business Day" shall mean any day other than a Saturday, Sunday, federal
holiday or other day on which the New York Stock Exchange is regularly closed.

(d) "Closing Date" shall mean the date upon which all conditions precedent to
MLBFS' obligation to make the Loan shall have been met to the satisfaction of
MLBFS.

(e) "Collateral' shall mean all Accounts, Chattel Paper, Contract Rights,
Inventory, Equipment, Fixtures, General Intangibles, Deposit Accounts, Documents
and Instruments of Customer, howsoever arising, whether now owned or existing or
hereafter acquired or arising, and wherever located; together with all books and
records (including computer records) directly related thereto, all proceeds
thereof (including, without limitation, proceeds in the form of Accounts and
insurance proceeds), and the additional collateral described in Section 4.6 (b)
hereof.

(f) "Commitment Expiration Date" shall mean October 24, 1996.

(g) "Commitment Fee" shall mean a fee of $20,000.00 due to MLBFS in connection
with this Loan Agreement.

(h) "General Funding Conditions" shall mean each of the following conditions to
any loan or advance by MLBFS hereunder: (i) no Event of Default, or event which
with the giving of notice, passage of time, or both, would constitute an Event
of Default, shall have occurred and be continuing or would result from the
making of such loan or advance hereunder by MLBFS; (ii) there shall not have
occurred any material adverse change in the business or financial condition of
Customer; (iii) all representations and warranties of Customer herein or in any
Additional Agreements shall then be true and correct in all material respects;
(iv) MLBFS shall have received this Loan Agreement and all Additional
Agreements, duly executed and filed or recorded where applicable, all of which
shall be in form and substance reasonably satisfactory to MLBFS; (v) the
Commitment Fee shall have been paid in full; (vi) MLBFS shall have received
evidence reasonably satisfactory to it as to the ownership of the Collateral and
the perfection and priority of MLBFS' liens and security interests thereon, as
well as the ownership of and the perfection and priority of MLBFS' liens and
security interests on any other collateral for the Obligations furnished
pursuant to any of the Additional Agreements; (vii) MLBFS shall have received
evidence reasonably satisfactory to it of the insurance required hereby or by
any of the Additional Agreements; and (viii) any additional conditions specified
in the "Term WCMA Approval" letter executed by MLBFS with respect to the
transactions contemplated hereby shall have been met to the reasonable
satisfaction of MLBFS.

<PAGE> 3

(i) "Interest Rate" shall mean a variable per annum rate equal to the sum of (i)
2.70%, and (ii) the 30-Day Commercial Paper Rate. The '30-Day Commercial Paper
Rate' shall mean, as of the date of any determination, the interest rate from
time to time published in the "Money Rates" section of The Wall Street Journal
for 30-day high-grade unsecured notes sold through dealers by major
corporations. The Interest Rate will change as of the date of publication in The
Wall Street Journal of a 30-Day Commercial Paper Rate that is different from
that published on the preceding Business Day. In the event that The Wall Street
Journal shall, for any reason, fail or cease to publish the 30-Day Commercial
Paper Rate, MLBFS will choose a reasonably comparable index or source to use as
the basis for the Interest Rate.

(j) "Loan Amount" shall mean an amount equal to the lesser of (i) 100% of the
aggregate cost to Customer of satisfying or fulfilling the Loan Purpose, (ii)
the aggregate amount which Customer shall request be advanced by MLBFS on
account of the Loan Purpose, or (iii) $2,000,000.00.

(k) "Loan Purpose" shall mean the purpose for which the proceeds of the Loan
will be used;to wit: to refinance debt of Xenon Research, Inc. and provide
general working capital.

(l) "Location of Tangible Collateral" shall mean the address of Customer set
forth at the beginning of this Loan Agreement, together with any other address
or addresses set forth on an exhibit hereto as being a Location of Tangible
Collateral.

(m) "Maximum WCMA Line of Credit" shall mean the maximum aggregate line of
credit which MLBFS will extend to Customer subject to the terms and conditions
hereof, as the same shall be reduced from time to time in accordance with the
terms hereof.

(n) "Obligations" shall mean all liabilities, indebtedness and other obligations
of Customer to MLBFS, howsoever created, arising or evidenced, whether now
existing or hereafter arising, whether direct or indirect, absolute or
contingent, due or to become due, primary or secondary or joint or several, and,
without limiting the foregoing, shall include interest accruing after the filing
of any petition in bankruptcy, and all present and future liabilities,
indebtedness and obligations of Customer under this Loan Agreement and the Term
WCMA Note.

(o) "Permitted Liens' shall mean with respect to the Collateral: (i) liens for
current taxes not delinquent, other non-consensual liens arising in the ordinary
course of business for sums not due, and, if MLBFS' rights to and interest in
the Collateral are not materially and adversely affected thereby, any such liens
for taxes or other non-consensual liens arising in the ordinary course of
business being contested in good faith by appropriate proceedings; (ii) liens in
favor of MLBFS; (iii) liens which will be discharged with the proceeds of the
initial WCMA Loan; (iv) existing liens upon and leases of Equipment and
Fixtures, if any, together with any future purchase money liens upon and leases
of Equipment and Fixtures; (v) liens in favor of Xenon Research, Inc. ("Xenon")
which secure debt of Customer incurred after the closing date, but only if prior
to obtaining any such lien Xenon acknowledges in writing to MLBFS that (A)
Xenon's lien is subordinate to the security interest of MLBFS hereunder, and (B)
MLBFS does

<PAGE> 4

not owe Xenon any duty whatsoever in connection with said lien or Customer,
including, without limitation, any duty of notice or marshalling of assets; and
(vi) any other liens expressly permitted in writing by MLBFS.

(p) "Term WCMA Note" shall mean and refer to the Term WCMA Note executed by
Customer and dated as of the date hereof which incorporates both a WCMA Note
evidencing amounts owing on account of the WCMA Line of Credit portion of the
Loan, and a Term Note evidencing amounts owing on account of the term portion of
the Loan.

(q) "WCMA Account" shall mean and refer to the Working Capital Management
Account of Customer with MLPF&S identified as WCMA Account No. 740-07J98.

(r) "WCMA Loan" shall mean each advance made by MLBFS pursuant to the WCMA
Line of Credit.

(s) "WCMA Loan Balance" shall mean an amount equal to the aggregate unpaid
principal balance of all WCMA Loans.

1.2 OTHER TERMS. Except as otherwise defined herein: (i) all terms used in this
Loan Agreement which are defined in the Uniform Commercial Code of Illinois
("UCC") shall have the meanings set forth in the UCC, and (ii) capitalized terms
used herein which are defined in the WCMA Agreement shall have the meaning set
forth in the WCMA Agreement.

ARTICLE II. THE LOAN

2.1 COMMITMENT. Subject to the terms and conditions hereof, MLBFS hereby agrees
to make the Loan to Customer, and Customer hereby agrees to borrow the Loan from
MLBFS. Unless otherwise hereafter agreed by MLBFS, the entire proceeds of the
Loan will be disbursed either directly to the applicable third party or parties
on account of the Loan Purpose or to reimburse Customer for amounts directly
expended by it; all as directed by Customer in a Closing Certificate to be
executed and delivered to MLBFS prior to the date of funding.

2.2 OPERATION OF LOAN.

(A) TERM WCMA NOTE. The Loan will be evidenced by and shall be repayable in
accordance with the terms of the Term WCMA Note and this Loan Agreement. The
Term WCMA Note combines two promissory notes, one evidencing the term portion of
the Loan (the *Term Note") and the other evidencing the WCMA Line of Credit
portion of the Loan (the 'WCMA Note"). The balance owing by Customer on account
of the Loan at any time shall be an amount equal to the sum of the then
outstanding balances under the WCMA Note and the Term Note included in the Term
WCMA Note. The Term WCMA Note is hereby incorporated as a part hereof.

<PAGE> 5

(B) TERM NOTE PRINCIPAL. The principal balance owing under the Tenn Note at any
time shall be an amount equal to the difference between (i) the Loan Amount less
the aggregate principal paid by Customer on account of the Term Note; and (ii)
the WCMA Line of Credit. So long as there shall be any moneys owing by Customer
to MLBFS hereunder or there shall be a WCMA Line of Credit, no reduction in the
unpaid principal balance of the Term Note to zero shall be deemed a payment of
the Term Note in full or an extinguishment of any of the obligations of Customer
thereunder or hereunder.

(C) TERM NOTE FUNDING. Subject to the terms hereof, the Term Note will be funded
by MLBFS in three annual installments, each equal to one-third of the Loan
Amount. The first one-third installment funded by MLBFS will be funded on the
Closing Date and applied on account of the Loan Purpose, as aforesaid.
Subsequent installments will be funded on a date chosen by MLBFS in its sole
discretion which will be on or within two weeks before or after each subsequent
anniversary of the last day of the calendar month in which the Closing Date
occurs (each, a "Subsequent Funding Date"). Each Term Note funding after the
first shall be deposited into Customer's WCMA Account.

(D) ACTIVATION OF WCMA LINE. On the Closing Date, MLBFS will activate and make
available as an integral part of the Loan a WCMA Line of Credit equal to
two-thirds of the Loan Amount, all of which will be immediately disbursed on
account of the Loan Purpose as part of the Loan in accordance with the
directions of Customer set forth in the Closing Certificate, as aforesaid.

(E) SUBSEQUENT FUNDINGS. On the first Subsequent Funding Date, concurrently with
MLBFS' funding of the second installment of the debt evidenced by the Term Note
into the WCMA Account, the WCMA Line of Credit will be reduced to an amount
equal to one-third of the Loan Amount.

(F) WCMA MATURITY DATE. On the second Subsequent Funding Date (the "WCMA
Maturity Date), the WCMA Line of Credit will be terminated and the WCMA Account,
at the option of Customer, will either be converted to a WCMA Cash Account
(subject to any requirements of MLPF&S) or terminated.

2.3 CONDITIONS OF MLBFS' OBLIGATION. The Closing Date and MLBFS' obligation to
make the Loan on the Closing Date are subject to the prior fulfillment of each
of the following conditions: (a) MLBFS shall have received a written request
from Customer that the Loan be funded in accordance with the terms hereof,
together with a written direction from Customer as to the method of payment and
payee(s) of the proceeds of the Loan, which request and direction shall have
been received by MLBFS not less than two Business Days prior to any requested
funding date; (b) MLBFS shall have received a copy of invoices, bills of sale,
payoff letters or other applicable evidence reasonably satisfactory to it that
the proceeds of the Loan will satisfy or fulfill the Loan Purpose; (c) the
Commitment Expiration Date shall not then have occurred; and (d) each of the
General Funding Conditions shall have been met or satisfied to the reasonable
satisfaction of MLBFS.

<PAGE> 6

2.4 CONDITIONS OF SUBSEQUENT FUNDINGS. The obligation of MLBFS to fund
installments of the term portion of the Loan on any Subsequent Funding Date
shall be subject to each of the conditions specified in Section 2.3 hereof being
met at such date, and the further condition that all payments due under the Term
Note on or prior to any Subsequent Funding Date shall have been paid in full;
provided, however, that notwithstanding the failure of any such conditions to
have been met, MLBFS may in its sole discretion fund such installment and/or any
other installments, and no such funding shall constitute a waiver by MLBFS of
any of its rights hereunder or under any of the Additional Agreements. Without
limiting the foregoing, it is understood that no funding by MLBFS of any sum
hereunder while an Event of Default shall have occurred and is continuing shall
under any circumstances be deemed a waiver BY MLBFS of such Event of Default, or
a waiver of any of MLBFS' rights hereunder.

2.5 COMMITMENT FEE. In consideration of the agreement by MLBFS to extend the
Loan to Customer in accordance with and subject to the terms hereof, Customer
has paid or shall, on or before the Closing Date pay, the Commitment Fee to
MLBFS. Customer acknowledges and agrees that the Commitment Fee has been fully
earned by MLBFS, and that it will not under any circumstances be refundable.

2.6 ACKNOWLEDGMENTS OF CUSTOMER. Customer acknowledges, covenants and
agrees that:

(A) PAYMENT OF WCMA INTEREST; ADDITIONAL DEPOSITS. Under the terms of this Loan
Agreement, interest accrued on amounts outstanding on the Term WCMA Line of
Credit each month will, subject to the terms hereof, ordinarily be paid from the
proceeds of a borrowing of an additional sum under the Term WCMA Line of Credit.
Because all or substantially all of the Term WCMA Line of Credit will ordinarily
be drawn on the Closing Date, CUSTOMER AGREES THAT IT WILL, WITHOUT DEMAND,
INVOICING OR THE REQUEST OF MLBFS, FROM TIME TO TIME MAKE SUFFICIENT DEPOSITS
INTO THE WCMA ACCOUNT IN ORDER TO ASSURE THAT THE MAXIMUM WCMA LINE OF CREDIT IS
NOT EXCEEDED. Installments of principal and interest under the Term Note shall
be paid directly to MLBFS in accordance with the terms of the Term Note.

(B) ADDITIONAL INTEREST CHARGES. SUBJECT TO THE TERMS HEREOF, ON EACH SUBSEQUENT
FUNDING DATE MLBFS WILL DEPOSIT THE AMOUNT FUNDED INTO THE WCMA ACCOUNT. DUE TO
POSSIBLE DELAYS IN POSTING AS WELL AS CERTAIN DELAYS IN RECOGNITION OF DEPOSITS
INHERENT IN THE WCMA PROGRAM, CUSTOMER WILL NOT RECEIVE CREDIT FOR THE AMOUNT
DEPOSITED FOR UP TO SEVERAL DAYS THEREAFTER, RESULTING IN AN INTEREST CHARGE FOR
THAT PERIOD OF TIME ACCRUING AND CHARGED IN THE WCMA ACCOUNT. ON THE OTHER HAND,
BECAUSE MLBFS BORROWS ALL OR SUBSTANTIALLY ALL OF THE FUNDS THAT IT LENDS ON THE
DATE OF FUNDING, IT MUST CHARGE INTEREST ON THE AMOUNT FUNDED ON EACH SUBSEQUENT
FUNDING DATE FROM THE DATE OF ITS DEPOSIT INTO THE WCMA ACCOUNT, WHETHER OR NOT
SUCH DEPOSIT IS IMMEDIATELY RECOGNIZED. THE TIMING DIFFERENCES BETWEEN THE DATE
OF DEPOSIT AND DATE OF RECOGNITION OF THE DEPOSIT IN THE WCMA ACCOUNT WILL

6
<PAGE> 7

THEREFORE RESULT IN EXTRA INTEREST CHARGES TO CUSTOMER, WHICH CUSTOMER
ACKNOWLEDGES ARE AN ADDITIONAL COST OF THE LOAN AND HEREBY UNCONDITIONALLY
AGREES TO PAY.

ARTICLE III. THE WCMA LINE OF CREDIT

3.1 WCMA NOTE.

All amounts owing under the WCMA Line of Credit shall be deemed owing under and
evidenced by the WCMA Note included in the Term WCMA Note.

3.2 WCMA LOANS.

(A) LOAN COMMITMENT AND REQUESTS. Subject to the terms and conditions hereof:
(i) on the Closing Date, MLBFS will make a WCMA Loan to Customer in an amount
equal to the Maximum WCMA Line of Credit, the entire proceeds of which will be
disbursed on account of the Loan Purpose, as aforesaid; and (ii) during the
period from and after the Closing Date to the WCMA Maturity Date: (x) Customer
may repay said WCMA Loan and any other WCMA Loans in whole or in part at any
time without premium or penalty, and request a re-borrowing of amounts repaid on
a revolving basis, and (y) MLBFS will make such additional WCMA Loans as
Customer may from time to time request in accordance with the terms hereof.
Customer may request WCMA Loans by use of WCMA Checks, FTS, Visa(R) charges,
wire transfers, or such other means of access to the WCMA Line of Credit as may
be permitted by MLBFS from time to time; it being understood that so long as the
WCMA Line of Credit shall be in effect, any charge or debit to the WCMA Account
which but for the WCMA Line of Credit would under the terms of the WCMA
Agreement result in an overdraft, shall be deemed a request by Customer for a
WCMA Loan.

(B) CONDITIONS OF WCMA LOANS. Notwithstanding the foregoing, MLBFS shall not be
obligated to make any WCMA Loan, and may without notice refuse to honor any such
request by Customer, if at the time of receipt by MLBFS of Customers request:
(i) the making of such WCMA Loan would cause the Maximum WCMA Line of Credit to
be exceeded; or (ii) the Maturity Date shall have occurred, or the WCMA Line of
Credit shall have otherwise been terminated in accordance with the terms hereof;
or (iii) an event shall have occurred and is continuing which shall have caused
any of the General Funding Conditions to not then be met or satisfied to the
reasonable satisfaction of MLBFS. The making by MLBFS of any WCMA Loan at a time
when any one or more of said conditions shall not have been met shall not in any
event be construed as a waiver of said condition or conditions or of any Event
of Default, and shall not prevent MLBFS at any time thereafter while any
condition shall not have been met from refusing to honor any request by Customer
for a WCMA Loan.

(C) FORCE MAJEURE. MLBFS shall not be responsible, and shall have no liability
to Customer or any other party, for any delay or failure of MLBFS to honor any
request of Customer for a WCMA Loan or any other act or omission of MLBFS,
MLPF&S or any of their

<PAGE> 8

affiliates due to or resulting from any system failure, error or delay in
posting or other clerical error, loss of power, fire, Act of God or other cause
beyond the reasonable control of MLBFS, MLPF&S or any of their affiliates unless
directly arising out of the willful wrongful act or active gross negligence of
MLBFS. In no event shall MLBFS be liable to Customer or any other party for any
incidental or consequential damages arising from any act or omission by MLBFS,
MLPF&S or any of their affiliates in connection with the WCMA Line of Credit or
this Loan Agreement.

(D) INTEREST. The WCMA Loan Balance shall bear interest at the Interest Rate.
Interest shall be computed for the actual number of days elapsed on the basis of
a year consisting of 360 days. Notwithstanding any other provision in this Loan
Agreement or any Additional Agreements to the contrary, in no event shall the
Interest Rate exceed the highest rate permissible under any applicable law. In
the event that any court having jurisdiction determines that MLBFS has received
excess interest hereunder, MLBFS will promptly refund such excess interest to
Customer, without charge or penalty. Except as otherwise provided herein,
accrued and unpaid interest on the WCMA Loan Balance shall be payable monthly on
the last Business Day of each calendar month, commencing with the last Business
Day of the calendar month in which the Closing Date shall occur. Customer hereby
irrevocably authorizes and directs MLPF&S to pay MLBFS such accrued interest
from any available free credit balances in the WCMA Account, and if such
available free credit balances are insufficient to satisfy any interest payment
due, to liquidate any investments in the Money Accounts (other than any
investments constituting any Minimum Money Accounts Balance under the WCMA
Directed Reserve program) in an amount up to the balance of such accrued
interest, and pay to MLBFS the available proceeds on account thereof. If
available free credit balances in the WCMA Account and available proceeds of the
Money Accounts are insufficient to pay the entire balance of accrued interest,
and Customer otherwise fails to make such payment when due, MLBFS may, in its
sole discretion, make a WCMA Loan in an amount equal to the balance of such
accrued interest and pay the proceeds of such WCMA Loan to itself on account of
such interest. The amount of any such WCMA Loan will be added to the WCMA Loan
Balance. If MLBFS declines to extend a WCMA Loan to Customer under these
circumstances, Customer hereby authorizes and directs MLPF&S to make all such
interest payments to MLBFS from any Minimum Money Accounts Balance. If there is
no Minimum Money Accounts Balance, or it is insufficient to pay all such
interest, MLBFS will invoice Customer for payment of the balance of the accrued
interest, and Customer shall pay such interest as directed by MLBFS within 5
Business Days of receipt of such invoice.

(E) PAYMENTS. All payments required or permitted to be made pursuant to this
Loan Agreement shall be made in lawful money of the United States. Unless
otherwise directed by MLBFS, payments on account of the WCMA Loan Balance may be
made by the delivery of checks (other than WCMA Checks), or by means of FTS or
wire transfer of funds (other than funds from the WCMA Line of Credit) to MLPF&S
for credit to Customers WCMA Account. Notwithstanding anything in the WCMA
Agreement to the contrary, Customer hereby irrevocably authorizes and directs
MLPF&S to apply available free credit balances in the WCMA Account to the
repayment of the WCMA Loan Balance prior to application for any other

<PAGE> 9

purpose. Payments to MLBFS from funds in the WCMA Account shall be deemed to be
made by Customer upon the same basis and schedule as funds are made available
for investment in the Money Accounts in accordance with the terms of the WCMA
Agreement. The acceptance by or on behalf of MLBFS of a check or other payment
for a lesser amount than shall be due from Customer, regardless of any
endorsement or statement thereon or transmitted therewith, shall not be deemed
an accord and satisfaction or anything other than a payment on account, and
MLBFS or anyone acting on behalf of MLBFS may accept such check or other payment
without prejudice to the rights of MLBFS to recover the balance actually due or
to pursue any other remedy under this Loan Agreement or applicable law for such
balance. All checks accepted by or on behalf of MLBFS in connection with the
Loan and WCMA Line of Credit are subject to final collection.

(F) EXCEEDING THE MAXIMUM WCMA LINE OF CREDIT. In the event that the WCMA Loan
Balance shall at any time exceed the Maximum WCMA Line of Credit, Customer shall
within 1 Business Day of the first to occur of (i) any request or demand of
MLBFS, or (ii) receipt by Customer of a statement from MLPF&S showing a WCMA
Loan Balance in excess of the WCMA Line of Credit, deposit sufficient funds into
the WCMA Account to reduce the WCMA Loan Balance below the Maximum WCMA Line of
Credit.

(G) STATEMENTS. MLPF&S will include in each monthly statement it issues under
the WCMA Program information with respect to WCMA Loans and the WCMA Loan
Balance. Any questions that Customer may have with respect to such information
should be directed to MLBFS; and any questions with respect to any other matter
in such statements or about or affecting the WCMA Program should be directed to
MLPF&S.

ARTICLE IV. GENERAL PROVISIONS

4.1 REPRESENTATIONS AND WARRANTIES.

Customer represents and warrants to MLBFS that:

(A) ORGANIZATION AND EXISTENCE. Customer is a corporation, duly organized and
validly existing in good standing under the laws of the State of Florida and is
qualified to do business and in good standing in each other state where the
nature of its business or the property owned by it make such qualification
necessary.

(B) EXECUTION, DELIVERY AND PERFORMANCE. The execution, delivery and performance
by Customer of this Loan Agreement and such of the Additional Agreements to
which it is a party: (i) have been duly authorized by all requisite action, (ii)
do not and will not violate or conflict with any law or other governmental
requirement, or any of the agreements, instruments or documents which formed or
govern Customer, and (iii) do not and will not breach or violate any of the
provisions of, and will not result in a default by Customer under, any other
agreement, instrument or document to which it is a party or by which it or its
properties are bound.

<PAGE> 10

(C) NOTICES AND APPROVALS. Except as may have been given or obtained, no notice
to or consent or approval of any governmental body or authority or other third
party whatsoever (including, without limitation, any other creditor) is required
in connection with the execution, delivery or performance by Customer of such of
this Loan Agreement, the Term WCMA Note and the other Additional Agreements to
which it is a party.

(D) ENFORCEABILITY. This Loan Agreement, the Term WCMA Note and such of the
other Additional Agreements to which it is a party are the legal, valid and
binding obligations of Customer, enforceable against it in accordance with their
respective terms, except as enforceability may be limited by bankruptcy and
other similar laws affecting the rights of creditors generally or by general
principles of equity.

(E) COLLATERAL. Subject to Permitted Liens: (i) Customer has good and marketable
title to the Collateral, (ii) none of the Collateral is subject to any lien,
encumbrance or security interest, and (Iii) upon the filing of all Uniform
Commercial Code financing statements executed by Customer with respect to the
Collateral in the appropriate jurisdiction(s) and/or the completion of any other
action required by applicable law to perfect its liens and security interests,
MLBFS will have valid and perfected first liens and security interests upon all
of the Collateral.

(F) FINANCIAL STATEMENTS. Except as expressly set forth in Customers financial
statements, all financial statements of Customer furnished to MLBFS have been
prepared in conformity with generally accepted accounting principles,
consistently applied, are true and correct, and fairly present the financial
condition of it as at such dates and the results of its operations for the
periods then ended; and since the most recent date covered by such financial
statements, there has been no material adverse change in any such financial
condition or operation.

(G) LITIGATION. No litigation, arbitration, administrative or governmental
proceedings are pending or, to the knowledge of Customer, threatened against
Customer, which would, if adversely determined, materially and adversely affect
the liens and security interests of MLBFS hereunder or under any of the
Additional Agreements, the financial condition of Customer or the continued
operations of Customer.

(H) TAX RETURNS. All federal, state and local tax returns, reports and
statements required to be filed by Customer have been filed with the appropriate
governmental agencies and all taxes due and payable by Customer have been timely
paid (except to the extent that any such failure to file or pay will not
materially and adversely affect either the liens and security interests of MLBFS
hereunder or under any of the Additional Agreements, the financial condition of
Customer, or the continued operations of Customer).

(I) COLLATERAL LOCATION. All of the tangible Collateral is located at a
Location of Tangible Collateral.

<PAGE> 11

Each of the foregoing representations and warranties are continuing and shall be
deemed remade by Customer on the Closing Date, on each Subsequent Funding Date
and concurrently with each request for a WCMA Loan.

4.2 FINANCIAL AND OTHER INFORMATION.

Customer shall furnish or cause to be furnished to MLBFS during the term of this
Loan Agreement all of the following:

(A) ANNUAL FINANCIAL STATEMENTS. Within 120 days after the close of each fiscal
year of Customer, Customer shall furnish or cause to be furnished to MLBFS a
copy of the annual audited financial statements of Customer consisting of at
least a balance sheet as at the close of such fiscal year and related statements
of income, retained earnings and cash flows, certified by its current
independent certified public accountants or other independent certified public
accountants reasonably acceptable to MLBFS.

(B) INTERIM FINANCIAL STATEMENTS. Within 45 days after the close of each fiscal
quarter of Customer, Customer shall furnish or cause to be furnished to MLBFS:
(i) a statement of profit and loss for the fiscal quarter then ended, and (ii) a
balance sheet as at the close of such fiscal quarter; all in reasonable detail
and certified by its chief financial officer.

(C) AGING OF ACCOUNTS. Within 45 days after the close of each fiscal quarter of
Customer, Customer shall furnish or cause to be furnished to MLBFS an aging of
its Accounts and any Chattel Paper, certified by its chief financial officer.

(D) OTHER INFORMATION. Customer shall furnish or cause to be furnished to MLBFS
such other information as MLBFS may from time to time reasonably request
relating to Customer or the Collateral.

4.3 OTHER COVENANTS. Customer further covenants and agrees during the term of
this Loan Agreement that:

(A) FINANCIAL RECORDS; INSPECTION. Customer will: (i) maintain at its principal
place of business complete and accurate books and records, and maintain all of
its financial records in a manner consistent with the financial statements
heretofore furnished to MLBFS, or prepared on such other basis as may be
approved in writing by MLBFS; and (H) permit MLBFS or its duly authorized
representatives, upon reasonable notice and at reasonable times, to inspect its
properties (both real or personal), operations, books and records.

(B) TAXES. Customer will pay when due all taxes, assessments and other
governmental charges, howsoever designated, and all other liabilities and
obligations, except to the extent that any such failure to pay will not
materially and adversely affect either the liens and security interests of MLBFS
hereunder or under any of the Additional Agreements, the financial condition of
Customer or the continued operations of Customer.

<PAGE> 12

(C) COMPLIANCE WITH LAWS AND AGREEMENTS. Customer will not violate any law,
regulation or other governmental requirement, any judgment or order of any court
or governmental agency or authority, or any agreement, instrument or document to
which it is a party or by which it is bound, if any such violation will
materially and adversely affect either the liens and security interests of MLBFS
hereunder or under any of the Additional Agreements, or the financial condition
or the continued operations of Customer.

(D) USE OF LOAN PROCEEDS; SECURITIES TRANSACTIONS. The proceeds of the Loan
(including the initial WCMA Loan) shall be used by Customer solely for the Loan
Purpose, or, with the prior written consent of MLBFS, for other lawful business
purposes of Customer not prohibited hereby. The proceeds of each WCMA Loan other
than the initial WCMA Loan shall be used by Customer solely for working capital
in the ordinary course of Customer's business, or, with the prior written
consent of MLBFS, for other lawful business purposes of Customer not prohibited
hereby. CUSTOMER AGREES THAT UNDER NO CIRCUMSTANCES WILL THE LOAN OR FUNDS
BORROWED FROM MLBFS THROUGH THE WCMA LINE OF CREDIT BE USED: (I) FOR PERSONAL,
FAMILY OR HOUSEHOLD PURPOSES OF ANY PERSON WHATSOEVER, (II) TO PURCHASE, CARRY
OR TRADE IN SECURITIES, INCLUDING SHARES OF THE MONEY ACCOUNTS, OR (III) TO
REPAY DEBT INCURRED TO PURCHASE, CARRY OR TRADE IN SECURITIES; NOR WILL ANY SUCH
FUNDS BE REMITTED, DIRECTLY OR INDIRECTLY, TO MLPF&S OR ANY OTHER BROKER OR
DEALER IN SECURITIES, BY WCMA CHECK, CHECK, FTS, WIRE TRANSFER, OR OTHERWISE.

(E) CONTINUITY. Except upon the prior written consent of MLBFS, which consent
will not be unreasonably withheld: (i) Customer will not be a party to any
merger or consolidation with, or purchase or otherwise acquire all or
substantially all of the assets or stock of, or any material partnership or
joint venture interest in, any person or entity, or sell, transfer or lease all
or any substantial part of its assets if any such action causes a material
change in its control or principal business, or a material adverse change in its
financial condition or operations; (ii) Customer will preserve its existence and
good standing in the jurisdictions of establishment and operation, and will not
operate in any material business other than a business substantially the same as
its business as of the date of application by Customer for credit from MLBFS;
and (iii) Customer will not cause or permit any material change in its
controlling ownership, controlling senior management or, except upon not less
than 30 days prior written notice to MLBFS, its name or principal place of
business. Without limiting the foregoing, Xenon Research, Inc. shall remain the
largest shareholder of Customer.

(F) TANGIBLE NET WORTH. The "tangible net worth" of Customer, consisting of
Customers net worth as shown on Customers regular financial statements prepared
in a manner consistent with the terms hereof, but excluding an amount equal to:
(i) any assets which are ordinarily classified as "intangible" in accordance
with generally accepted accounting principles, and (ii) any amounts now or
hereafter directly or indirectly owing to Customer by officers, shareholders or
affiliates of Customer, shall at all times exceed $2,750,000.00.

<PAGE> 13

(G) MINIMUM WORKING CAPITAL. Customers net working capital (i.e. the excess of
its current assets over its current liabilities), as shown on Customer's regular
books and records, shall at all time exceed $1,500,000.00.

(H) GUARANTIES. Except upon the prior written consent of MLBFS, Customer shall
not cause or permit Simon Raab or Gregory Fraser to directly or indirectly
guaranty the obligations of Customer (other than obligations owing to MLBFS).

(I) LOANS TO AFFILIATED PERSONS AND ENTITIES. Except upon the prior written
consent of MLBFS, Customer shall not directly or indirectly lend any moneys to,
or guaranty the debt of, any affiliated person or entity.

4.4 COLLATERAL.

(A) PLEDGE OF COLLATERAL. To secure payment and performance of the Obligations,
Customer hereby pledges, assigns, transfers and sets over to MLBFS, and grants
to MLBFS first liens and security interests in and upon all of the Collateral,
subject only to Permitted Liens.

(B) LIENS. Except upon the prior written consent of MLBFS, Customer shall not
create or permit to exist any lien, encumbrance or security interest upon or
with respect to any Collateral now owned or hereafter acquired other than
Permitted Liens.

(C) PERFORMANCE OF OBLIGATIONS. Customer shall perform all of its obligations
owing on account of or with respect to the Collateral; it being understood that
nothing herein, and no action or inaction by MLBFS, under this Loan Agreement or
otherwise, shall be deemed an assumption by MLBFS of any of Customers said
obligations.

(D) SALES AND COLLECTIONS. So long as no Event of Default shall have occurred
and is continuing, Customer may in the ordinary course of its business: (1) sell
any Inventory normally held by Customer for sale, (ii) use or consume any
materials and supplies normally held by Customer for use or consumption, and
(iii) collect all of its Accounts. Customer shall take such action with respect
to protection of its Inventory and the other Collateral and the collection of
its Accounts as MLBFS may from time to time reasonably request.

(E) ACCOUNT SCHEDULES. Upon the request of MLBFS, made now or at any reasonable
time or times hereafter, Customer shall deliver to MLBFS, in addition to the
other information required hereunder, a schedule identifying, for each Account
and all Chattel Paper subject to MLBFS' security interests hereunder, each
Account Debtor by name and address and amount, invoice or contract number and
date of each invoice or contract. Customer shall furnish to MLBFS such
additional information with respect to the Collateral, and amounts received by
Customer as proceeds of any of the Collateral, as MLBFS may from time to time
reasonably request.

<PAGE> 14

(F) ALTERATIONS AND MAINTENANCE. Except upon the prior written consent of MLBFS,
Customer shall not make or permit any material alterations to any tangible
Collateral which might materially reduce or impair its market value or utility.
Customer shall at all times keep the tangible Collateral in good condition and
repair and shall pay or cause to be paid all obligations arising from the repair
and maintenance of such Collateral, as well as all obligations with respect to
each Location of Tangible Collateral, except for any such obligations being
contested by Customer in good faith by appropriate proceedings.

(G) LOCATION. Except for movements required in the ordinary course of Customers
business, Customer shall give MLBFS 30 days' prior written notice of the placing
at or movement of any tangible Collateral to any location other than a Location
of Tangible Collateral. In no event shall Customer cause or permit any material
tangible Collateral to be removed from the United States without the express
prior written consent of MLBFS.

(H) INSURANCE. Customer shall insure all of the tangible Collateral under a
policy or policies of physical damage insurance providing that losses will be
payable to MLBFS as its interests may appear pursuant to a Lender's Loss Payable
Endorsement and containing such other provisions as may be reasonably required
by MLBFS. Customer shall further provide and maintain a policy or policies of
comprehensive public liability insurance naming MLBFS as an additional party
insured. Customer shall maintain such other insurance as may be required by law
or is customarily maintained by companies in a similar business or otherwise
reasonably required by MLBFS. All such insurance shall provide that MLBFS will
receive not less than 10 days prior written notice of any cancellation, and
shall otherwise be in form and amount and with an insurer or insurers reasonably
acceptable to MLBFS. Customer shall furnish MLBFS with a copy or certificate of
each such policy or policies and, prior to any expiration or cancellation, each
renewal or replacement thereof.

(I) EVENT OF LOSS. Customer shall at its expense promptly repair all repairable
damage to any tangible Collateral. In the event that any tangible Collateral is
damaged beyond repair, lost, totally destroyed or confiscated (an "Event of
Loss") and such Collateral had a value prior to such Event of Loss of $25,000.00
or more, then, on or before the first to occur of (i) 90 days after the
occurrence of such Event of Loss, or (H) 10 Business Days after the date on
which either Customer or MLBFS shall receive any proceeds of insurance on
account of such Event of Loss, or any underwriter of insurance on such
Collateral shall advise either Customer or MLBFS that it disclaims liability in
respect of such Event of Loss, Customer shall, at Customer's option, either
replace the Collateral subject to such Event of Loss with comparable Collateral
free of all liens other than Permitted Liens (in which event Customer shall be
entitled to utilize the proceeds of insurance on account of such Event of Loss
for such purpose, and may retain any excess proceeds of such insurance), or
prepay the Loan by an amount equal to the actual cash value of such Collateral
as determined by either the insurance company's payment (plus any applicable
deductible) or, in absence of insurance company payment, as reasonably
determined by MLBFS. Notwithstanding the foregoing, if at the time of occurrence
of such Event of Loss or any time thereafter prior to replacement or prepayment,
as aforesaid, an Event of Default shall occur hereunder, then MLBFS may at its
sole option, exercisable at any time

<PAGE> 15

while such Event of Default shall be continuing, require Customer to either
replace such Collateral or prepay the Loan, as aforesaid. Any prepayment of the
Loan pursuant to this Section shall be applied first to installments on account
of the then "Term Note Balance" (as defined in the Term WCMA Note) in inverse
order of maturity; with any prepayment in excess of the then Term Note Balance
applied on account of the WCMA Note concurrently with: (i) a like permanent
reduction in the WCMA Line of Credit, and (H) a like reduction in the obligation
of MLBFS to fund future installments on account of the Term Note in inverse
order of funding. No amount prepaid pursuant to this Section may be re-borrowed
by Customer.

(J) NOTICE OF CERTAIN EVENTS. Customer shall give MLBFS immediate notice of any
attachment, lien, judicial process, encumbrance or claim affecting or involving
$25,000.00 or more of the Collateral.

(K) INDEMNIFICATION. Customer shall indemnify, defend and save MLBFS harmless
from and against any and all claims, liabilities, losses, costs and expenses
(including, without limitation, reasonable attorneys' fees and expenses) of any
nature whatsoever which may be asserted against or incurred by MLBFS arising out
of or in any manner occasioned by (i) the ownership, collection, possession, use
or operation of any Collateral, or (H) any failure by Customer to perform any of
its obligations hereunder; excluding, however, from said indemnity any such
claims, liabilities, etc. arising directly out of the willful wrongful act or
active gross negligence of MLBFS. This indemnity shall survive the expiration or
termination of this Loan Agreement as to all matters arising or accruing prior
to such expiration or termination.

4.5 EVENTS OF DEFAULT.

The occurrence of any of the following events shall constitute an "Event of
Default" under this Loan Agreement:

(A) FAILURE TO PAY. Customer shall fail to pay to MLBFS or deposit into the WCMA
Account when due any amount owing or required to be deposited by Customer under
this Loan Agreement or the Term WCMA Note, or shall fail to pay when due any
other Obligations, and any such failure shall continue for more than 5 Business
Days after written notice thereof shall have been given by MLBFS to Customer.

(B) FAILURE TO PERFORM. Customer shall default in the performance or observance
of any covenant or agreement on its part to be performed or observed under this
Loan Agreement, the Term WCMA Note or any of the other Additional Agreements
(not constituting an Event of Default under any other clause of this Section),
and such default shall continue unremedied for 10 Business Days after written
notice thereof shall have been given by MLBFS to Customer.

(C) BREACH OF WARRANTY. Any representation or warranty made by Customer
contained in this Loan Agreement, the Term WCMA Note or any of the other
Additional Agreements shall at any time prove to have been incorrect in any
material respect when made.

<PAGE> 16

(D) DEFAULT UNDER OTHER AGREEMENT. A default or Event of Default by Customer
shall occur under the terms of any other agreement, instrument or document with
or intended for the benefit of MLBFS, MLPF&S or any of their affiliates, and any
required notice shall have been given and required passage of time shall have
elapsed.

(E) BANKRUPTCY, ETC. A proceeding under any bankruptcy, reorganization,
arrangement, insolvency, readjustment of debt or receivership law or statute
shall be filed by Customer, or any such proceeding shall be filed against
Customer and shall not be dismissed or withdrawn within 60 days after filing, or
Customer shall make an assignment for the benefit of creditors, or Customer
shall become insolvent or generally fail to pay, or admit in writing its
inability to pay, its debts as they become due.

(F) MATERIAL IMPAIRMENT. Any event shall occur which shall reasonably cause
MLBFS to in good faith believe that the prospect of payment or performance by
Customer has been materially impaired.

(G) ACCELERATION OF DEBT TO OTHER CREDITORS. Any event shall occur which results
in the acceleration of the maturity of any indebtedness of $100,000.00 or more
of Customer to another creditor under any indenture, agreement, undertaking, or
otherwise.

(H) SEIZURE OR ABUSE OF COLLATERAL. The Collateral, or any material part
thereof, shall be or become subject to any material abuse or misuse, or any
levy, attachment, seizure or confiscation which is not released within 10
Business Days.

4.6 REMEDIES.

(A) REMEDIES UPON DEFAULT. Upon the occurrence and during the continuance of
any Event of Default, MLBFS may at its sole option do any one or more or all of
the following, at such time and in such order as MLBFS may in its sole
discretion choose:

(I) TERMINATION. MLBFS may without notice terminate its obligation to make the
Loan (if the Loan has not then been funded), or fund any further amount on
account of the Term WCMA Note, or make or continue to make the WCMA Line of
Credit available to Customer, or otherwise extend any credit to or for the
benefit of Customer; and upon any such termination MLBFS shall be relieved of
all such obligations.

(II) ACCELERATION. MLBFS may declare the principal of and interest on the Term
Note and WCMA Note included in the Term WCMA Note, and all other Obligations to
be forthwith due and payable, whereupon all such amounts shall be immediately
due and payable, without presentment, demand for payment, protest and notice of
protest, notice of dishonor, notice of acceleration, notice of intent to
accelerate or other notice or formality of any kind, all of which are hereby
expressly waived.

<PAGE> 17

(III) EXERCISE RIGHTS OF SECURED PARTY. MLBFS may exercise any or all of the
remedies of a secured party under applicable law, including, but not limited to,
the UCC, and any or all of its other rights and remedies under this Loan
Agreement and the Additional Agreements.

(IV) POSSESSION. MLBFS may require Customer to make the Collateral and the
records pertaining to the Collateral available to MLBFS at a place designated by
MLBFS which is reasonably convenient, or may take possession of the Collateral
and the records pertaining to the Collateral without the use of any judicial
process and without any prior notice to Customer.

(V) SALE. MLBFS may sell any or all of the Collateral at public or private
sale upon such terms and conditions as MLBFS may reasonably deem proper. MLBFS
may purchase any Collateral at any such public sale. The net proceeds of any
such public or private sale and all other amounts actually collected or received
by MLBFS pursuant hereto, after deducting all costs and expenses incurred at any
time in the collection of the Obligations and in the protection, collection and
sale of the Collateral, will be applied to the payment of the Obligations, with
any remaining proceeds paid to Customer or whoever else may be entitled thereto,
and with Customer remaining liable for any amount remaining unpaid after such
application.

(VI) DELIVERY OF CASH, CHECKS, ETC. MLBFS may require Customer to forthwith
upon receipt, transmit and deliver to MLBFS in the form received, all cash,
checks, drafts and other instruments for the payment of money (property
endorsed, where required, so that such items may be collected by MLBFS) which
may be received by Customer at any time in full or partial payment of any
Collateral, and require that Customer not commingle any such items which may be
so received by Customer with any other of its funds or property but instead hold
them separate and apart and in trust for MLBFS until delivery is made to MLBFS.

(VII) NOTIFICATION OF ACCOUNT DEBTORS. MLBFS may notify any Account Debtor that
its Account or Chattel Paper has been assigned to MLBFS and direct such Account
Debtor to make payment directly to MLBFS of all amounts due or becoming due with
respect to such Account or Chattel Paper; and MLBFS may enforce payment and
collect, by legal proceedings or otherwise, such Account or Chattel Paper.

(VIII) CONTROL OF COLLATERAL. MLBFS may otherwise take control in any lawful
manner of any cash or noncash items of payment or proceeds of Collateral and of
any rejected, returned, stopped in transit or repossessed goods included in the
Collateral and endorse Customers name on any item of payment on or proceeds of
the Collateral.

(B) SET-OFF. MLBFS shall have the further right upon the occurrence and
during the continuance of an Event of Default to set-off, appropriate and apply
toward payment of any of the Obligations, in such order of application as MLBFS
may from time to time and at any time elect, any cash, credit, deposits,
accounts, securities and any other property of Customer which is in transit to
or in the possession, custody or control of MLBFS, MLPF&S or any agent, bailee,
or affiliate of MLBFS or MLPF&S, including, without limitation, the WCMA Account
and any Money Accounts, and all cash and securities therein or controlled
thereby, and all

<PAGE> 18

proceeds thereof. Customer hereby collaterally assigns and grants to MLBFS a
security interest in all such property as additional Collateral.

(C) REMEDIES ARE SEVERABLE AND CUMULATIVE. All rights and remedies of MLBFS
herein are severable and cumulative and in addition to all other rights and
remedies available in the Term WCMA Note, the other Additional Agreements, at
law or in equity, and any one or more of such rights and remedies may be
exercised simultaneously or successively.

(D) NOTICES. To the fullest extent permitted by applicable law, Customer
hereby irrevocably waives and releases MLBFS of and from any and all liabilities
and penalties for failure of MLBFS to comply with any statutory or other
requirement imposed upon MLBFS relating to notices of sale, holding of sale or
reporting of any sale, and Customer waives all rights of redemption or
reinstatement from any such sale. Any notices required under applicable law
shall be reasonably and properly given to Customer if given by any of the
methods provided herein at least 5 Business Days prior to taking action. MLBFS
shall have the right to postpone or adjourn any sale or other disposition of
Collateral at any time without giving notice of any such postponed or adjourned
date. In the event MLBFS seeks to take possession of any or all of the
Collateral by court process, Customer further irrevocably waives to the fullest
extent permitted by law any bonds and any surety or security relating thereto
required by any statute, court rule or otherwise as an incident to such
possession, and any demand for possession prior to the commencement of any suit
or action.

(E) NO ARBITRATION. Without affecting the rights of MLPF&S under the WCMA
Agreement, it is understood that neither MLBFS nor Customer shall have the right
to non-judicial arbitration of any dispute hereunder without the written consent
of the other party.

4.7 MISCELLANEOUS.

(A) NON-WAIVER. No failure or delay on the part of MLBFS in exercising any
right, power or remedy pursuant to this Loan Agreement, the Term WCMA Note or
any of the other Additional Agreements shall operate as a waiver thereof, and no
single or partial exercise of any such right, power or remedy shall preclude any
other or further exercise thereof, or the exercise of any other right, power or
remedy. Neither any waiver of any provision of this Loan Agreement, the Term
WCMA Note or any of the other Additional Agreements, nor any consent to any
departure by Customer therefrom, shall be effective unless the same shall be in
writing and signed by MLBFS. Any waiver of any provision of this Loan Agreement,
the Term WCMA Note or any of the other Additional Agreements and any consent to
any departure by Customer from the terms thereof shall be effective only in the
specific instance and for the specific purpose for which given. Except as
otherwise expressly provided herein, no notice to or demand on Customer shall in
any case entitle Customer to any other or further notice or demand in similar or
other circumstances.

(B) DISCLOSURE. Customer hereby irrevocably authorize MLBFS and each of its
affiliates, including without limitation MLPF&S, to at any time (whether or not
an Event of Default shall

<PAGE> 19

have occurred) obtain from and disclose to each other any and all financial and
other information about Customer.

(C) COMMUNICATIONS. All notices and other communications required or
permitted hereunder or in connection with any of the Additional Agreements shall
be in writing, and shall be either delivered personally, mailed by postage
prepaid certified mail or sent by express overnight courier or by facsimile.
Such notices and communications shall be deemed to be given on the date of
personal delivery, facsimile transmission or actual delivery of certified mail,
or one Business Day after delivery to an express overnight courier. Unless
otherwise specified in a notice sent or delivered in accordance with the terms
hereof, notices and other communications in writing shall be given to the
parties hereto at their respective addresses set forth at the beginning of this
Loan Agreement, or, in the case of facsimile transmission, to the parties at
their respective regular facsimile telephone number.

(D) COSTS, EXPENSES AND TAXES. Customer shall upon demand pay or reimburse
MLBFS for: Q) all Uniform Commercial Code and other filing and search fees and
expenses incurred by MLBFS in connection with the verification, perfection or
preservation of MLBFS' rights hereunder or in the Collateral or any other
collateral for the Obligations; (ii) any and all stamp, transfer and other taxes
and fees payable or determined to be payable in connection with the execution,
delivery and/or recording of this Loan Agreement or any of the Additional
Agreements; and (iii) all reasonable fees and out-of-pocket expenses (including,
but not limited to, reasonable fees and expenses of outside counsel) incurred by
MLBFS in connection with the enforcement of this Loan Agreement or any of the
Additional Agreements and the protection of MLBFS' rights hereunder or
thereunder, excluding, however, salaries and expenses of MLBFS' employees. The
obligations of Customer under this paragraph shall survive the expiration or
termination of this Loan Agreement and the discharge of the other Obligations.

(E) RIGHT TO PERFORM OBLIGATIONS. If Customer shall fail to do any act or
thing which it has covenanted to do under this Loan Agreement or any
representation or warranty on the part of Customer contained in this Loan
Agreement shall be breached, MLBFS may, in its sole discretion, after 5 Business
Days written notice is sent to Customer (or such lesser notice, including no
notice, as is reasonable under the circumstances), do the same or cause it to be
done or remedy any such breach, and may expend its funds for such purpose. Any
and all reasonable amounts so expended by MLBFS shall be repayable to MLBFS by
Customer upon demand, with interest at the Interest Rate during the period from
and including the date funds are so expended by MLBFS to the date of repayment,
and all such amounts shall be additional Obligations. The payment or performance
by MLBFS of any of Customer's obligations hereunder shall not relieve Customer
of said obligations or of the consequences of having failed to pay or perform
the same, and shall not waive or be deemed a cure of any Event of Default.

(F) LATE CHARGE. Any payment required to be made by Customer pursuant to
this Loan Agreement or any of the Additional Agreements not paid within 10 days
of the applicable due date shall be subject to a late charge in an amount equal
to the lesser of: (i) 5% of the overdue amount, or (ii) the maximum amount
permitted by applicable law. Such late charge shall be

<PAGE> 20

payable on demand, or, without demand, may in the sole discretion of MLBFS be
paid by a WCMA Loan and added to the WCMA Loan Balance in the same manner as
provided herein for accrued interest with respect to the WCMA Line of Credit.

(G) FURTHER ASSURANCES. Customer agrees to do such further acts and things
and to execute and deliver to MLBFS such additional agreements, instruments and
documents as MLBFS may reasonably require or deem advisable to effectuate the
purposes of this Loan Agreement, the Term WCMA Note or any the other Additional
Agreements, or to establish, perfect and maintain MLBFS' security interests and
liens upon the Collateral, including, but not limited to: (i) executing
financing statements or amendments thereto when and as reasonably requested by
MLBFS; and (II) if in the reasonable judgment of MLBFS it is required by local
law, causing the owners and/or mortgagees of the real property on which any
Collateral may be located to execute and deliver to MLBFS waivers or
subordinations reasonably satisfactory to MLBFS with respect to any rights in
such Collateral.

(H) BINDING EFFECT. This Loan Agreement, the Term WCMA Note and the other
Additional Agreements shall be binding upon, and shall inure to the benefit of
MLBFS, Customer and their respective successors and assigns. Customer shall not
assign any of its rights or delegate any of its obligations under this Loan
Agreement, the Term WCMA Note or any of the other Additional Agreements without
the prior written consent of MLBFS. Unless otherwise expressly agreed to in a
writing signed by MLBFS, no such consent shall in any event relieve Customer of
any of its obligations under this Loan Agreement, the Term WCMA Note or any of
the other Additional Agreements.

(I) HEADINGS. Captions and section and paragraph headings in this Loan
Agreement are inserted only as a matter of convenience, and shall not affect the
interpretation hereof.

(J) GOVERNING LAW. This Loan Agreement, the Term WCMA Note and, unless
otherwise expressly provided therein, each of the other Additional Agreements,
shall be governed in all respects by the laws of the State of Illinois.

(K) SEVERABILITY OF PROVISIONS. Whenever possible, each provision of this
Loan Agreement, the Term WCMA Note and the other Additional Agreements shall be
interpreted in such manner as to be effective and valid under applicable law.
Any provision of this Loan Agreement, the Term WCMA Note or any of the other
Additional Agreements which is prohibited or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective only to the extent of such
prohibition or unenforceability without invalidating the remaining provisions of
this Loan Agreement, the Term WCMA Note and the other Additional Agreements or
affecting the validity or enforceability of such provision in any other
jurisdiction.

(L) TERM. This Loan Agreement shall become effective on the date accepted by
MLBFS at its offices in Chicago, Illinois, and, subject to the terms hereof,
shall continue in effect so long thereafter as either MLBFS shall be obligated
to make the Loan, or, after the Closing Date, there shall be any moneys
outstanding under the Term Note or WCMA Note included in the

20
<PAGE> 21

Term WCMA Note or under this Loan Agreement, or there shall be any other
Obligations outstanding.

(M) INTEGRATION. THIS LOAN AGREEMENT, TOGETHER WITH THE TERM WCMA NOTE AND
THE OTHER ADDITIONAL AGREEMENTS, CONSTITUTES THE ENTIRE UNDERSTANDING AND
REPRESENTS THE FULL AND FINAL AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE
SUBJECT MATTER HEREOF, AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR WRITTEN
AGREEMENTS OR PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS OF THE PARTIES. WITHOUT LIMITING
THE FOREGOING, CUSTOMER ACKNOWLEDGES THAT: (I) NO PROMISE OR COMMITMENT HAS BEEN
MADE TO IT BY MLBFS, MLPF&S OR ANY OF THEIR RESPECTIVE EMPLOYEES, AGENTS OR
REPRESENTATIVES TO MAKE THE LOAN ON ANY TERMS OTHER THAN AS EXPRESSLY SET FORTH
HEREIN AND IN THE TERM WCMA NOTE, OR TO MAKE ANY OTHER LOAN OR OTHERWISE EXTEND
ANY OTHER CREDIT TO CUSTOMER OR ANY OTHER PARTY; AND (II) EXCEPT AS OTHERWISE
EXPRESSLY PROVIDED HEREIN, THIS LOAN AGREEMENT SUPERSEDES AND REPLACES ANY AND
ALL PROPOSALS, LETTERS OF INTENT AND APPROVAL AND COMMITMENT LETTERS FROM MLBFS
TO CUSTOMER, NONE OF WHICH SHALL BE CONSIDERED AN ADDITIONAL AGREEMENT. NO
AMENDMENT OR MODIFICATION OF THIS AGREEMENT OR ANY OF THE ADDITIONAL AGREEMENTS
TO WHICH CUSTOMER IS A PARTY SHALL BE EFFECTIVE UNLESS IN A WRITING SIGNED BY
BOTH MLBFS AND CUSTOMER.

(N) JURISDICTION; WAIVER. CUSTOMER ACKNOWLEDGES THAT THIS LOAN AGREEMENT IS
BEING ACCEPTED BY MLBFS IN PARTIAL CONSIDERATION OF MLBFS' RIGHT AND OPTION, IN
ITS SOLE DISCRETION, TO ENFORCE THIS LOAN AGREEMENT, THE TERM WCMA NOTE AND THE
OTHER ADDITIONAL AGREEMENTS IN EITHER THE STATE OF ILLINOIS OR IN ANY OTHER
JURISDICTION WHERE CUSTOMER OR ANY COLLATERAL FOR THE OBLIGATIONS MAY BE
LOCATED. CUSTOMER CONSENTS TO JURISDICTION IN THE STATE OF ILLINOIS AND VENUE IN
ANY STATE OR FEDERAL COURT IN THE COUNTY OF COOK FOR SUCH PURPOSES, AND CUSTOMER
WAIVES ANY AND ALL RIGHTS TO CONTEST SAID JURISDICTION AND VENUE. CUSTOMER
FURTHER WAIVES ANY RIGHTS TO COMMENCE ANY ACTION AGAINST MLBFS IN ANY
JURISDICTION EXCEPT IN THE COUNTY OF COOK AND STATE OF ILLINOIS. MLBFS AND
CUSTOMER HEREBY EACH EXPRESSLY WAIVE ANY AND ALL RIGHTS TO A TRIAL BY JURY IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES AGAINST
THE OTHER PARTY WITH RESPECT TO ANY MATTER RELATING TO, ARISING OUT OF OR IN ANY
WAY CONNECTED WITH THE LOAN, THIS LOAN AGREEMENT, THE TERM WCMA NOTE, ANY OTHER
ADDITIONAL AGREEMENTS AND/OR ANY OF THE TRANSACTIONS WHICH ARE THE SUBJECT
MATTER OF THIS LOAN AGREEMENT.

<PAGE> 22

IN WITNESS WHEREOF, this Loan Agreement has been executed as of the day and year
first above written.

FARO TECHNOLOGIES, INC.

By: /s/ SIMON RAAB
--------------------------------------------------------------------------
Signature (1) Signature (2)

Simon Raab
--------------------------------------------------------------------------
Printed Name Printed Name

President
--------------------------------------------------------------------------
Title Title

STATE OF Arizona
------------
COUNTY OF Pima
------------
On the 3rd day of October, 1996, before me personally came Simon Raab known to
me to be the individual who executed the foregoing instrument, and who, being
sworn by me, did depose and say that the individual is an officer of the
Customer herein, and that the individual executed the foregoing instrument for
the Customer herein, and that the individual had the authority to sign the same,
and acknowledged that the individual executed the same as the act and deed of
said Customer.

Cynthia L. Santa Maria
--------------------------------------
Notary Public

(NOTARIAL SEAL)

Accepted at Chicago, Illinois:
MERRILL LYNCH BUSINESS FINANCIAL
SERVICES, INC.

By:
----------------------------------

<PAGE> 1
EXHIBIT 10.6

WCMA(R) NOTE, LOAN AND SECURITY AGREEMENT

WCMA NOTE, LOAN AND SECURITY AGREEMENT ("Loan Agreement") dated as of April 23,
1997, between FARO TECHNOLOGIES, INC., a corporation organized and existing
under the laws of the State of Florida having its principal office at 125
Technology Park, Lake Mary, FL 32746 ("Customer"), and MERRILL LYNCH BUSINESS
FINANCIAL SERVICES INC., a corporation organized and existing under the laws of
the State of Delaware having its principal office at 33 West Monroe Street,
Chicago, IL 60603 ("MLBFS").

In accordance with that certain WORKING CAPITAL MANAGEMENTS(R) ACCOUNT AGREEMENT
NO. 74007K27 ("WCMA Agreement") between Customer and MLBFS' affiliate, MERRILL
LYNCH, PIERCE, FENNER & SMITH INCORPORATED ("MLPF&S"), Customer has subscribed
to the WCMA Program described in the WCMA Agreement. The WCMA Agreement is by
this reference incorporated as a part hereof. In conjunction therewith and as
part of the WCMA Program, Customer has requested that MLBFS
provide, and subject to the terms and conditions herein set forth MLBFS has
agreed to provide, a commercial line of credit for Customer (the "WCMA Line of
Credit").

Accordingly, and in consideration of the premises and of the mutual covenants of
the parties hereto, Customer and MLBFS hereby agree as follows:

1. DEFINITIONS

(a) SPECIFIC TERMS. In addition to terms defined elsewhere in this Loan
Agreement, when used herein the following terms shall have the following
meanings:

(i) "Account Debtor" shall mean any party who is or may become obligated with
respect to an Account or Chattel Paper.

(ii) "Activation Date" shall mean the date upon which MLBFS shall cause the
WCMA Line of Credit to be fully activated under MLPF&S' computer system as part
OF the WCMA Program.

(iii) "Additional Agreements" shall mean all agreements, instruments, documents
and opinions other than this Loan Agreement, whether with or from Customer or
any other party, which are contemplated hereby or otherwise reasonably required
by MLBFS in connection herewith, or which evidence the creation, guaranty or
collateralization of any of the Obligations or the granting or perfection of
liens or security interests upon the Collateral or any other collateral for the
Obligations.

(iv) "Bankruptcy Event" shall mean any of the following: (A) a proceeding
under any bankruptcy, reorganization, arrangement, insolvency, readjustment of
debt or receiver-ship law or statute shall be filed or consented to by Customer;
or (B) any such proceeding shall be filed against Customer and shall not be
dismissed or withdrawn within sixty (60) days after filing; or (C) Customer
shall make a general assignment for the benefit of creditors; or (D) Customer
shall

<PAGE> 2

become insolvent or generally fail to pay or admit in writing its inability to
pay its debts as they become due; or (E) Customer shall be adjudicated a
bankrupt or insolvent.

(v) "Business Day" shall mean any day other than a Saturday, Sunday, federal
holiday or other day on which the New York Stock Exchange is regularly closed.

(vi) "Collateral" shall mean all Accounts, Chattel Paper, Contract Rights,
Inventory, Equipment, Fixtures, General Intangibles, Deposit Accounts, Documents
and Instruments of Customer, howsoever arising, whether now owned or existing or
hereafter acquired or arising, and wherever located; together with all parts
thereof (including spare parts), all accessories and accessions thereto, all
books and records (including computer records) directly related thereto, all
proceeds thereof (including, without limitation, proceeds in the form of
Accounts and insurance proceeds), and the additional collateral described in
Section 9 (b) hereof.

(vii) "Commitment Expiration Date" shall mean May 23, 1997.

(viii) "General Funding Conditions" shall mean each of the following conditions
to any WCMA Loan by MLBFS hereunder: (A) no Event of Default, or event which
with the giving of notice, passage of time, or both, would constitute an Event
of Default, shall have occurred and be continuing or would result from the
making of any WCMA Loan hereunder by MLBFS; (B) there shall not have occurred
and be continuing any material adverse change in the business or financial
condition of Customer; (C) all representations and warranties of Customer herein
or in any Additional Agreements shall then be true and correct in all material
respects; (D) MLBFS shall have received this Loan Agreement and all of the
Additional Agreements, duly executed and filed or recorded where applicable, all
of which shall be in form and substance reasonably satisfactory to MLBFS; (E)
MLBFS shall have received evidence reasonably satisfactory to it as to the
ownership of the Collateral and the perfection and priority of MLBFS' liens and
security interests thereon, as well as the ownership of and the perfection and
priority of MLBFS' liens and security interests on any other collateral for the
Obligations furnished pursuant to any of the Additional Agreements; (F) MLBFS
shall have received evidence reasonably satisfactory to it of the insurance
required hereby or by any of the Additional Agreements; and (G) any additional
conditions specified in the "WCMA Line of Credit Approval" letter executed by
MLBFS with respect to the transactions contemplated hereby shall have been met
to the reasonable satisfaction of MLBFS.

(ix) "Interest Rate" shall mean a variable per annum rate of interest equal to
the sum of 2.65% and the 30-Day Commercial Paper Rate. The "30-Day Commercial
Paper Rate" shall mean, as of the date of any determination, the interest rate
from time to time published in the "Money Rates" section of The Wall Street
Journal for 30-day high-grade unsecured notes sold through dealers by major
corporations. The Interest Rate will change as of the date of publication in The
Wall Street Journal of a 30-Day Commercial Paper Rate that is different from
that published on the preceding Business Day. In the event that The Wall Street
Journal shall, for any reason, fail or cease to publish the 30-Day Commercial
Paper Rate, MLBFS will choose a reasonably comparable index or source to use as
the basis for the Interest Rate.

<PAGE> 3

(x) "Line Fee" shall mean a fee of $10,000.00 payable to MLBFS in connection
with the WCMA Line of Credit for the period from the Activation Date to the
Maturity Date.

(xi) "Location of Tangible Collateral" shall mean the address of Customer set
forth at the beginning of this Loan Agreement, together with any other address
or addresses set forth on an exhibit hereto as being a Location of Tangible
Collateral.

(xii) "Maturity Date" shall mean March 31, 1998, or such later date as may be
consented to in writing by MLBFS.

(xiii) "Maximum WCMA Line of Credit" shall mean $1,000,000.00.

(xiv) "Obligations" shall mean all liabilities, indebtedness and other
obligations of Customer to MLBFS, howsoever created, arising or evidenced,
whether now existing or hereafter arising, whether direct or indirect, absolute
or contingent, due or to become due, primary or secondary or joint or several,
and, without limiting the foregoing, shall include interest accruing after the
filing of any petition in bankruptcy, and all present and future liabilities,
indebtedness and obligations of Customer under this Loan Agreement and under
that certain Term WCMA Loan and Security Agreement No. 9609660201.

(xv) "Permitted Liens" shall mean shall mean with respect to the Collateral:
(A) liens for current taxes not delinquent, other non-consensual liens arising
in the ordinary course of business for sums not due, and, if MLBFS' rights to
and interest in the Collateral are not materially and adversely affected
thereby, any such liens for taxes or other non-consensual liens arising in the
ordinary course of business being contested in good faith by appropriate
proceedings; (B) liens in favor of MLBFS; (C) liens which will be discharged
with the proceeds of the initial WCMA Loan; (D) existing liens upon Equipment
and Fixtures; and (E) any other liens expressly permitted in writing by MLBFS.

(xvi) "WCMA Account" shall mean and refer to the Working Capital Management
Account of Customer with MLPF&S identified as Account No. 740-07K27.

(xvii) "WCMA Loan" shall mean each advance made by MLBFS pursuant to this Loan
Agreement.

(b) OTHER TERMS. Except as otherwise defined herein: (i) all terms used in
this Loan Agreement which are defined in the Uniform Commercial Code of Illinois
("UCC") shall have the meanings set forth in the UCC, and (ii) capitalized terms
used herein which are defined in the WCMA Agreement shall have the meanings set
forth in the WCMA Agreement.

2. WCMA PROMISSORY NOTE

FOR VALUE RECEIVED, Customer hereby promises to pay to the order of MLBFS, at
the times and in the manner set forth in this Loan Agreement, or in such other
manner and at such

<PAGE> 4

place as MLBFS may hereafter designate in writing, the following: (a) on the
Maturity Date, the aggregate unpaid principal amount of all WCMA Loans (the
"WCMA Loan Balance"); (b) interest at the Interest Rate on the outstanding WCMA
Loan Balance, from and including the date on which the initial WCMA Loan is made
until the date of payment of all WCMA Loans in full; and (c) on demand, all
other sums payable pursuant to this Loan Agreement, including, but not limited
to, the Line Fee and any late charges. Except as otherwise expressly set forth
herein, Customer hereby waives presentment, demand for payment, protest and
notice of protest, notice of dishonor, notice of acceleration, notice of intent
to accelerate and all other notices and formalities in connection with this WCMA
Promissory Note and this Loan Agreement.

3. WCMA LOANS

(a) ACTIVATION DATE. Provided that: (i) the Commitment Expiration Date shall
not then have occurred, and (ii) Customer shall have subscribed to the WCMA
Program and its subscription to the WCMA Program shall then be in effect, the
Activation Date shall occur on or promptly after the date, following the
acceptance of this Loan Agreement by MLBFS at its office in Chicago, Illinois,
upon which each of the General Funding Conditions shall have been met or
satisfied to the reasonable satisfaction of MLBFS. No activation by MLBFS of the
WCMA Line of Credit for a nominal amount shall be deemed evidence of the
satisfaction of any of the conditions herein set forth, or a waiver of any of
the terms or conditions hereof. Customer hereby authorizes MLBFS to pay out of
and charge to Customer's WCMA Account on the Activation Date any and all amounts
necessary to fully pay off any bank or other financial institution having a lien
upon any of the Collateral other than a Permitted Lien.

(b) WCMA LOANS. Subject to the terms and conditions hereof, during the period
from and after the Activation Date to the Maturity Date: (i) MLBFS will make
WCMA Loans to Customer in such amounts as Customer may from time to time request
in accordance with the terms hereof, up to an aggregate outstanding amount not
to exceed the Maximum WCMA Line of Credit, and (ii) Customer may repay any WCMA
Loans in whole or in part at any time without premium or penalty, and request a
re-borrowing of amounts repaid on a revolving basis. Customer may request WCMA
Loans by use of WCMA Checks, FTS, Visa(R) charges, wire transfers, or such other
means of access to the WCMA Line of Credit as may be permitted by MLBFS from
time to time; it being understood that so long as the WCMA Line of Credit shall
be in effect, any charge or debit to the WCMA Account which but for the WCMA
Line of Credit would under the terms of the WCMA Agreement result in an
overdraft, shall be deemed a request by Customer for a WCMA Loan.

(c) CONDITIONS OF WCMA LOANS. Notwithstanding the foregoing, MLBFS shall not
be obligated to make any WCMA Loan, and may without notice refuse to honor any
such request by Customer, if at the time of receipt by MLBFS of Customer's
request: (i) the making of such WCMA Loan would cause the Maximum WCMA Line of
Credit to be exceeded; or (ii) the Maturity Date shall have occurred, or the
WCMA Line of Credit shall have otherwise been terminated in accordance with the
terms hereof; or (iii) Customer's subscription to the WCMA Program shall have
been terminated; or (iv) an event shall have occurred and is continuing

<PAGE> 5

which shall have caused any of the General Funding Conditions to not then be met
or satisfied to the reasonable satisfaction of MLBFS. The making by MLBFS of any
WCMA Loan at a time when any one or more of said conditions shall not have been
met shall not in any event be construed as a waiver of said condition or
conditions or of any Event of Default, and shall not prevent MLBFS at any time
thereafter while any condition shall not have been met from refusing to honor
any request by Customer for a WCMA Loan.

(d) FORCE MAJEURE. MLBFS shall not be responsible, and shall have no
liability to Customer or any other party, for any delay or failure of MLBFS to
honor any request of Customer for a WCMA Loan or any other act or omission of
MLBFS, MLPF&S or any of their affiliates due to or resulting from any system
failure, error or delay in posting or other clerical error, loss of power, fire,
Act of God or other cause beyond the reasonable control of MLBFS, MLPF&S or any
of their affiliates unless directly arising out of the willful wrongful act or
active gross negligence of MLBFS. In no event shall MLBFS be liable to Customer
or any other party for any incidental or consequential damages arising from any
act or omission by MLBFS, MLPF&S or any of their affiliates in connection with
the WCMA Line of Credit or this Loan Agreement.

(e) INTEREST. The WCMA Loan Balance shall bear interest at the Interest Rate.
Interest shall be computed for the actual number of days elapsed on the basis of
a year consisting of 360 days. Notwithstanding any provision to the contrary in
this Agreement or any of the Additional Agreements, no provision of this
Agreement or any of the Additional Agreements shall require the payment or
permit the collection of any amount in excess of the maximum amount of interest
permitted to be charged by law ("Excess Interest"). If any Excess Interest is
provided for, or is adjudicated as being provided for, in this Agreement or any
of the Additional Agreements, then: (a) Customer shall not be obligated to pay
any Excess Interest; and (b) any Excess Interest that MLBFS may have received
hereunder or under any of the Additional Agreements shall, at the option of
MLBFS, be: (i) applied as a credit against the then unpaid balance of the WCMA
Line of Credit, (ii) refunded to the payer thereof, or (iii) any combination of
the foregoing. Except as otherwise provided herein, accrued and unpaid interest
on the WCMA Loan Balance shall be payable monthly on the last Business Day of
each calendar month, commencing with the last Business Day of the calendar month
in which the Activation Date shall occur. Customer hereby irrevocably authorizes
and directs MLPF&S to pay MLBFS such accrued interest from any available free
credit balances in the WCMA Account, and if such available free credit balances
are insufficient to satisfy any interest payment due, to liquidate any
investments in the Money Accounts (other than any investments constituting any
Minimum Money Accounts Balance under the WCMA Directed Reserve program) in an
amount up to the balance of such accrued interest, and pay to MLBFS the
available proceeds on account thereof. If available free credit balances in the
WCMA Account and available proceeds of the Money Accounts are insufficient to
pay the entire balance of accrued interest, and Customer otherwise fails to make
such payment when due, MLBFS may, in its sole discretion, make a WCMA Loan in an
amount equal to the balance of such accrued interest and pay the proceeds of
such WCMA Loan to itself on account of such interest. The amount of any such
WCMA Loan will be added to the WCMA Loan Balance. If MLBFS declines to extend a
WCMA Loan to Customer under these

<PAGE> 6

circumstances, Customer hereby authorizes and directs MLPF&S to make all such
interest payments to MLBFS from any Minimum Money Accounts Balance. If there is
no Minimum Money Accounts Balance, or it is insufficient to pay all such
interest, MLBFS will invoice Customer for payment of the balance of the accrued
interest, and Customer shall pay such interest as directed by MLBFS within 5
Business Days of receipt of such invoice.

(f) PAYMENTS. All payments required or permitted to be made pursuant to this
Loan Agreement shall be made in lawful money of the United States. Unless
otherwise directed by MLBFS, payments on account of the WCMA Loan Balance may be
made by the delivery of checks (other than WCMA Checks), or by means of FTS or
wire transfer of funds (other than funds from the WCMA Line of Credit) to MLPF&S
for credit to Customer's WCMA Account. Notwithstanding anything in the WCMA
Agreement to the contrary, Customer hereby irrevocably authorizes and directs
MLPF&S to apply available free credit balances in the WCMA Account to the
repayment of the WCMA Loan Balance prior to application for any other purpose.
Payments to MLBFS from funds in the WCMA Account shall be deemed to be made by
Customer upon the same basis and schedule as funds are made available for
investment in the Money Accounts in accordance with the terms of the WCMA
Agreement. All funds received by MLBFS from MLPF&S pursuant to the aforesaid
authorization shall be applied by MLBFS to repayment of the WCMA Loan Balance.
The acceptance by or on behalf of MLBFS of a check or other payment for a lesser
amount than shall be due from Customer, regardless of any endorsement or
statement thereon or transmitted therewith, shall not be deemed an accord and
satisfaction or anything other than a payment on account, and MLBFS or anyone
acting on behalf of MLBFS may accept such check or other payment without
prejudice to the rights of MLBFS to recover the balance actually due or to
pursue any other remedy under this Loan Agreement or applicable law for such
balance. All checks accepted by or on behalf of MLBFS in connection with the
WCMA Line of Credit are subject to final collection.

(g) EXCEEDING THE MAXIMUM WCMA LINE OF CREDIT. In the event that the WCMA
Loan Balance shall at any time exceed the Maximum WCMA Line of Credit, Customer
shall within 1 Business Day of the first to occur of (i) any request or demand
of MLBFS, or (ii) receipt by Customer of a statement from MLPF&S showing a WCMA
Loan Balance in excess of the Maximum WCMA Line of Credit, deposit sufficient
funds into the WCMA Account to reduce the WCMA Loan Balance below the Maximum
WCMA Line of Credit.

(h) LINE FEE; EXTENSIONS. (i) In consideration of the extension of the WCMA
Line of Credit by MLBFS to Customer during the period from the Activation Date
to the Maturity Date, Customer has paid or shall pay the Line Fee to MLBFS. If
such fee has not heretofore been paid by Customer, Customer hereby authorizes
MLBFS, at its option, to either cause said fee to be paid with a WCMA Loan which
is added to the WCMA Loan Balance, or invoice Customer for said fee (in which
event Customer shall pay said fee within 5 Business Days after receipt of such
invoice). No delay in the Activation Date, howsoever caused, shall entitle
Customer to any rebate or reduction in the Line Fee or extension of the Maturity
Date.

<PAGE> 7

(ii) In the event MLBFS and Customer, in their respective sole discretion,
agree to renew the WCMA Line of Credit beyond the current Maturity Date,
Customer agrees to pay a renewal Line Fee or Line Fees (if the Maturity Date is
extended for more than one 12-month period), in the amount per 12-month period
or other applicable period then set forth in the writing signed by MLBFS which
extends the Maturity Date; it being understood that any request by Customer for
a WCMA Loan or failure of Customer to pay any WCMA Loan Balance outstanding on
the immediately prior Maturity Date, after the receipt by Customer of a writing
signed by MLBFS extending the Maturity Date, shall be deemed a consent by
Customer to both the renewal Line Fees and the new Maturity Date. If no renewal
Line Fees are set forth in the writing signed by MLBFS extending the Maturity
Date, the renewal Line Fee for each 12-month period shall be deemed to be the
same as the immediately preceding periodic Line Fee. Each such renewal Line Fee
may, at the option of MLBFS, either be paid with a WCMA Loan which is added to
the WCMA Loan Balance or invoiced to Customer, as aforesaid, on or at any time
after the first Business Day of the first month of the 12-month period for which
such fee is due.

(i) STATEMENTS. MLPF&S will include in each monthly statement it issues under
the WCMA Program information with respect to WCMA Loans and the WCMA Loan
Balance. Any questions that Customer may have with respect to such information
should be directed to MLBFS; and any questions with respect to any other matter
in such statements or about or affecting the WCMA Program should be directed to
MLPF&S.

(j) USE OF LOAN PROCEEDS; SECURITIES TRANSACTIONS. The proceeds of each WCMA
Loan shall be used by Customer solely for working capital in the ordinary course
of its business, or, with the prior written consent of MLBFS, for other lawful
business purposes of Customer not prohibited hereby. CUSTOMER AGREES THAT UNDER
NO CIRCUMSTANCES WILL FUNDS BORROWED FROM MLBFS THROUGH THE WCMA LINE OF CREDIT
BE USED: (I) FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OF ANY PERSON
WHATSOEVER, OR (II) TO PURCHASE, CARRY OR TRADE IN SECURITIES, OR REPAY DEBT
INCURRED TO PURCHASE, CARRY OR TRADE IN SECURITIES, WHETHER IN OR IN CONNECTION
WITH THE WCMA ACCOUNT, ANOTHER ACCOUNT OF CUSTOMER WITH MLPF&S OR AN ACCOUNT OF
CUSTOMER AT ANY OTHER BROKER OR DEALER IN SECURITIES.

4. REPRESENTATIONS AND WARRANTIES

Customer represents and warrants to MLBFS that:

(a) ORGANIZATION AND EXISTENCE. Customer is a corporation, duly organized and
validly existing in good standing under the laws of the State of Florida and is
qualified to do business and in good standing in each other state where the
nature of its business or the property owned by it make such qualification
necessary.

(b) EXECUTION, DELIVERY AND PERFORMANCE. The execution, delivery and
performance by Customer of this Loan Agreement and such of the Additional
Agreements to which it is a party: (i) have been duly authorized by all
requisite action, (ii) do not and will not violate or conflict with any law or
other governmental requirement, or any of the agreements, instruments or

<PAGE> 8

documents which formed or govern Customer, and (iii) do not and will not breach
or violate any of the provisions of, and will not result in a default by
Customer under, any other agreement, instrument or document to which it is a
party or by which it or its properties are bound.

(c) NOTICES AND APPROVALS. Except as may have been given or obtained, no
notice to or consent or approval of any governmental body or authority or other
third party whatsoever (including, without limitation, any other creditor) is
required in connection with the execution, delivery or performance by Customer
of such of this Loan Agreement and the Additional Agreements to which it is a
party.

(d) ENFORCEABILITY. This Loan Agreement and such of the Additional Agreements
to which Customer is a party are the legal, valid and binding obligations of
Customer, enforceable against it in accordance with their respective terms,
except as enforceability may be limited by bankruptcy and other similar laws
affecting the rights of creditors generally or by general principles of equity.

(e) COLLATERAL. Subject to any Permitted Liens: (i) Customer has good and
marketable title to the Collateral, (ii) none of the Collateral is subject to
any lien, encumbrance or security interest, and (iii) upon the filing of all
Uniform Commercial Code financing statements executed by Customer with respect
to the Collateral in the appropriate jurisdiction(s) and/or the completion of
any other action required by applicable law to perfect its liens and security
interests, MLBFS will have valid and perfected first liens and security
interests upon all of the Collateral.

(f) FINANCIAL STATEMENTS. Except as expressly set forth in Customer's
financial statements, all financial statements of Customer furnished to MLBFS
have been prepared in conformity with generally accepted accounting principles,
consistently applied, are true and correct, and fairly present the financial
condition of it as at such dates and the results of its operations for the
periods then ended; and since the most recent date covered by such financial
statements, there has been no material adverse change in any such financial
condition or operation.

(g) LITIGATION. No litigation, arbitration, administrative or governmental
proceedings are pending or, to the knowledge of Customer, threatened against
Customer, which would, if adversely determined, materially and adversely affect
the liens and security interests of MLBFS hereunder or under any of the
Additional Agreements, the financial condition of Customer or the continued
operations of Customer.

(h) TAX RETURNS. All federal, state and local tax returns, reports and
statements required to be filed BY Customer have been filed with the appropriate
governmental agencies and all taxes due and payable BY Customer have been timely
paid (except to the extent that any such failure to file or pay will not
materially and adversely affect either the liens and security interests of MLBFS
hereunder or under any of the Additional Agreements, the financial condition of
Customer, or the continued operations of Customer).

<PAGE> 9

(i) COLLATERAL LOCATION. All of the tangible Collateral is located at a
Location of Tangible Collateral.

Each of the foregoing representations and warranties: (i) has been and will be
relied upon as an inducement to MLBFS to provide the WCMA Line of Credit, and
(ii) is continuing and shall be deemed remade by Customer concurrently with each
request for a WCMA Loan.

5. FINANCIAL AND OTHER INFORMATION

Customer shall furnish or cause to be furnished to MLBFS during the term of this
Loan Agreement all of the following:

(a) ANNUAL FINANCIAL STATEMENTS. Within 120 days after the close of each
fiscal year of Customer, Customer shall furnish or cause to be furnished to
MLBFS a copy of the annual audited financial statements of Customer, consisting
of at least a balance sheet as at the close of such fiscal year and related
statements of income, retained earnings and cash flows, certified by its current
independent certified public accountants or other independent certified public
accountants reasonably acceptable to MLBFS.

(b) INTERIM FINANCIAL STATEMENTS. Within 45 days after the close of each
fiscal quarter of Customer, Customer shall furnish or cause to be furnished to
MLBFS: (i) a statement of profit and loss for the fiscal quarter then ended, and
(ii) a balance sheet as at the close of such fiscal quarter; all in reasonable
detail and certified by its chief financial officer.

(c) AGING OF ACCOUNTS. Within 45 days after the close of each fiscal quarter
of Customer, Customer shall furnish or cause to be furnished to MLBFS, an aging
of its Accounts and any Chattel Paper, certified by its chief financial officer.

OTHER INFORMATION. Customer shall furnish or cause to be furnished to MLBFS such
other information as MLBFS may from time to time reasonably request relating to
Customer or the Collateral.

6. OTHER COVENANTS

Customer further agrees during the term of this Loan Agreement that:

(a) FINANCIAL RECORDS; INSPECTION. Customer will: (i) maintain at its
principal place of business complete and accurate books and records, and
maintain all of its financial records in a manner consistent with the financial
statements heretofore furnished to MLBFS, or prepared on such other basis as may
be approved in writing by MLBFS; and (ii) permit MLBFS or its duly authorized
representatives, upon reasonable notice and at reasonable times, to inspect its
properties (both real and personal), operations, books and records.

<PAGE> 10

(b) TAXES. Customer will pay when due all taxes, assessments and other
governmental charges, howsoever designated, and all other liabilities and
obligations, except to the extent that any such failure to pay will not
materially and adversely affect either the liens and security interests of MLBFS
hereunder or under any of the Additional Agreements, the financial condition of
Customer or the continued operations of Customer.

(c) COMPLIANCE WITH LAWS AND AGREEMENTS. Customer will not violate any law,
regulation or other governmental requirement, any judgment or order of any court
or governmental agency or authority, or any agreement, instrument or document to
which it is a party or by which it is bound, if any such violation will
materially and adversely affect either the liens and security interests of MLBFS
hereunder or under any of the Additional Agreements, or the financial condition
or the continued operations of Customer.

(d) NOTIFICATION BY CUSTOMER. Customer shall provide MLBFS with prompt
written notification of: (i) any Event of Default, or event which with the
giving of notice, passage of time, or both, would constitute an Event of
Default; (ii) any materially adverse change in the business, financial condition
or operations of Customer, and (iii) any information which indicates that any
financial statements of Customer fail in any material respect to present fairly
the financial condition and results of operations purported to be presented in
such statements. Each notification by Customer pursuant hereto shall specify the
event or information causing such notification, and, to the extent applicable,
shall specify the steps being taken to rectify or remedy such event or
information.

PARAGRAPH 7A TO WCMA NOTE, LOAN, AND SECURITY AGREEMENT

(e) CONTINUITY. Except upon the prior written consent of MLBFS, which consent
will not be unreasonably withheld: (i) Customer will not be a party to any
merger or consolidation with, or purchase or otherwise acquire all or
substantially all of the assets or stock of, or any material partnership or
joint venture interest in, any person or entity, or sell, transfer or lease all
or any substantial part of its assets if any such action causes a material
change in the ownership or control of Customer or such Business Guarantor or
their respective financial condition or operations; (ii) Customer will preserve
Customer's existence and good standing in the jurisdictions of establishment and
operation, and will not operate in any material businesses substantially
different from Customer's businesses in effect as of the date of application by
Customer for credit with MLBFS; and (iii) Customer will not cause or permit any
material change in the controlling ownership, controlling senior management or,
excerpt upon not less than 30 days prior written notice to MLBFS, the name or
principal place of business. Notwithstanding the foregoing, Customer
contemplates an initial public offering of stock to be made within the next 12
months (hereafter, the "IPO") and one of the purposes of this line of credit is
to fund costs which will be incurred in connection with the IPO. The IPO shall
not constitute a prohibited change in ownership of Customer herein, regardless
of whether or not there is a material change in the ownership or control of
Customer or any Business Guarantor as a result thereof.

<PAGE> 11

(f) TANGIBLE NET WORTH. The "tangible net worth" of Customer, consisting of
Customer's net worth as shown on Customers regular financial statements prepared
in a manner consistent with the terms hereof, but excluding an amount equal to:
(i) any assets which are ordinarily classified as "intangible" in accordance
with generally accepted accounting principles, and (H) any amounts now or
hereafter directly or indirectly owing to Customer by officers, shareholders or
affiliates of Customer, shall at all times exceed $3,750,000.00.

(g) MINIMUM WORKING CAPITAL. Customer's net working capital (i.e. the excess
of its current assets over its current liabilities), as shown on Customers
regular books and records, shall at all time exceed $1,500,000.00.

(h) GUARANTIES. Except upon the prior written consent of MLBFS, Customer
shall not cause or permit Simon Raab or Gregory Fraser to directly or indirectly
guaranty the obligations of Customer (other than obligations owing to MLBFS).

(i) LOANS TO AFFILIATED PERSONS AND ENTITIES. The total amount of all loans
and advances directly or indirectly made by Customer to any affiliated persons
or entities shall not exceed $250,000.00.

7. COLLATERAL

(a) PLEDGE OF COLLATERAL. To secure payment and performance of the
Obligations, Customer hereby pledges, assigns, transfers and sets over to MLBFS,
and grants to MLBFS first liens and security interests in and upon all of the
Collateral, subject only to Permitted Liens.

(b) LIENS. Except upon the prior written consent of MLBFS, Customer shall not
create or permit to exist any lien, encumbrance or security interest upon or
with respect to any Collateral now owned or hereafter acquired other than
Permitted Liens.

(c) PERFORMANCE OF OBLIGATIONS. Customer shall perform all of its obligations
owing on account of or with respect to the Collateral; it being understood that
nothing herein, and no action or inaction by MLBFS, under this Loan Agreement or
otherwise, shall be deemed an assumption by MLBFS of any of Customers said
obligations.

(d) SALES AND COLLECTIONS. So long as no Event of Default shall have occurred
and is continuing, Customer may in the ordinary course of its business: (i) sell
any Inventory normally held by Customer for sale, (ii) use or consume any
materials and supplies normally held by Customer for use or consumption, and
(iii) collect all of its Accounts. Customer shall take such action with respect
to protection of its Inventory and the other Collateral and the collection of
its Accounts as MLBFS may from time to time reasonably request.

<PAGE> 12

(e) ACCOUNT SCHEDULES. Upon the request of MLBFS, made now or at any
reasonable time or times hereafter, Customer shall deliver to MLBFS, in addition
to the other information required hereunder, a schedule identifying, for each
Account and all Chattel Paper subject to MLBFS' security interests hereunder,
each Account Debtor by name and address and amount, invoice or contract number
and date of each invoice or contract. Customer shall furnish to MLBFS such
additional information with respect to the Collateral, and amounts received by
Customer as proceeds of any of the Collateral, as MLBFS may from time to time
reasonably request.

(f) ALTERATIONS AND MAINTENANCE. Except upon the prior written consent of
MLBFS, Customer shall not make or permit any material alterations to any
tangible Collateral which might materially reduce or impair its market value or
utility. Customer shall at all times keep the tangible Collateral in good
condition and repair and shall pay or cause to be paid all obligations arising
from the repair and maintenance of such Collateral, as well as all obligations
with respect to each Location of Tangible Collateral, except for any such
obligations being contested by Customer in good faith by appropriate
proceedings.

(g) LOCATION. Except for movements required in the ordinary course of
Customers business, Customer shall give MLBFS 30 days' prior written notice of
the placing at or movement of any tangible Collateral to any location other than
a Location of Tangible Collateral. In no event shall Customer cause or permit
any material tangible Collateral to be removed from the United States without
the express prior written consent of MLBFS.

(h) INSURANCE. Customer shall insure all of the tangible Collateral under a
policy or policies of physical damage insurance providing that losses will be
payable to MLBFS as its interests may appear pursuant to a Lenders Loss Payable
Endorsement and containing such other provisions as may be reasonably required
by MLBFS. Customer shall further provide and maintain a policy or policies of
comprehensive public liability insurance naming MLBFS as an additional party
insured. Customer shall maintain such other insurance as may be required by law
or is customarily maintained by companies in a similar business or otherwise
reasonably required by MLBFS. All such insurance shall provide that MLBFS will
receive not less than 10 days prior written notice of any cancellation, and
shall otherwise be in form and amount and with an insurer or insurers reasonably
acceptable to MLBFS. Customer shall furnish MLBFS with a copy or certificate of
each such policy or policies and, prior to any expiration or cancellation, each
renewal or replacement thereof.

(i) EVENT OF LOSS. Customer shall at its expense promptly repair all
repairable damage to any tangible Collateral. In the event that any tangible
Collateral is damaged beyond repair, lost, totally destroyed or confiscated (an
"Event of Loss") and such Collateral had a value prior to such Event of Loss of
$25,000.00 or more, then, on or before the first to occur of (i) 90 days after
the occurrence of such Event of Loss, or (ii) 10 Business Days after the date on
which either Customer or MLBFS shall receive any proceeds of insurance on
account of such Event of Loss, or any underwriter of insurance on such
Collateral shall advise either Customer or MLBFS that it disclaims liability in
respect of such Event of Loss,

<PAGE> 13

Customer shall, at Customer's option, either replace the Collateral subject to
such Event of Loss with comparable Collateral free of all liens other than
Permitted Liens (in which event Customer shall be entitled to utilize the
proceeds of insurance on account of such Event of Loss for such purpose, and may
retain any excess proceeds of such insurance), or consent to a reduction in the
Maximum WCMA Line of Credit in an amount equal to the actual cash value of such
Collateral as determined by either the applicable insurance company's payment
(plus any applicable deductible) or, in absence of insurance company payment, as
reasonably determined by MLBFS. Notwithstanding the foregoing, if at the time of
occurrence of such Event of Loss or any time thereafter prior to replacement or
line reduction, as aforesaid, an Event of Default shall occur hereunder, then
MLBFS may at its sole option, exercisable at any time while such Event of
Default shall be continuing, require Customer to either replace such Collateral
or, on its own volition and without the consent of Customer, reduce the Maximum
WCMA Line of Credit, as aforesaid.

(j) NOTICE OF CERTAIN EVENTS. Customer shall give MLBFS immediate notice of
any attachment, lien, judicial process, encumbrance or claim affecting or
involving $25,000.00 or more of the Collateral.

(k) INDEMNIFICATION. Customer shall indemnify, defend and save MLBFS harmless
from and against any and all claims, liabilities, losses, costs and expenses
(including, without limitation, reasonable attorneys' fees and expenses) of any
nature whatsoever which may be asserted against or incurred by MLBFS arising out
of or in any manner occasioned by (i) the ownership, collection, possession, use
or operation of any Collateral, or (ii) any failure by Customer to perform any
of its obligations hereunder; excluding, however, from said indemnity any such
claims, liabilities, etc. arising directly out of the willful wrongful act or
active gross negligence of MLBFS. This indemnity shall survive the expiration or
termination of this Loan Agreement as to all matters arising or accruing prior
to such expiration or termination.

8. EVENTS OF DEFAULT

The occurrence of any of the following events shall constitute an "Event of
Default" under this Loan Agreement:

(a) FAILURE TO PAY. Customer shall fail to pay to MLBFS or deposit into the
WCMA Account when due any amount owing or required to be paid or deposited by
Customer under this Loan Agreement, or shall fail to pay when due any other
Obligations, and any such failure shall continue for more than five (5) Business
Days after written notice thereof shall have been given by MLBFS to Customer.

(b) FAILURE TO PERFORM. Customer shall default in the performance or
observance of any covenant or agreement on its part to be performed or observed
under this Loan Agreement or any of the Additional Agreements (not constituting
an Event of Default under any other

<PAGE> 14

clause of this Section), and such default shall continue unremedied for ten (10)
Business Days after written notice thereof shall have been given by MLBFS to
Customer.

(c) BREACH OF WARRANTY. Any representation or warranty made by Customer
contained in this Loan Agreement or any of the Additional Agreements shall at
any time prove to have been incorrect in any material respect when made.

(d) DEFAULT UNDER OTHER AGREEMENT. A default or Event of Default by Customer
or any other party providing collateral for the Obligations shall occur under
the terms of any other agreement, instrument or document with or intended for
the benefit of MLBFS, MLPF&S or any of their affiliates, and any required notice
shall have been given and required passage of time shall have elapsed.

(e) BANKRUPTCY EVENT. Any Bankruptcy Event shall occur.

(f) MATERIAL IMPAIRMENT. Any event shall occur which shall reasonably cause
MLBFS to in good faith believe that the prospect of full payment or performance
by Customer of its liabilities or obligations under this Loan Agreement or any
of the Additional Agreements to which Customer is a party has been materially
impaired.

(g) ACCELERATION OF DEBT TO OTHER CREDITORS. Any event shall occur which
results in the acceleration of the maturity of any indebtedness of $100,000.00
or more of Customer to another creditor under any indenture, agreement,
undertaking, or otherwise.

(h) SEIZURE OR ABUSE OF COLLATERAL. The Collateral, or any material part
thereof, shall be or become subject to any material abuse or misuse, or any
levy, attachment, seizure or confiscation which is not released within ten (10)
Business Days.

9. REMEDIES

(a) REMEDIES UPON DEFAULT. Upon the occurrence and during the continuance of
any Event of Default, MLBFS may at its sole option do any one or more or all of
the following, at such time and in such order as MLBFS may in its sole
discretion choose:

(i) TERMINATION. MLBFS may without notice terminate the WCMA Line of Credit
and all obligations to provide the WCMA Line of Credit or otherwise extend any
credit to or for the benefit of Customer (it being understood, however, that
upon the occurrence of any Bankruptcy Event the WCMA Line of Credit and all such
obligations shall automatically terminate without any action on the part of
MLBFS); and upon any such termination MLBFS shall be relieved of all such
obligations.

(ii) ACCELERATION. MLBFS may declare the principal of and interest on the WCMA
Loan Balance, and all other Obligations to be forthwith due and payable,
whereupon all such

<PAGE> 15

amounts shall be immediately due and payable, without presentment, demand for
payment, protest and notice of protest, notice of dishonor, notice of
acceleration, notice of intent to accelerate or other notice or formality of any
kind, all of which are hereby expressly waived; provided, however, that upon the
occurrence of any Bankruptcy Event all such principal, interest and other
Obligations shall automatically become due and payable without any action on the
part of MLBFS.

(iii) EXERCISE RIGHTS OF SECURED PARTY. MLBFS may exercise any or all of the
remedies of a secured party under applicable law, including, but not limited to,
the UCC, and any or all of its other rights and remedies under this Loan
Agreement and the Additional Agreements.

(iv) POSSESSION. MLBFS may require Customer to make the Collateral and the
records pertaining to the Collateral available to MLBFS at a place designated by
MLBFS, which is reasonably convenient to Customer, or may take possession of the
Collateral and the records pertaining to the Collateral without the use of any
judicial process and without any prior notice to Customer.

(v) SALE. MLBFS may sell any or all of the Collateral at public or private
sale upon such terms and conditions as MLBFS may reasonably deem proper. MLBFS
may purchase any Collateral at any such public sale. The net proceeds of any
such public or private sale and all other amounts actually collected or received
by MLBFS pursuant hereto, after deducting all costs and expenses incurred at any
time in the collection of the Obligations and in the protection, collection and
sale of the Collateral, will be applied to the payment of the Obligations, with
any remaining proceeds paid to Customer or whoever else may be entitled thereto,
and with Customer remaining liable for any amount remaining unpaid after such
application.

(vi) DELIVERY OF CASH, CHECKS, ETC. MLBFS may require Customer to forthwith
upon receipt, transmit and deliver to MLBFS in the form received, all cash,
checks, drafts and other instruments for the payment of money (property
endorsed, where required, so that such items may be collected by MLBFS) which
may be received by Customer at any time in full or partial payment of any
Collateral, and require that Customer not commingle any such items which may be
so received by Customer with any other of its funds or property but instead hold
them separate and apart and in trust for MLBFS until delivery is made to MLBFS.

(vii) NOTIFICATION OF ACCOUNT DEBTORS. MLBFS may notify any Account Debtor that
its Account or Chattel Paper has been assigned to MLBFS and direct such Account
Debtor to make payment directly to MLBFS of all amounts due or becoming due with
respect to such Account or Chattel Paper; and MLBFS may enforce payment and
collect, by legal proceedings or otherwise, such Account or Chattel Paper.

<PAGE> 16

(viii) CONTROL OF COLLATERAL. MLBFS may otherwise take control in any lawful
manner of any cash or noncash items of payment or proceeds of Collateral and of
any rejected, returned, stopped in transit or repossessed goods included in the
Collateral and endorse Customer's name on any item of payment on or proceeds of
the Collateral.

(b) SET-OFF. MLBFS shall have the further right upon the occurrence and
during the continuance of an Event of Default to set-off, appropriate and apply
toward payment of any of the Obligations, in such order of application as MLBFS
may from time to time and at any time elect, any cash, credit, deposits,
accounts, securities and any other property of Customer which is in transit to
or in the possession, custody or control of MLBFS, MLPF&S or any agent, bailee,
or affiliate of MLBFS or MLPF&S, including, without limitation, the WCMA Account
and any Money Accounts, and all cash, securities and other financial assets
therein or controlled thereby, and all proceeds thereof. Customer hereby
collaterally assigns and grants to MLBFS a continuing security interest in all
such property as additional Collateral.

(c) POWER OF ATTORNEY. Effective upon the occurrence and during the
continuance of an Event of Default, Customer hereby irrevocably appoints MLBFS
as its attorney-in-fact, with full power of substitution, in its place and stead
and in its name or in the name of MLBFS, to from time to time in MLBFS' sole
discretion take any action and to execute any instrument which MLBFS may deem
necessary or advisable to accomplish the purposes of this Loan Agreement,
including, but not limited to, to receive, endorse and collect all checks,
drafts and other instruments for the payment of money made payable to Customer
included in the Collateral.

(d) REMEDIES ARE SEVERABLE AND CUMULATIVE. All rights and remedies of MLBFS
herein are severable and cumulative and in addition to all other rights and
remedies available in the Additional Agreements, at law or in equity, and any
one or more of such rights and remedies may be exercised simultaneously or
successively.

(e) NOTICES. To the fullest extent permitted by applicable law, Customer
hereby irrevocably waives and releases MLBFS of and from any and all liabilities
and penalties for failure of MLBFS to comply with any statutory or other
requirement imposed upon MLBFS relating to notices of sale, holding of sale or
reporting of any sale, and Customer waives all rights of redemption or
reinstatement from any such sale. Any notices required under applicable law
shall be reasonably and properly given to Customer if given by any of the
methods provided herein at least 5 Business Days prior to taking action. MLBFS
shall have the right to postpone or adjourn any sale or other disposition of
Collateral at any time without giving notice of any such postponed or adjourned
date. In the event MLBFS seeks to take possession of any or all of the
Collateral by court process, Customer further irrevocably waives to the fullest
extent permitted by law any bonds and any surety or security relating thereto
required by any statute, court rule or otherwise as an incident to such
possession, and any demand for possession prior to the commencement of any suit
or action.

<PAGE> 17

10. MISCELLANEOUS

(a) NON-WAIVER. No failure or delay on the part of MLBFS in exercising any
right, power or remedy pursuant to this Loan Agreement or any of the Additional
Agreements shall operate as a waiver thereof, and no single or partial exercise
of any such right, power or remedy shall preclude any other or further exercise
thereof, or the exercise of any other right, power or remedy. Neither any waiver
of any provision of this Loan Agreement or any of the Additional Agreements, nor
any consent to any departure by Customer therefrom, shall be effective unless
the same shall be in writing and signed by MLBFS. Any waiver of any provision of
this Loan Agreement or any of the Additional Agreements and any consent to any
departure by Customer from the terms of this Loan Agreement or any of the
Additional Agreements shall be effective only in the specific instance and for
the specific purpose for which given. Except as otherwise expressly provided
herein, no notice to or demand on Customer shall in any case entitle Customer to
any other or further notice or demand in similar or other circumstances.

(b) DISCLOSURE. Customer hereby irrevocably authorizes MLBFS and each of its
affiliates, including without limitation MLPF&S, to at any time (whether or not
an Event of Default shall have occurred) obtain from and disclose to each other
any and all financial and other information about Customer. In connection with
said authorization, the parties recognize that in order to provide a WCMA Line
of Credit certain information about Customer is required to be made available on
a computer network accessible by certain affiliates of MLBFS, including MLPF&S.

(c) COMMUNICATIONS. All notices and other communications required or
permitted hereunder shall be in writing, and shall be either delivered
personally, mailed by postage prepaid certified mail or sent by express
overnight courier or by facsimile. Such notices and communications shall be
deemed to be given on the date of personal delivery, facsimile transmission or
actual delivery of certified mail, or one Business Day after delivery to an
express overnight courier. Unless otherwise specified in a notice sent or
delivered in accordance with the terms hereof, notices and other communications
in writing shall be given to the parties hereto at their respective addresses
set forth at the beginning of this Loan Agreement, or, in the case of facsimile
transmission, to the parties at their respective regular facsimile telephone
number.

(d) COSTS, EXPENSES AND TAXES. Customer shall upon demand pay or reimburse
MLBFS for: (i) all Uniform Commercial Code filing and search fees and expenses
incurred by MLBFS in connection with the verification, perfection or
preservation of MLBFS' rights hereunder or in the Collateral or any other
collateral for the Obligations; (ii) any and all stamp, transfer and other taxes
and fees payable or determined to be payable in connection with the execution,
delivery and/or recording of this Loan Agreement or any of the Additional
Agreements; and (iii) all reasonable fees and out-of-pocket expenses (including,
but not limited to, reasonable fees and expenses of outside counsel) incurred by
MLBFS in connection with the collection of any sum payable hereunder or under
any of the Additional

<PAGE> 18

Agreements not paid when due, the enforcement of this Loan Agreement or any of
the Additional Agreements and the protection of MLBFS' rights hereunder or
thereunder, excluding, however, salaries and normal overhead attributable to
MLBFS' employees. The obligations of Customer under this paragraph shall survive
the expiration or termination of this Loan Agreement and the discharge of the
other Obligations.

(e) RIGHT TO PERFORM OBLIGATIONS. If Customer shall fail to do any act or
thing which it has covenanted to do under this Loan Agreement or any
representation or warranty on the part of Customer contained in this Loan
Agreement shall be breached, MLBFS may, in its sole discretion, after 5 days
written notice is sent to Customer (or such lesser notice, including no notice,
as is reasonable under the circumstances), do the same or cause it to be done or
remedy any such breach, and may expend its funds for such purpose. Any and all
reasonable amounts so expended by MLBFS shall be repayable to MLBFS by Customer
upon demand, with interest at the Interest Rate during the period from and
including the date funds are so expended by MLBFS to the date of repayment, and
all such amounts shall be additional Obligations. The payment or performance by
MLBFS of any of Customer's obligations hereunder shall not relieve Customer of
said obligations or of the consequences of having failed to pay or perform the
same, and shall not waive or be deemed a cure of any Event of Default.

(f) LATE CHARGE. Any payment required to be made by Customer pursuant to this
Loan Agreement not paid within ten (10) days of the applicable due date shall be
subject to a late charge in an amount equal to the lesser of: (i) 5% of the
overdue amount, or (ii) the maximum amount permitted by applicable law. Such
late charge shall be payable on demand, or, without demand, may in the sole
discretion of MLBFS be paid by a WCMA Loan and added to the WCMA Loan Balance in
the same manner as provided herein for accrued interest.

(g) FURTHER ASSURANCES. Customer agrees to do such further acts and things
and to execute and deliver to MLBFS such additional agreements, instruments and
documents as MLBFS may reasonably require or deem advisable to effectuate the
purposes of this Loan Agreement or any of the Additional Agreements, or to
establish, perfect and maintain MLBFS' security interests and liens upon the
Collateral, including, but not limited to: (i) executing financing statements or
amendments thereto when and as reasonably requested by MLBFS; and (ii) if in the
reasonable judgment of MLBFS it is required by local law, causing the owners
and/or mortgagees of the real property on which any Collateral may be located to
execute and deliver to MLBFS waivers or subordinations reasonably satisfactory
to MLBFS with respect to any rights in such Collateral.

(h) BINDING EFFECT. This Loan Agreement and the Additional Agreements shall
be binding upon, and shall inure to the benefit of MLBFS, Customer and their
respective successors and assigns. Customer shall not assign any of its rights
or delegate any of its obligations under this Loan Agreement or any of the
Additional Agreements without the prior written consent of MLBFS. Unless
otherwise expressly agreed to in a writing signed by

<PAGE> 19

MLBFS, no such consent shall in any event relieve Customer of any of its
obligations under this Loan Agreement or the Additional Agreements.

(i) HEADINGS. Captions and section and paragraph headings in this Loan
Agreement are inserted only as a matter of convenience, and shall not affect the
interpretation hereof.

(j) GOVERNING LAW. This Loan Agreement, and, unless otherwise expressly
provided therein, each of the Additional Agreements, shall be governed in all
respects by the laws of the State of Illinois.

(k) SEVERABILITY OF PROVISIONS. Whenever possible, each provision of this
Loan Agreement and the Additional Agreements shall be interpreted in such manner
as to be effective and valid under applicable law. Any provision of this Loan
Agreement or any of the Additional Agreements which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
only to the extent of such prohibition or unenforceability without invalidating
the remaining provisions of this Loan Agreement and the Additional Agreements or
affecting the validity or enforceability of such provision in any other
jurisdiction.

(l) TERM. This Loan Agreement shall become effective on the date accepted by
MLBFS at its office in Chicago, Illinois, and, subject to the terms hereof,
shall continue in effect so long thereafter as the WCMA Line of Credit shall be
in effect or there shall be any Obligations outstanding.

(m) COUNTERPARTS. This Loan Agreement may be executed in one or more
counterparts which. when taken together, constitute one and the same agreement.

(n) JURISDICTION; WAIVER. CUSTOMER ACKNOWLEDGES THAT THIS LOAN AGREEMENT IS
BEING ACCEPTED BY MLBFS IN PARTIAL CONSIDERATION OF MLBFS' RIGHT AND OPTION, IN
ITS SOLE DISCRETION, TO ENFORCE THIS LOAN AGREEMENT AND THE ADDITIONAL
AGREEMENTS IN EITHER THE STATE OF ILLINOIS OR IN ANY OTHER JURISDICTION WHERE
CUSTOMER OR ANY COLLATERAL FOR THE OBLIGATIONS MAY BE LOCATED. CUSTOMER CONSENTS
TO JURISDICTION IN THE STATE OF ILLINOIS AND VENUE IN ANY STATE OR FEDERAL COURT
IN THE COUNTY OF COOK FOR SUCH PURPOSES, AND CUSTOMER WAIVES ANY AND ALL RIGHTS
TO CONTEST SAID JURISDICTION AND VENUE. CUSTOMER FURTHER WAIVES ANY RIGHTS TO
COMMENCE ANY ACTION AGAINST MLBFS IN ANY JURISDICTION EXCEPT IN THE COUNTY OF
COOK AND STATE OF ILLINOIS. MLBFS AND CUSTOMER HEREBY EACH EXPRESSLY WAIVE ANY
AND ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
BROUGHT BY EITHER OF THE PARTIES AGAINST THE OTHER PARTY WITH RESPECT TO ANY
MATTER RELATING TO, ARISING OUT OF OR IN ANY WAY CONNECTED WITH THE WCMA LINE OF
CREDIT, THIS LOAN AGREEMENT, ANY ADDITIONAL AGREEMENTS

<PAGE> 20

AND/OR ANY OF THE TRANSACTIONS WHICH ARE THE SUBJECT MATTER OF THIS LOAN
AGREEMENT.

(O) INTEGRATION. THIS LOAN AGREEMENT, TOGETHER WITH THE ADDITIONAL
AGREEMENTS, CONSTITUTES THE ENTIRE UNDERSTANDING AND REPRESENTS THE FULL AND
FINAL AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF,
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR WRITTEN AGREEMENTS OR PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS OF THE PARTIES. WITHOUT LIMITING THE FOREGOING,
CUSTOMER ACKNOWLEDGES THAT: (I) NO PROMISE OR COMMITMENT HAS BEEN MADE TO IT BY
MLBFS, MLPF&S OR ANY OF THEIR RESPECTIVE EMPLOYEES, AGENTS OR REPRESENTATIVES TO
EXTEND THE AVAILABILITY OF THE WCMA LINE OF CREDIT OR THE DUE DATE OF THE WCMA
LOAN BALANCE BEYOND THE CURRENT MATURITY DATE, OR TO INCREASE THE MAXIMUM WCMA
LINE OF CREDIT, OR OTHERWISE EXTEND ANY OTHER CREDIT TO CUSTOMER OR ANY OTHER
PARTY; (II) NO PURPORTED EXTENSION OF THE MATURITY DATE, INCREASE IN THE MAXIMUM
WCMA LINE OF CREDIT OR OTHER EXTENSION OR AGREEMENT TO EXTEND CREDIT SHALL BE
VALID OR BINDING UNLESS EXPRESSLY SET FORTH IN A WRITTEN INSTRUMENT SIGNED BY
MLBFS; AND (III) EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, THIS LOAN
AGREEMENT SUPERSEDES AND REPLACES ANY AND ALL PROPOSALS, LETTERS OF INTENT AND
APPROVAL AND COMMITMENT LETTERS FROM MLBFS TO CUSTOMER, NONE OF WHICH SHALL BE
CONSIDERED AN ADDITIONAL AGREEMENT. NO AMENDMENT OR MODIFICATION OF THIS
AGREEMENT OR ANY OF THE ADDITIONAL AGREEMENTS TO WHICH CUSTOMER IS A PARTY SHALL
BE EFFECTIVE UNLESS IN A WRITING SIGNED BY BOTH MLBFS AND CUSTOMER.

IN WITNESS WHEREOF, this Loan Agreement has been executed as of the day and year
first above written.

FARO TECHNOLOGIES, INC.

By: /s/ SIMON RAAB
------------------------------------------------------------------------
Signature (1) Signature (2)

Simon Raab
- ---------------------------------------------------------------------------
Printed Name Printed Name

President
- ---------------------------------------------------------------------------
Title Title

<PAGE> 21

STATE OF Maryland )
) ss.
COUNTY OF Montgomery )

On the 15th day of May, 1997, before me personally came Simon Raab known to me
to be the individual who executed the foregoing instrument, and who, being sworn
by me, did depose and say that the individual is an officer of the Customer
herein, and that the individual executed the foregoing instrument for the
Customer herein, and that the individual had the authority to sign the same, and
acknowledged that the individual executed the same as the act and deed of said
Customer.

Jeanette C. Frande
----------------------------------
Notary Public

(NOTARIAL SEAL)

Accepted at Chicago, Illinois:
MERRILL LYNCH BUSINESS FINANCIAL
SERVICES INC.

By:
-------------------------------------

<PAGE> 1
Exhibit 10.7

BUSINESS LEASE

THIS BUSINESS LEASE, made as of March 1, 1991,

Between SIRDAN RESEARCH LIMITED, INC., a Canadian corporation
(hereinafter called the "Lessor"), and FARO MEDICAL TECHNOLOGIES (U.S.), INC., a
Delaware corporation (hereinafter called the "Lessee"),

WITNESSETH

1. Premises and Use. Lessor hereby leases to Lessee and the Lessee does
hereby hire and take as tenant under said Lessor the land and improvements
located in Seminole County, Florida described as follows:

Lot 15, Technology Park at Lake Mary, Plat Book 37, Pages 61 and 62 of
the Public Records of Seminole County, Florida, with a street address
of 125 Technology Park, Lake Mary, Florida 32746 (the "Premises"),
consisting of land and a building having approximately 16,800 square
feet of air-conditioned space,

to be used and occupied by the Lessee for a medical equipment research and
development facility, with offices, equipment assembly and warehouse space
related thereto, and for no other purposes without Lessor's prior written
consent.

This lease supersedes and replaces all prior leases and other
agreements between the Lessor and Lessee with respect to the use of the
Premises.

2. Term. The initial term of this lease shall be five (5) years, commencing
on March 1, 1991 and terminating on the last day of February, 1996. "Lease year"
as used herein shall mean the period from March 1 to the last day of February
during the initial or any additional term of this lease. The "initial lease
year" or "base lease year" as used in this Lease means the period from March 1,
1991 to February 29, 1992.

3. Renewal Options. Provided Lessee is not in default under the terms of
this Lease beyond any curative period, Lessee has the option to renew this Lease
for three (3) successive periods of five (5) years each on the same terms and
conditions contained herein, except for the respective increases in the Base
Rental and other expenses described in Paragraph 4 and 6 below. In order to
exercise any renewal option, the Lessee must furnish the Lessor with prior
written notice of its intent to exercise the renewal option, which notice shall
be delivered at least one hundred-eighty (180) days prior to the end of the
initial term hereof or any additional term. Upon the termination of this Lease,
any and all remaining and unexercised options to extend the term of this Lease
shall also cease and be terminated.

4. Rent. During the initial term of this Lease, Lessee hereby covenants and
agrees to pay Lessor as Base Rent for the Premises the sum of $138,600.00 per
Lease year payable in equal monthly installments of $11,550.00, plus applicable
sales or use tax, which Base Rent shall be due in advance on the first of each
month, without demand, at the offices of Lessor in the city of Lake Mary,
Florida, or at such other place and to such other person as Lessor may from time
to time designate in writing. Base Rent is adjustable as set forth hereafter and
in Paragraph 6 of this Lease.

In the event of a renewal of this Lease pursuant to Paragraph 3 above,
the base yearly rent shall be adjusted by any change in the index known as the
"United States Bureau of Labor Statistics, Consumer Price Index for all Urban
Consumers (all items), United States City Average (1982 equals 100)"
(hereinafter referred to as the "Index"). The Base Rent adjustment for changes
in the Index shall be accomplished by multiply the Base Rent last prevailing
under this Lease by a fraction, the numerator of which shall be the Index for
the second month preceding the last month of the then current Lease Year. The
denominator of the fraction shall be the Index for the last month prior to the
last rental adjustment. There shall be no adjustment in rent if the foregoing
calculation results in a lower rental payment, it being the intent that rent
will adjust upward, but not downward.

<PAGE> 2

After making the foregoing calculation, if Base Rent is to be adjusted,
the adjusted rental amount shall become due with the first payment of Base Rent
due on the first month of the new term, and shall apply for the remainder of
that term.

If the Consumer Price Index, as now constituted, compiled and
published, shall cease to be compiled and published during the term hereof, and
all extensions thereof, then the parties shall utilize a comparable index.

All rent, additional rent and other sums due to be paid under this
Lease are in United States Dollars. All sums due to be paid by the Lessee to
Lessor under this Lease are deemed to be "rent", whether or not such sums are
called "rent" in this Lease.

5. Additional property included in lease. This lease also includes the
rental of the furniture systems and telephone systems in the Premises which have
been installed by the Lessor. Lessee agrees to pay to Lessor, as additional rent
for the use of such personal property, the sum of $2,200 per month, plus
applicable sales or use tax, which shall be due in advance on the first of each
month, without demand, at the place of payment of Base Rent. Except as set forth
hereafter, this amount shall not be subject to adjustment, but shall remain
constant through the Initial Term and all additional terms of this Lease.

Notwithstanding the foregoing, in the event that Lessor upgrades or
enlarges the furniture system, or the telephone system, the rental for this
personal property shall be adjusted upward at the rate of $22.00 per $1,000.00
value of the upgrade or enlargement. Rental adjustments according to this
formula will begin at the point that Lessor has expended $100,000.00 on the
total cost of such systems. The rent adjustment will begin effective as of the
next rental payment due after the Lessor has completed the upgrade or
enlargement.

6. Modified Gross Lease; Base Rent Adjustment. This Lease is a "modified
gross lease", i.e., base annual rent includes ad valorem taxes and the casualty
and other insurance premiums on the Premises for the Initial Lease Year, and
expenses for operation of the Premises (calculated at $1.40 per square foot) .
The Base Rent f or the Premises will be adjusted annually for increases in the
cost of ad valorem taxes, casualty and other insurance premiums, and expenses
for operation of the Premises as follows:

(a) For purposes of establishing the base rates f or taxes and
insurance premiums, the parties will use the 1991 ad valorem tax bill (to be
issued in November, 1991) and the 1991 premium invoices for insurance premiums.
On March 1, 1992 and March 1 of each lease year thereafter, annual Base Rent
will be increased by the amount of the increase in ad valorem taxes and
insurance premiums from the prior lease year.

(b) On March 1, 1992 and March 1 of each lease year thereafter, annual
Base Rent will also be increased by the amount of the increase in the cost of
expenses for operation of the Premises above the initial expense stop of $1.40
per square foot.

7. Utilities. The Lessee agrees that it will pay all charges for utility
service to the Premises, including electricity, gas (if any) , water, sanitary
sewer, and telephone service.

8. Maintenance and Repairs.

(a) Lessor shall be responsible for the following maintenance and
repairs of the Premises:

(i) Lessor shall make all structural repairs to any part of the
buildings located on the Premises, including the roofs, floorst building walls,
underground electric and plumbing (including from the boundary line of the
Premises to the buildings thereon) and HVAC systems.

(ii) Lessor shall be responsible for the repair and replacement
of furniture and telephone systems described in Paragraph 5 above, subject to
rental increases as set forth therein.

(iii) Lessor shall be responsible for painting the interior and
exterior of all improvements to keep

<PAGE> 3

the Premises in a "first class" condition, replacement of carpeting and other
floor coverings and replacement of defective mechanical, plumbing and HVAC
equipment.

(iv) Lessor's obligations for maintenance and repairs shall not
extend to any condition which has been created by the negligence or intentional
act of Lessee or Lessee's employees, agents, customers or invitees.

Lessee agrees to give Lessor written notice of all repairs which
it believes Lessor is required to make to the Premises in accordance with the
Lease from time to time. Such repairs shall be reasonably required in the
opinion of Lessor and Lessee. If they are unable to agree as to the necessity of
any such repairs, they shall jointly select an independent contractor who shall
render its opinion regarding such repair, which opinion shall be binding on both
parties. Lessor reserves the right to hire and supervise any and all contractors
who are making any repairs which are to be paid for by Lessor.

(b) Lessee shall be responsible for the following maintenance and
repairs of the Premises:

(i) Lessee shall provide for janitorial service, landscape,
parking lot and driveway maintenance, and maintenance of any fences and signs.

(ii) Lessee shall provide for routine maintenance and upkeep of
all interior improvements, including but not limited to lighting facilities and
windows, doors, and plate glass.

(iii) Lessee shall be responsible for the costs associated with
repair of any condition created by the negligence or intentional act of Lessee
or Lessee's employees, agents, customers or invitees.

(iv) All other expenses for ownership, operation and use of the
Premises not otherwise allocatedto the Lessor in this Lease shall be the
responsibility of Lessee.

If Lessee fails to perform its maintenance and repair obligations under
this Lease, Lessor may at its option (but shall not be. required to) enter upon
the premises prior written to Lessee (except in the case of an emergency, in
which no notice shall be required) perform such obligations on Lessee's behalf
and put the same in good order, condition and repair, and the costs thereof,
together with interest at the maximum rate then allowed by law, shall be due and
payable as additional rent to Lessor together with Lessee's next rental
installment.

9. Insurance. Lessor shall obtain property insurance to insure the Premises
against loss by f ire and other casualty. Lessee shall obtain its own insurance
to insure its personal property against loss by fire or other casualty.

Lessee shall, at Lessee's expense, obtain and keep in force during the
term of this Lease a policy of combined single limit, bodily injury and property
damage insurance insuring Lessor and Lessee against any liability arising out of
the ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. Such insurance shall be a combined single limit policy in
an amount not less than One Million Dollars ($1,000,000.00) per occurrence.
Lessee shall deliver to Lessor copies of policies of such insurance or
certificates evidencing the existence and amounts of such insurance with loss
payable clauses as required by this Lease. No such policy shall be cancelable or
subject to reduction of coverage or other modification except after thirty (30)
days' prior written notice to Lessor. Lessee shall not do or permit to be done
anything which would invalidate the insurance policies referred to in this
Paragraph 9.

To the extent that the proceeds of insurance compensate the Lessee and
Lessor for their respective losses, Lessee and Lessor hereby release and relieve
the other and waive their right of recovery against the other for loss or damage
arising out of or incident to the perils insured against under this Paragraph,
which perils occur in, on or about the Premises whether or not due to the
negligence of Lessor or Lessee or their agents, employees, contractors and/or
invitees. Lessor and Lessee shall, upon obtaining the policies of

<PAGE> 4

insurance required hereunder, give notice to the insurance carrier or carriers
that the foregoing mutual waiver of subrogation is contained in this Lease.
Lessor and Lessee shall use their best efforts to obtain such subrogation
provisions in their policies.

10. Casualty; Condemnation. In the event the Premises shall be destroyed or
damaged by fire or other casualty during any term of this Lease, whereby the
same shall be rendered untenantable, then the Lessor shall have the right to
render said Premises tenantable by repairs within ninety (90) days from the date
of the damage or destruction. During the period of repair and reconstruction,
rent will be equatable abated based upon the square footage of space remaining
untenantable. If the Premises are not rendered tenantable within said time, or
if a major portion of the Premises has be ' en destroyed so that it can not be
rendered tenantable within said time, either party shall have the right to
cancel this Lease, in which event rent shall be paid to the date of
cancellation.

If the whole or any portion of the Premises is condemned for any public
use or purpose by any legally constituted authority with the result that the
same are no longer reasonably suitable for Lessee's continued use thereof for
the purposes set forth in Paragraph 1 hereof, then Lessee shall have the option
of canceling this Lease, and rent shall be accounted f or between Lessor and
Lessee as of the date of taking. In the event that any such condemnation does
not render the Premises unsuitable for Lessee's continued use, this Lease shall
not be affected thereby, except that rent shall be abated for the loss of
rentable space taken by condemnation in the proportion that the space taken
bears to 16,800 square feet. In the event of any condemnation, Lessor shall be
entitled to all compensation to be paid by the condemning authority, except that
Lessee may pursue any claim Lessee may have against the condemning authority for
business interruption, loss of profits, or moving expenses.

11. Indemnification. Lessee shall indemnify and hold Lessor harmless from and
against any and all claims arising from Lessee's use of the Premises and from
the conduct of Lessee's business or from any activity, work or things done,
permitted, or suffered by Lessee in or about the Premises or elsewhere and shall
further indemnify and hold Lessor harmless form and against any and all claims
arising from the breach or default in the performance of any obligations on
Lessee's part to be performed under the terms of this Lease or arising from any
negligence of the Lessee or any of Lessee's agents, contractors or employees and
from and against all costs, attorney fees, expenses and liabilities incurred in
the defense of any such claim, action or proceeding brought thereon. In case any
action or proceeding is brought against Lessor by reason of any such claim,
Lessee, upon notice from Lessor, shall defend the same at Lessee's expense by
counsel satisfactory to Lessor. Lessee as a material part of the consideration
to Lessor, hereby assumes all risk of damage to property or injury to persons
in, upon or about the Premises arising from any cause. Lessee hereby waives all
claims in respect therefor against Lessor, except for those arising out of the
negligence or intentional acts of the Lessor.

Lessee hereby agrees that Lessor shall not be liable for injury to
Lessee's business or any loss or income therefrom or for damage to the goods,
wares, merchandise or other property of Lessee, Lessee's employees, invitees,
customers or any other person in or about the Premises nor shall Lessor be
liable for injury to the person of Lessee, Lessee's employees, agents or
contractors, whether such damage or injury is caused by or results form fire,
steam, electricity, gas, water, rain or from the breakage, leakage, obstruction
or other defects of pipes, sprinklers, wires, appliances, plumbing, air
conditioning or lighting fixtures or from any other cause, unless such damage or
injury was the result of the Lessor's default under this Lease.

12. Assignment, Sub-Lettinq and Alterations. The Lessee shall not assign this
Lease nor sub-let the Premises or any part thereof without the Lessor's prior
written consent. Lessee shall not change the use of

<PAGE> 5

the Premises or any part thereof, nor permit the same or any part thereof, to be
used for any other purpose other than as set forth in Paragraph 1 above without
the Lessor's prior written consent. The Lessee shall not make any alterations or
additions to the Premises, without the Lessor's prior written consent. All
additions, fixtures, or improvements which may be made by Lessee, except movable
office furniture owned by the Lessee, shall become the property of the Lessor
and remain upon the Premises as a part thereof, and be surrendered with the
Premises at the termination of this Lease.

13. Personal Property. All personal property placed on or moved into the
Premises shall be at the risk of the Lessee or owner thereof, and Lessor shall
not be liable for any damage to said personal property, or to the Lessee arising
from the fire, casualty or any other cause. Lessor's obligation to provide
certain insurance coverage set forth in this Lease does not apply to Lessee's
personal property. Lessee agrees that it is responsible for its own insurance
coverage of its personal property.

14. Compliance With Laws. Lessee, in its use of the Premises, shall promptly
execute and comply with all statutes, ordinances, rules, orders, regulations and
requirements of the Federal, State and local Governments applicable to the
Premises; and shall also promptly comply with and execute all rules, orders and
regulations of the Southeastern Underwriters Association for the prevention of
fires.

15. Rules and Regulations. Lessee agrees to observe any rules and regulations
adopted from time to time by the Lessor, the owner of Technology Park, or
Technology Park at Lake Mary Owner's Association, Inc. for use of the Premises
and any failure on the part of the Lessee to comply with said rules and
regulations shall be a default hereunder.

16. Attorneys' Fees. In connection with any litigation, other proceeding or
any other effort, (including bankruptcy or creditors' reorganization
proceedings, probate and estate administrative proceedings, and including
appeals from the ruling of lower forums), to enforce or interpret this Lease,
the prevailing party shall recover its attorneys' fees, legal assistants' fees
and costs and expenses of litigation in addition to any other relief.

17. Landlord's Lien. The Lessee hereby pledges and assigns to the Lessor all
the furniture, fixtures, goods and chattels of the Lessee, which shall or may be
brought or put on the Premises as security for the payment of all rent herein
reserved, and the Lessee agrees that the said lien may be enforced by distress
foreclosure or otherwise at the election of the Lessor, and does hereby agree to
pay attorney's fees, together with all costs and charges therefore incurred or
paid by the Lessor.

18. Right of Entry. The Lessor, or any of its agents, shall have the right to
enter the Premises during all reasonable hours, to examine the same to make such
repairs, additions or alterations as may be deemed necessary for the safety,
comfort, or preservation thereof, or to exhibit said Premises, and to put on or
keep upon the door or windows thereof a notice "FOR RENT" at any time within
thirty (30) days before the expiration of this Lease. The right of entry shall
likewise exist for the purpose of removing placards, signs, fixtures,
alterations, or additions, which do not conform to this Lease, or the terms and
regulations pertaining to the Premises. Lessor will keep a key to the Premises
and Lessee shall not change the locks on the Premises without the Lessor's prior
written approval.

19. As-Is Condition. Lessee hereby acknowledges that all of Lessors
obligations to finish the construction of the Premises have been completed and
accepts the Premises in the condition they are in at the beginning of this Lease
and agrees to maintain said Premises in the same condition, order and repair as
they are at the commencement of said term, excepting only reasonable wear and
tear arising from the use thereof under this Lease and except for any
maintenance obligations of the Lessor hereunder.

<PAGE> 6

20. Successors and Assigns. This Lease shall bind the Lessor and its assigns
or successors, and the heirs, successors and assigns, as the case may be, of the
Lessee. Lessor may assign this lease to any purchaser of the Premises, and upon
such assignment shall be relieved of all obligations hereunder.

21. Time of the essence. Time is of the essence of this Lease and all terms
and conditions contained herein.

22. Notices. Written notice delivered to the Premises hereunder shall
constitute sufficient notice to the Lessee and written notice mailed or
delivered to the office of the Lessor where rent is paid shall constitute
sufficient notice to the Lessor. Notices shall be given (a) by personal
delivery, or (b) by certified U.S. mail, return receipt requested, or (c) by a
nationally recognized courier service, such as Federal Express or UPS, or (d) by
telecopy transmission.

23. Construction Liens. Any charges against the Lessee by the Lessor for
services or for work done on the Premises by order of the Lessee or otherwise
accruing under this Lease shall be considered as rent due and shall be included
in any lien for rent due and unpaid. The interest of the Lessor in the Premise
shall not be subject to liens for improvements made to the Premises by the
Lessee or at Lessee's direction.

24. Signs. Any signs identifying the Lessee or for other advertising purposes
shall be first submitted to the Lessor for approval before installation of same.

25. Quite Enjoyment, Title Exceptions. Upon payment of the rent herein
reserved and upon the performance of all the terms of this Lease, Lessee shall
have peaceable and quiet enjoyment and possession of the Premises without
ejection, hindrance, or molestation by Lessor or any person or persons lawfully
claiming under the Lessor.

This lease is subject and subordinate to the Mortgage and Security
Agreement in favor of Barnett Bank of Central Florida, N.A. recorded in O.R.
Book 2208, Page 1742, Public Records of Seminole County, Florida, The Technology
Park at Lake Mary Declaration of Covenants and Restrictions recorded at O.R.
Book 1986, page 1410, Public Records of Seminole County, Florida, Easements and
other restrictions contained on the Plat of Technology Park, and Utility/Access
Easement recorded in O.R. Book 1385, Page 845, Public Records of Seminole
County, Florida.

Upon the request of the Lessee, the Lessor will attempt to obtain from
Barnett Bank a non-disturbance and attornment agreement in which the bank will
agree not to disturb the possession of the Lessee in the event of a foreclosure
of the bank's mortgage. In the event of any transfer of the Premises to any
mortgage lender on the Premises, the Lessee agrees to attorn to such transferee
and will recognize the transferee as the lessor under this Lease, provided that
such transferee agrees not to disturb the possession of the Lessee.

26. Default. The following events shall be a default of the Lessee hereunder:

(a) failure to pay any Base Rent or additional rent due under this
Lease within ten (10) days after it is due, without notice of default;

(b) failure to perform any other covenant, term or provision of this
Lease for more than fifteen (15) days after written notice of such default shall
have been delivered to Lessee;

<PAGE> 7

proceeding is commenced by or against Lessee in any court under a bankruptcy act
or for the appointment of a trustee or receiver for all or a part of Lessee's
property; or if Lessee shall make an assignment for the benefit of creditors or
petitions, or enters into an arrangement for reorganization of its debts;

(d) if Lessee shall allow this Lease to be taken under a Writ of
Execution, or shall abandon or vacate the Premises (abandonment shall be
presumed if the Lessee is absent from the Premises for more than thirty (30)
days while also being in default for failure to pay rent hereunder).

27. Remedies. Upon the event of default, Lessor shall have the following
remedies:

(a) terminate Lessee's right to possession under this Lease and
reenter and take possession of the Premises and relet or attempt to relet the
Premises on behalf of Lessee, at such rent and under such terms and conditions
as Landlord may, in the exercise of Landlord's sole discretion, deem best under
the circumstances for the purpose of reducing Lessee's liability; and Lessor
shall not be deemed to have thereby accepted a surrender of the Premises, and
Lessee shall remain liable for all rents and additional rents due under this
Lease and for all damages suffered by Lessor because of Lessee's breach of any
of the covenants of this Lease. At any time during such repossession or
reletting, Landlord may by delivering written notice to Lessee, elect to
exercise its options under the following subparagraphs to accept a surrender of
the Premises, terminate and cancel this Lease, and retake possession and
occupancy of the Premises on behalf of Lessor. Nothing contained in this
subparagraph shall be construed as imposing any enforceable duty upon Lessor to
relet the Premises or otherwise mitigate or minimize Lessor's damages by virtue
of Lessee's default.

(b) Declare this Lease to be terminated, and reenter upon and take
possession of the Premises without notice to Lessee, whereupon the term hereby
granted and all right, title and interest of Lessee in the Premises shall
terminate. Such termination shall be without prejudice to Lessor's right to
collect from Lessee any rent or additional rent which has accrued prior to such
termination, together with all damages suffered by Lessor because of Lessee's
breach of any covenant contained in this Lease.

(c) Declare the entire remaining unpaid rent for the initial term or
renewal term then in effect to be immediately due and payable, and, at Lessor's
option, take immediate action to recover and collect the same by any available
procedure.

(d) Pursue any and all remedies permitted by the laws of the State of
Florida.

(e) Lessee hereby expressly waives any and all notices or demands of
delivery of possession required by law or otherwise.

28. Waiver. The rights of the Lessor under this Lease shall be cumulative,
and failure on the part of the Lessor to exercise promptly any rights given
hereunder shall not operate to forfeit any of the said rights.

29. Radon Gas Notification In accordance with the requirement of Florida
Statute Section 404.056 the following notice is hereby given: Radon is a
naturally occurring radioactive gas that, when it is accumulated in a building
in sufficient quantities, may present health risks to persons who are exposed to
it over time. Levels of radon that exceed federal and state guidelines have been
found in buildings in Florida. Additional information regarding radon and radon
testing may be obtained from your County Public Health Center.

30. Surrender Upon Termination. Upon the termination of this Lease, whether
by its terms or otherwise, the Lessee shall surrender the Premises to the Lessor
in broom clean condition. In the event of

<PAGE> 8

any holding over without the consent of the Lessor or other refusal of the
Lessee to return possession of the Premises to the Lessor, rent shall continue
to be payable to the Lessor, however rent shall be two times the amount stated
herein.

In Witness Whereof, the parties have executed this instrument for the
purposes herein expressed, the day and year above written.

Signed, Sealed and Delivered SIRDAN RESEARCH LIMITED, INC.
in the presence of:
(Two are required to each party)

/s/ By: /s/ Simon Raab
- ------------------------------------ -------------------------------
- ------------------ Simon Raab, President
/s/
- ------------------------------------
As to Lessor
"LESSOR"

FARO MEDICAL TECHNOLOGIES
(U.S.) INC.

/s/ By: /s/ Gregory A. Fraser
- ------------------------------------ -------------------------------
- ------------------ Gregory A. Fraser, President
/s/
- ------------------------------------
As to Lessee

<PAGE> 9
ASSIGNMENT OF LEASE
(Faro Medical Technologies (US) Inc.)

THIS ASSIGNMENT OF LEASE is between SIRDAN RESEARCH LIMITED, INC., a
Canadian corporation as Assignor and XENON RESEARCH, INC., a Florida
corporation as Assignee. It witnesses the following:

Assignor is the Landlord under that certain Lease dated March 1, 1991
between Assignor and FARO MEDICAL TECHNOLOGIES (US), INC., a Delaware
corporation as Tenant (the "Lease") pursuant to which Assignor leased to Tenant
the real property described as:

Lot 15, Technology Park at Lake Mary, Plat Book 37, Pages 61 and 62,
Public Records of Seminole County, Florida

Assignor this date has sold all of its right, title and interest in
the Lease to Assignee.

NOW THEREFORE, Assignor, for and in consideration of TEN AND NO/100
($10.00) DOLLARS and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, does hereby grant, bargain, sell,
assign, transfer and deliver to the Assignee all of its right, title and
interest in and to the Lease, including all right, title and interest in all
security deposits made by the Tenant under the Lease.

TO HAVE AND TO HOLD the same unto the Assignee forever.

By execution of this Assignment, Assignee hereby accepts the foregoing
assignment and transfer and agrees to faithfully perform all covenants,
stipulations, agreements and obligation under the Lease accruing on or after
the date of this Assignment.

IN WITNESS WHEREOF, Assignor and Assignee have signed and sealed these
presents the day and year first written above.

Signed, sealed and delivered
in the presence of:

SIRDAN RESEARCH LIMITED,
INC., a Canadian corporation

By: /s/ Simon Raab
- -------------------------------- -----------------------------
Its President

- -------------------------------- Dated: October 25, 1991
As to Assignor

XENON RESEARCH INC., a Florida
corporation

By: /s/ Simon Raab
- -------------------------------- -----------------------------
Its President

- -------------------------------- Dated: October 25, 1991
As to Assignor

<PAGE> 1
EXHIBIT 10.8

OEM PURCHASE AGREEMENT

This Agreement is entered into as of June _____ 1996 between FARO Technologies,
Inc., a corporation duly organized and existing under the laws of the State of
Florida and having its principal office of business at 125 Technology Park, Lake
Mary, Florida 32746, U.S.A. (hereinafter called "Seller") and Mitutoyo
Corporation, a corporation duly organized and existing under the laws of Japan
and having its principal office of business at 20-1, Sakado 1-chome, Takatsu-ku,
Kawasaki, Kanagawa 213, Japan (hereinafter called "Purchaser").

The parties hereto agree as follows:

Article 1. Products

1.1 "Products" shall mean all 3 dimensional measuring machines "FaroArm"
and accessories specified in the Annex 1 (5 pages in total and attached
hereto), manufactured and/or sold by Seller and subject to addition
thereto or deletion therefrom either of which shall be made by
agreement in writing of both parties hereto.

1.2 Model change of Products, release of new models of Products or
discontinued production of Products shall be subject to the prior
approval in writing of Purchaser. In case of intending such model
change, release or discontinuance, Seller shall give Purchaser notices
thereof in writing so as to enable Purchaser to plan and prepare its
marketing properly, which notices are to be given adequate period of
time at the latest six(6) months prior to such model changes, release
or discontinuance.

Article 2. Sales

2.1 Seller shall manufacture and sell Products to Purchaser and Purchaser
may resell Products directly,or, as the case may be, through its
distribution channels including its subsidiaries or affiliates to
end-users

<PAGE> 2

of Products (hereinafter called End-Users) in the countries and areas
as listed below (hereinafter called "Territory"):

* Japan, Korea, Republic of China, Taiwan, Hong Kong, Phillippines,
Singapore, Thailand, Malaysia, Indonesia, India, Pakistan, Vietnam, the
United Arab Emirates, Saudi Arabia, Israel, Turkey, Australia, New
Zealand.

2.2 Purchaser shall resell Products in Territory as a part of integrated
ystem of Products and Purchaser's softwares. Such softwares shall be
itated in 2.3 below subject to addition thereto or deletion therefrom
either of which shall be made by agreement in writing of both parties
hereto.

2.3 Purchaser's softwares, which are developed, manufactured, sold,
distributed or otherwise handled by Purchaser, shall be inclusive of
the softwares developed or manufactured by Purchaser's subsidiaries and
shall be as follows:

* For the applications of digitizing and precision measurement, TRACEPAK
Series, TRACECUT Series, GEOPAK Series, SCANPAK Series and/or other
Purchaser's softwares similar or relating thereto and any "version-up"
thereof.

2.4 Purchaser may procure the Renishaw Touch Trigger Probes applicable to
Products through its own channels. Purchaser may procure parts and/or
accessories, which are manufactured by manufacturers other than Seller
and applicable to Products, through its own channel with a prior
approval of Seller.

2.5 For the purpose of 2.4 above, Seller shall give Purchaser technical
information useful for the application of such parts and/or accessories
upon request of Seller.

<PAGE> 3

Article 3. Non-Exclusivity

Seller hereby grants to Purchaser and Purchaser accepts the non-exclusive right
to purchase Products from Seller for the purpose of resale within Territory
during the effective period of and subject to the provisions of this Agreement.

Article 4. Licenses

4.1 Seller hereby grants Purchaser a fion-exclusive license to practice
methods covered by Seller's patent applications/patents described in
the Annex 2 (7 pages in total and attached hereto)(hereinafter called
"Patent Applitations/Patents") which license is limited solely to the
purpose hereof. Purchaser may not alter, reverse engineer, disassemble
or decompile Products.

4.2 Under such license Purchaser shall be entitled to grant sublicenses to
the effect that:

(1) Purchaser, as an authorized reseller of Products, grants its
End- Users non-exclusive and permanent sublicenses to practice
methods covered by any of Patent Applications/Patents.

(2) End-Users may not alter, reverse engineer, disassemble or
decompile Products.

(3) Patent Applications/Patents shall belong to Seller.

4.3 Seller hereby grants Purchaser a non-exclusive license for the
permanent sublicenses to its End-Users, installation and support of
"CALIPER 3D Software" in Territory with regard to the resale of
Products.

4.4 The sublicenses granted to Purchaser's End-User's as referred to in 4.2
and 4.3 above shall not be affected by expiration or termination of
this Agreement.

4.5 Neither expiration nor termination of this Agreement shall affect the
rights of Purchaser as referred to in 4.1 through 4.3 above regarding
the Products or outstanding orders in Article 20 hereof.

<PAGE> 4

Article 5. Term

Except as otherwise provided in this Agreement, the initial term of this
Agreement shall be three(3) years on and from the date of signatures by the
parties hereto and thereafter this Agreement shall be automatically renewed on a
year to year basis unless terminated at the end of the initial term or renewed
term(s) of this Agreement by either party upon at least six(6) months prior
written notice.

Article 6. Individual Contract

6.1 Each individual contract under this Agreement shall be subject to this
Agreement. If there is any inconsistency between the contents of such
individual contract and those of this Agreement, the latter shall be
finally applied.

6.2 Any individual Contract shall be concluded and carried out by
Purchaser's purchase order or other contract form, which shall set
forth the description, item numbers, specifications, prices, delivery
time, and other necessary terms and conditions for shipment stated on
such purchase order.

6.3 Notwithstanding expiration or termination of this Agreement, any
individual contract concluded prior to the effective date of such
expiration, or termination shall be completely performed by the parties
hereto, unless otherwise agreed upon.

Article 7. Prices

7.1 Seller grants to Purchaser twenty-five(25)% discount from its price
lists issued and valid for its end-users in U.S.A. on all the products
mentioned on the price lists. Prices are to be calculated on FOB U.S.
Orlando Airport basis. Purchaser shall be notified of the change of
prices by Seller in writing

<PAGE> 5

six(6) months prior to the effective date of such change. Orders placed
with Seller by Purchaser before such notification shall be delivered at
the prices which are more preferable to Purchaser.

7.2 Availability of such twenty-five(25)% discount as referred to in 7.1
will not apply, unless Purchaser orders at least twenty-five(25)
machines "FaroArm" as referred to in 1.1 within the first twelve(12)
months period commencing from the date of signatures by the parties
hereto. If Purchaser has not ordered twenty-five(25) machines "FaroArm"
within such period, the rate of discount shall be twenty(20)% and such
new rate shall be applied on a retroactive basis to all previous
orders, and prices of all previous orders shall be recalculated
according to such new rate, and after such application, any shortfall
in payments due to Seller based on such recalculated prices shall be
due and payable immediately upon receipt of invoice from Seller.

Article 8. Payment

Unless otherwise agreed upon in writing between the parties hereto, Purchaser
shall pay to Seller within sixty (60) days after actual Air Waybill Date. Such
payment is to be made by telegraphic transfer to the account number of Seller's,
designated bank.

Article 9. Shipment

Unless otherwise agreed upon in writing, Seller shall effect shipment by air
transportation selected according to Purchaser's instructions stated on its
orders. The delivery terms for all shipments shall be on FOB U.S. Orlando
Airport basis as the meaning defined in "Incoterms 1990" of the International
Chamber of Commerce.

<PAGE> 6

Article 10. Packing & Marking

Packing and marking shall be at Seller's option, provided, however, that in case
of air-shipment such packing shall be airworthy in weight and strength, etc.

Article 11. Inspection

11.1 Inspection and testing of Products before shipment shall be conducted
by Seller in accordance with i) the inspection standard or pass/fall
criteria to be agreed upon between the parties hereto and ii) the Annex
1 attached hereto. The Seller's standard inspection and testing reports
shall be prepared as shown in the samples provided in Annex 3. attached
hereto and copies of such inspection and testing results shall
accompany Products at each shipment. Originals of such inspection and
testing results shall be mailed by Seller to Purchaser.

11.2 If Seller fails to attach the copy and/or present such inspection and
testing results stated in 11.1 above without any reasonable reason nor
any notice in advance to Purchaser, Purchaser shall be entitled to
reject such Products and return the same to Seller in Purchaser's
discretion. In such case Seller shall beat all the costs, expenses or
charges related to or arising from such rejection.

Article 12. Specifications and Technical Documents

12.1 Products to be supplied by Seller to Purchaser under this Agreement
shall be in accordance with the specifications agreed upon between the
parties hereto and set forth in the Annex I attached hereto. However,
in case any revision or supplement is necessary for such
specifications, the parties hereto shall decide such revision or
supplement by mutual negotiation on the basis of the specifications
commonly applied to the products similar to Products.

<PAGE> 7

12.2 Technical documents delivered by Seller hereunder shall not be
reproducible for Purchaser without Seller's prior written consent.
Technical documents so delivered and in Purchaser's possession shall be
stored strictly in confidence by Purchaser.

Article 13. Warranty

13.1 Seller warrants that Products shall be free from faults and defects in
workmanship or material affecting the fitness of Products for its usual
purpose under normal condition of use, service and maintenance and that
Products shall have the specified qualities according to the Products
specifications based on inspection standard.

13.2 Seller warrants that Products including the Software as referred to in
4.3 hereof shall operate and perform according to specifications and in
connection with the usual purpose for which Products are designed.

13.3 The period of warranties (hereinafter called "Warranty Period") set out
in 13.1 and 13.2 (hereinafter collectively called "Warranties") above
shall be twelve(12) months from the actual Air Waybill Date of
Products.

13.4 Subject to the limitations hereof, Warranties shall apply to any
defects found by Purchaser in the operation of Products and reported to
Seller within Warranty Period. In case of Seller's breach of any of
Warranties, Purchaser may return all the defective Products to Seller
at Purchaser's expense for shipping, and Seller will inspect such
defective Products. Without any charge, Seller shall in a reasonable
time repair such defective Products or replace the same with Products
free from defects and Seller shall pay shipping charges back to
Purchaser.

<PAGE> 8

13.5 Seller shall ship such replacement Products to Purchaser, effecting
insurance on Products for Purchaser. In such case the covering
insurance shall be air-transport insurance with All Risks, unless
otherwise stated.

13.6 Seller shall bear all the costs, expenses and charges related to or
arising from such defects, including, but not limited to, the costs of
transportation, insurance for the invoice amount plus ten(10) percent,
duties, fees and taxes.

13.7 Warranties do not apply to any defects in any component of Products if:

(1) Products have been improperly stored, installed, operated or
maintained, or

(2) Purchaser has permitted modifications, additions, adjustments
and/or repair, any of which has not been approved and
permitted by Seller.

i) to any memory device structures or content, or any other
part of Products, or

ii) which might affect Products.

13.8 Nothing contained herein shall be construed as obligating Seller to
make service, parts or repairs for Products available under the terms
and conditions for Warranties after the expiration of Warranty Period.
Such service, parts or repairs for Products made by Seller upon
Purchaser's request after the expiration of Warranty Period shall be
chargeable to Purchaser under the fee schedule agreed upon between the
parties hereto.

13.9 PURCHASER ACKNOWLEDGES THAT IT HAS PURCHASED PRODUCTS BASED UPON ITS
OWN KNOWLEDGE OF THE USES TO WHICH PRODUCTS WILL BE PUT. SELLER
SPECIFICALLY DISCLAIMS ANY WARRANTY OR LIABILITY RELATED TO THE FITNESS

<PAGE> 9

OF PRODUCTS FOR ANY PARTICULAR PURPOSE OR ARISING FROM THE INABILITY OF
THE PURCHASER TO USE PRODUCTS FOR ANY PARTICULAR PURPOSE.

13.10 If any claim for products liability regarding Products is made against
Seller by a third party, Purchaser shall indemnify and hold Seller
harmless against such claim except that Purchaser reasonably
establishes that any losses and damages sustained by Purchaser in
connection with such claim are resulted from Seller's liability. In
case such claim is made against either party, either party shall
immediately notify the other party thereof in writing, and the parties
hereto shall cooperate in taking appropriate countermeasure.

13.11 THIS WARRANTY IS IN LIEU OF ALL OTHER EXPRESSED OR IMPLIED WARRANTIES
(INCLUDING WITHOUT LIMITATION ANY WARRANTY OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE). IN NO EVENT SHALL SELLER BE LIABLE
FOR ANY SPECIAL, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING BUT NOT
LIMITED TO, LOST PROFITS OR OTHER DAMAGES FROM LOSS OF PRODUCTION)
CAUSED BY DEFECTIVE MATERIAL, OR BY UNSATISFACTORY PERFORMANCE OF THE
PRODUCT OR BY ANY OTHER BREACH OF CONTRACT BY SELLER.

Article 14. Claims

After the arrival of Products to the destination, Purchaser may check the
Products in its own manner. In the event that any shortage, different content,
visible defect or any other difference from the order is found by Purchaser,
Purchaser may notify Seller in writing of any claim within sixty(60) days from
the arrival date of Products at the port of destination, except that Purchaser
shall notify Seller in writing of any claim related to latent defects in
accordance with 13.4 hereof.

<PAGE> 10

Article 15. Material and Education

15.1 Seller undertakes to provide Purchaser with all the materials and
information necessary for sale of Products, including, but not limited
to, the latest version of a users' manual, sales brochures and
literatures, as available from time to time, connected with the
Products, or amendments thereto as they occur from time to time.

15.2 Purchaser will have full support from Seller in the initial and ongoing
education in the manner and burden of costs agreed upon between the
parties hereto.

15.3 Seller shall provide Purchaser free of charge such technical and sales
information including advisory service as may be necessary for full
understanding of Products and for the proper distribution,
installation, servicing or maintenance of Products. As the case may be,
Purchaser may, at its own expenses, send its personnel to the place
designated by Seller for the above purpose after giving reasonable
notice of such visits.

Article 16. Industrial Property Right

Seller is responsible for any alleged infringement with regard to patent,
utility model, trademark, design or copyright relating to Products in Territory.
In the event of any dispute with regard to such intellectual and industrial
property rights, Purchaser may terminate this Agreement in Purchaser's
discretion. Seller is responsible for and shall defend, reimburse, indemnify and
hold Purchaser harmless from any liability, claim, expense, loss and/or damage
sustained thereby.

<PAGE> 11

Article 17. Trademarks, etc.

17.1 Seller shall mark or shall allow Purchaser to mark Products with the
trademarks and/or trade name of Purchaser in accordance with the manner
agreed upon between the parties hereto.

17.2 Seller shall have no right with respect to the trademarks and trade
name of Purchaser, provided, however, that Seller may use the
trademarks and trade name of Purchaser only for Products delivered to
Purchaser pursuant to this Agreement.

Article 18. Confidentiality

18.1 Either party shall keep in strict confidence and not to disclose
information marked with "confidential information" relating to this
Agreement, including, but not limited to, the conclusion and contents
of this Agreement, furnished by the other party.

18.2 The provision of 18.1 above shall not apply to the following:

(1) information which is or subsequently may be in public domain
through no fault of the receiving party; or

(2) information which the receiving party can show as a matter of
record was previously known to it at the time of its receipt;
or

(3) information which subsequently may be obtained lawfully from a
third party having the right to disclose it without any
obligation of confidentiality; or

<PAGE> 12

(4) information which is approved in writing by the furnishing
party for release of the receiving party; or

(5) information which the receiving party can show as a matter of
record was independently developed by the receiving party.

18.3 The provisions of 18.1 and 18.2 above shall survive expiration or
termination of this Agreement.

Article 19. Termination

19.1 In case there is any breach of the terms under this Agreement by either
party during the effective period of this Agreement, the other party
shall give notice in writing to such party to correct such breach.
Unless such breach is corrected within thirty (30) days after such
notice is received by the breaching party, the other party shall have
the right to terminate this Agreement by written notice thereafter and
the losses and damages sustained thereby shall be indemnified by the
breaching party.

19.2 Further, in the event of bankruptcy, insolvency, dissolution,
consolidation or receivership proceedings affecting the operation of
business for any reason by either party, the other party shall have the
right to terminate this Agreement with a written notice to such party.

Article 20. Stocks and/or Outstanding Orders

In the event of expiration or termination of this Agreement for Purchaser's own
reason, not attributable to Seller, Purchaser shall be liable for keeping all
the stocks of purchased Products and Products in transit, and yet accepting all
the shipments for then outstanding order of Purchaser to be shipped by Seller.
All the stocks of such Products, Products in transit and such outstanding orders
are at Purchaser's disposal in case of expiration or termination of this
Agreement for Seller's reason.

<PAGE> 13

Article 21. Steps after Expiration/Termination

On the expiration or termination of this Agreement, Purchaser reserves the right
to purchase, for a period of ten (10) years from the date of expiration or
termination of this Agreement, parts and components of Products from Seller for
Purchaser's direct or indirect (in case of such services through Purchaser's
distribution channels) after-sale service for its End-Users.

Article 22. Notice

22.1 All necessary notices or requests by either party to the other party in
performing this Agreement shall be addressed to the first above written
address or the address designated by the other party. Such notices or
requests shall be deemed to take effect on and from such receipt.

22.2 Any party shall notify the other party in writing of any change of
address to which all notices or requests shall be sent.

Article 23. Arbitration and Applicable Law

23.1 All disputes, controversies or differences which may arise between the
parties, out of or in relation to or in connection with this Agreement,
or the breach thereof, shall be finally settled by arbitration pursuant
to the Japan-American Trade Arbitration Agreement, of September 16,
1952, by which each party hereto is bound.

23.2 This Agreement shall be governed by and interpreted in accordance with
the laws of the State of Florida, U.S.A.

<PAGE> 14

Article 24. Assignment

Neither party shall assign, transfer or otherwise dispose of this Agreement in
whole or part to any person, firm or corporation without the prior written
consent of the other party, in such party's sole discretion.

Article 25. Waiver

Any failure of either party to enforce, at any time or for any period of time,
any of the provisions of this Agreement shall not be construed as a waiver of
such provisions or of the right of such party thereafter to enforce each such
provision.

Article 26. Force Majeure

Neither party hereto shall be liable in any manner for failure or delay upon
fulfillment of all or part of this Agreement, directly or indirectly, owing to
causes or circumstances beyond the control of such party, including, but not
limited to, Acts of God, governmental orders or restriction, war, sanctions,
blockade, revolution, riot, strikes, epidemics, or fire.

Article 27. Trade Terms

All trade terms under this Agreement and each individual contract shall be
interpreted in accordance with the provisions of 'Incoterms 1990" of the
International Chamber of Commerce.

Article 28. Entire Agreement

This Agreement constitutes the final and entire agreement between ihe parties
hereto with respect to any subject matter herein and shall supersede all
previous representations, understandings and agreements between the parties
hereto.

<PAGE> 15

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in duplicate in Florida, U.S.A. by their duly authorized officers or
representatives as of the date first above written.

FARO Technologies, Inc.
125 Technology Park, Lake Mary,
Florida 32746, U.S.A.

Phone: 407-333-9911
-----------------------------------

Telefax: 407-333-4181
-----------------------------------

By: /s/ Gregory A. Fraser
--------------------------------------

Name & Title: Gregory A. Fraser, Vice
President

Mitutoyo Corporation
20-1, Sakado 1-chome, Takatsu-ku,
Kawasaki, Kanagawa 213, Japan

Phone: (044) 813 - 8230
-----------------------------------

Telefax: (044) 813 - 8231
-----------------------------------

By: /s/ Norio Takatsuji
--------------------------------------

Name & Title: Norio Takatsuji, President

<PAGE> 1

EXHIBIT 10.9

NONEXCLUSIVE UNIQUE APPLICATION RESELLER AGREEMENT

This Nonexclusive Unique Application Reseller Agreement (the
"Agreement") is entered into in California, by and between Autodesk, Inc., a
Delaware corporation with principal offices at 111 McInnis Parkway San Rafael,
California 94903 ("Autodesk"), and Faro Technologies, a Delaware corporation
with principal offices at 125 Technology Park Drive, Lake Mary, Florida 32746
("UAR"). The Effective Date shall be the last date on which an authorized
representative of the parties signed below.

THE PARTIES AGREE AS FOLLOWS:

1. DEFINITIONS.

1.1 "Software" shall mean the Autodesk software set forth on
Exhibit A and any subsequent release delivered to UAR by Autodesk as mutually
agreed upon by the parties in writing.

1.2 "Documentation" shall mean the reference manual
customarily supplied to Customers by Autodesk with the Autodesk retail version
of the Software.

1.3 "Customer" shall mean any third party licensee of the UAR
Product who obtains such UAR Product solely in order to fulfill its own personal
or business needs and not for further distribution or resale.

1.4 "UAR Product" shall mean the Software bundled in
combination with and accompanied by UAR's software as described in Exhibit A.

1.5 "Territory" shall mean those countries set forth in
Exhibit B.

1.6 "Sales Channels" shall be those channels set forth in
Exhibit B.

1.7 "Market" shall mean the market set forth in Exhibit B.

1.8 All references in this Agreement to the "Sale" of or
"selling" or "purchase" of Software shall mean the sale of a license to use such
Software or Software Copies.

2. APPOINTMENT AND RESPONSIBILITIES OF UAR.

2.1 Appointment. Subject to the terms and conditions of this
Agreement, Autodesk appoints UAR as a Unique Application Reseller and grants to
UAR a non-exclusive license to distribute, through UAR's Sales Channels,
promote, market and sublicense the Software bundled with the UAR's software as a
UAR Product within the Territory and Market as defined above. In the event that
UAR breaches the limitations of this appointment, UAR shall rebate to Autodesk,
as liquidated damages and not as a penalty, an amount (with respect to each such
sale) equal to the difference between the then-current Autodesk
U.S. suggested retail price as indicated on the applicable published Autodesk
price list and the per copy fee.

Autodesk reserves the unrestricted right to distribute,
promote, market and sublicense the Software and Documentation (as provided to
UAR or as distributed by Autodesk in the Autodesk retail version of the
Software) in the Territory, including but not limited to through OEMs, VARs, and
other third party resellers (including other unique application resellers), as
well as directly to Customers.

2.2 Bundling. UAR shall not distribute any Autodesk Software
or Documentation to any party separately or unbundled from the UAR Product, or
price quote or invoice the Autodesk Software as a separate item. UAR
acknowledges that any transfer of the Software or Documentation acquired
pursuant to this Agreement as a stand-alone product is expressly prohibited.

<PAGE> 2

2.3 Promotion of UAR Products. UAR, shall, at its own expense,
actively promote the distribution of the UAR Product within the Territory and
shall assume all costs and obligations, including any commissions, involved with
sales and marketing of the UAR Product.

2.4 Marketing. UAR shall, at its own expense:

i) reference the Software as a component of the
UAR Product in UAR!s brochures and feature the Software as a component of the
UAR Product in any applicable trade show that it attends;

ii) provide adequate contact with existing
customers, including notifying customers of bugs or errors in the Software and
corrections or fixes for such bugs or errors as suggested by Autodesk to UAR;

iii) assist Autodesk in assessing Customer
requirements for the Software as a component of the UAR Product, including
modifications and improvements thereto, in terms of quality, design, functional
capability, and other features; and

iv) promptly notify Autodesk of bugs or errors
in the Software discovered by UAR or reported to UAR by Customers.

2.5 End User Licensing. The UAR Product shall be sublicensed
to Customers under the terms of UAR's Customer License. The term "Customer
License" shall mean UAR's standard license agreement which contains terms
substantially similar to the minimum terms and conditions described in Exhibit C
pursuant to which Customers are granted a license to use the Software.

2.6 Registration. UAR shall be responsible for Customer
registration of the UAR Product. UAR shall maintain an accurate accounting of
the Autodesk serial numbers incorporated into the UAR Product and shall
provide registration reports to Autodesk as set forth in Paragraph 4.6 (Sales
and Inventory Reports).

2.7 Conflict of Interest. UAR shall not promote the products
of other companies if it will create a conflict of interest in handling
Autodesk's confidential or proprietary information.

3. PROHIBITIONS.

3.1 Modification. Autodesk shall be responsible for all
reproduction of copies of the Software and Documentation. UAR shall not disable
features of the Software, modify, enhance or make derivative works of the
Software or Documentation or sublicense such rights. UAR may, however, link its
software to the Software and revise the user interface of the Software. UAR
agrees not to reverse engineer, disassemble, or decompile the Software in whole
or in part. UAR acknowledges that Autodesk desires to protect the integrity of
the Software as a commercial technology. UAR agrees that the licenses granted
herein are subject to UAR bundling the Software in its entirety, as delivered by
Autodesk to UAR and UAR specifically agrees not to bundle a lesser subset of any
Software files with the UAR Product without Autodesks prior written consent.

3.2 Mail Order Sales Prohibited. UAR shall not distribute
the UAR Product by Mail Order or to any Sales Channel that UAR has
reason to believe may distribute the UAR Product by Mail Order. "Mail Order"
shall be defined as invitation, through advertising or otherwise, for orders by
mail or telephone, where Customer service, product demonstrations and
installation services are not offered by UAR to the Customer.

3.3 Software Purchases. Software for use in the UAR Product
may only be purchased

2
<PAGE> 3

under the terms of this Agreement. UAR may not purchase Software for the UAR
Product under any other agreements with Autodesk.

4. TERMS OF DELIVERY OF SOFTWARE AND DOCUMENTATION

4.1 Delivery. Autodesk shall deliver to UAR copies of the
Software media (5 1/4, 3 1/2 floppy disk, CD-ROM or tape) and copies of the
necessary documentation, as ordered by UAR from time to time.

4.2 Orders, Acceptance and Shipping. All orders for copies of
Software and Documentation shipped to UAR by Autodesk shall be in writing
(including by facsimile), and shall be subject to the terms and conditions of
this Agreement. Any purchase order which purports to supersede or otherwise
modify this Agreement shall be of no force or effect. Each copy of Software and
Documentation shall be deemed accepted by UAR upon receipt. All Software and
Documentation delivered by Autodesk shall be F.O.B. Autodesk's manufacturing
plant. All shipping charges, special packing expenses, if any, and insurance,
will be borne by UAR. If at any time UAR is not in conformance with its
obligations under the terms of this Agreement, Autodesk reserves the right to
cease delivering Software and Documentation to UAR until such time as UAR is in
compliance with such obligations.

4.3 Payment. The price to UAR for each copy of the Software
and related Documentation shall be the then-current Price List price for the
Autodesk version of the Software less the discount set forth in Exhibit D. UAR's
discount is dependent upon UAR's quarterly purchases (revenues) to Autodesk.
Such discount shall be adjusted quarterly based on UAR's previous quarter
revenues. Autodesk shall submit an invoice to UAR upon each shipment. Upon
approval of UAR!s credit standing by Autodesk, payment terms shall be thirty
(30) days from the date of the invoice. Pending such approval, payment shall be
due immediately upon delivery. Any invoiced amount not received within thirty
(30) days of the date of invoice shall be subject to a service charge of one and
one-half percent (1.5%) per month (or, if less, the maximum allowable by
applicable law). UAR shall pay all sales, property, excise, duties, and other
federal and local taxes (other than those based on Autodesk's net income).

4.4 Initial Purchase. Upon execution of this Agreement, UAR
shall purchase the quantity of Software Copies set forth in Exhibit D. Such
initial purchase shall determine UAR's discount for the first and second
quarters of this Agreement.

4.5 Sales and Inventory Reports and Audit Rights. UAR shall
provide Autodesk with a quarterly point-of-sale report for each of the Sales
Channels set forth in Exhibit B, showing, at a minimum, date shipped, quantity
of UAR Product sold and used internally, the Autodesk serial numbers and the
corresponding UAR serial numbers, the Customers' names and addresses, quantities
sold to such Customers (if any), as well as the quarter-end inventory position
on hand for the UAR Product. This report must be forwarded within fifteen (15)
days of the close of each quarter. Within the first five (5) days of every
quarter, UAR shall provide Autodesk with a ninety (90) day rolling forecast
showing prospective orders for each Sales Channel and intended date when such
orders shall be submitted to Autodesk. UAR shall maintain complete and accurate
records of the information required by this section. Autodesk shall be entitled,
at any time during the term of this Agreement, to audit the books and records of
UAR for purposes of compliance with the terms of this Agreement and verifying
such sales and inventory reports. Any such audit shall be conducted by Autodesk
or its representatives during normal business hours, and UAR shall cooperate
fully with Autodesk or its representatives in any such audit. In the event such
inspection or audit discloses any underpayment, UAR shall promptly pay Autodesk
such amount, together with interest accrued daily at a rate per annum equal to
the highest allowable rate under California law on the unpaid balance until paid
in full.

5. CUSTOMER SERVICE.

5.1 Customer Support. UAR, (through UAR's Sales Channel),
shall be directly responsible

3
<PAGE> 4

for providing Customer support for the UAR Product and the Software as a
component of the UAR Product. UAR shall contract with its sales channel to
provide installation and support services solely through sales, installation and
support personnel employed directly by UAR or its Sales Channel. UAR shall
maintain on staff full time support personnel sufficiently knowledgeable with
respect to the Software such that UAR shall be capable of fully supporting the
Software as a component of the UAR Product. At no time during the term of this
Agreement, shall UAR represent to any Customer that Autodesk is available to
directly answer questions about the Software as a component of the UAR Product.

5.2 Autodesk Support to UAR. Autodesk shall, during normal
business hours, provide to UAR telephone assistance and response to written
requests received by telecopy concerning Software errors and possible work
arounds for the Software. Such support is specifically designed to assist UAR as
a reseller of the Software and UAR is not to make such UAR support accessible to
its Customers at any time.

5.3 Error Notifications. UAR shall promptly notify Autodesk
of bugs or errors in the Software or Documentation. Autodesk shall not be
obligated to correct any such errors discovered by UAR or reported to UAR by
Customers.

5.4 Autodesk Developer Support. UAR shall register with
Autodesk Developer Marketing to participate in the Autodesk Developer Network
Program at the then current fees.

6. UPGRADES BY UAR.

In the event Autodesk creates bug fixes or New Releases
("Upgrades") of the Software, Autodesk will notify UAR in writing (including
through CompuServe) and UAR will advise Autodesk as to whether UAR wishes to
receive such Upgrade. Once any such Upgrade is made available to UAR, if UAR
decides to integrate the Upgrade into the UAR Product, UAR shall be responsible
for providing such Upgrade as a component of the revised UAR Product to its
Customers. UAR will ensure that the copy of the Software as a component of the
UAR Product is destroyed either by UAR or by Customer at the time the Upgrade is
installed. Any such Upgrade shall be subject to the terms of this Agreement.
Unless other arrangements are made with Autodesk in writing, such Upgrade will
not be delivered to Customers as stand-alone product but rather will be
integrated into the new version of the UAR Product and delivered as an upgrade
to the UAR Product already in the possession of UAR's installed base of
Customers.

7. WARRANTIES.

7.1 Standard Limited Warranty. Autodesk will provide no
warranty or continuing support for the Software to Customers or the Sales
Channel and UAR agrees that UAR shall be solely responsible for providing
warranty and continuing support to UAR's Customers and Sales Channel. Autodesk
warrants to UAR, for a period of ninety (90) days from delivery by Autodesk to
UAR, that the copies of the Software delivered to UAR (as a standalone product)
will perform substantially in accordance with the Documentation. UAR SHALL NOT
MAKE OR PASS ON TO ANY PARTY ANY WARRANTY OR REPRESENTATION CONCERNING THE
SOFTWARE AND DOCUMENTATION ON BEHALF OF AUTODESK.

7.2 No Other Warranty. EXCEPT FOR THE LIMITED WARRANTY
TO UAR DESCRIBED IN SUBPARAGRAPH 7.1 ("STANDARD LIMITED WARRANTY"), AUTODESK
GRANTS NO OTHER WARRANTIES, EXPRESS OR IMPLIED, BY STATUTE OR OTHERWISE
REGARDING SOFTWARE AND DOCUMENTATION. AUTODESK DOES NOT WARRANT THE PERFORMANCE
OF THE SOFTWARE WHEN USED IN CONJUNCTION WITH THE UAR PRODUCT. FURTHERMORE,
AUTODESK EXPRESSLY EXCLUDES ANY IMPLIED WARRANTY OF FITNESS FOR A PARTICULAR
PURPOSE, MERCHANTABILITY OR NON-INFRINGEMENT.

8. CONTACT PERSONS.

4
<PAGE> 5

The contact persons for the parties shall be:

Autodesk: Larry Rios
15303 Dallas Parkway
Suite 1410
Dallas, TX 75248
Tel: (214) 701-1069 Fax: (214) 701-1080

UAR: Faro Technologies
125 Technology Park Drive
Lake Mary, FL 32746
Tel: (407) 333-9911
Fax: (407) 333-4181

9. OWNERSHIP OF PROPRIETARY RIGHTS.

UAR acknowledges that the Software and Documentation are
proprietary to Autodesk and that Autodesk retains exclusive ownership of the
Software and Documentation and all proprietary rights associated with the
Software and Documentation. UAR shall take all reasonable measures to protect
Autodesk's proprietary rights in the Software and Documentation. Except as
provided herein, UAR is not granted any other rights or license to patents,
copyrights, trade secrets or trademarks with respect to the Software and
Documentation. UAR shall promptly notify Autodesk in writing upon its discovery
of any unauthorized use or infringement of the Software and Documentation or
Autodesk's patent, copyright, trade secret, trademark or other intellectual
property rights. UAR shall not (and shall require that its Customers do not)
remove, alter, or cover any copyright notices or other proprietary rights
notices placed on or in any copy of the Software or Documentation by Autodesk.
UAR shall not sell to any Customer if UAR has notified Autodesk that such
Customer may be involved in potential unauthorized use of Software or
Documentation or other infringement of Autodesk's proprietary rights.

10. CONFIDENTIALITY.

10.1 Confidentiality Required. Through its relationship with
Autodesk UAR shall have access to certain information and materials concerning
Autodesk's business, plans, Customers, technology, and products that are
confidential and of substantial value to Autodesk, which value would be impaired
if such information were disclosed to third parties ("Confidential
Information"). UAR shall not disclose any such Confidential Information to any
third party and shall take every reasonable precaution to protect such
information. UAR shall not publish any technical description of Software and
Documentation beyond the description published by Autodesk. In the event of
termination of this Agreement, there shall be no use or disclosure by UAR of any
confidential information of Autodesk.

10.2 Exceptions to Confidentiality. UAR's confidentiality
obligations do not extend to Confidential Information which (i) becomes publicly
available without the fault of UAR; (ii) is rightfully obtained by UAR from a
third party with the right to transfer such information; or (iii) is
independently developed by UAR and without reference to Autodesk's Confidential
Information. UAR shall have the burden of proving the existence of any condition
in this Paragraph.

11. TRADEMARKS.

During the term of this Agreement, UAR shall have a
non-exclusive, non-transferable right to indicate to the public that it is an
authorized UAR of Autodesk's Software and Documentation as a component of the
UAR Product and to advertise such Software and Documentation as a component of
the UAR Product within the Territory under the Autodesk trademarks and slogans
adopted by Autodesk from time to time ("Trademarks").

5
<PAGE> 6

UAR shall include the Autodesk Trademarks in any literature, promotion or
advertising concerning the UAR Product. UAR shall not affix any Autodesk
Trademark to products other than the UAR Product. UAR shall not contest, oppose
or challenge Autodesk's ownership of the Trademarks. All representations of
Autodesk Trademarks that UAR intends to use shall be exact copies of those used
by Autodesk, or shall first be submitted to the appropriate Autodesk personnel
for approval of design, color, and other details and such approval shall not be
unreasonably withheld. If any of the Autodesk Trademarks are to be used in
conjunction with another trademark on or in relation to the UAR Product, then
the Autodesk Trademarks shall be presented equally legibly, equally prominently,
but nevertheless separated from the other so that each appears to be a trademark
in its own right, distinct from the other mark. Effective upon the termination
of this Agreement, UAR shall cease to use all Autodesk Trademarks.

12. PROPRIETARY RIGHTS INDEMNITY.

Autodesk shall defend, at its expense, any action brought
against UAR which alleges that the Software or Documentation infringes a United
States copyright or patent, provided that UAR promptly notifies Autodesk in
writing of any claim, gives Autodesk sole control of the defense and settlement
thereof, and provides all reasonable assistance in connection therewith. If the
Software and Documentation is finally adjudged to so infringe, Autodesk shall,
at its option, (a) procure for UAR the right to continue using the Software and
Documentation as a component of the UAR Product; (b) modify or replace the
Software and Documentation so there is no infringement; or (c) accept return of
the copies of the Documentation in UAR's inventory and refund the purchase
price. Autodesk shall have no liability regarding any claim arising out of the
use of the Software and Documentation in combination with other products,
including the UAR Product, if the infringement would not occur but for such
combination. THE FOREGOING STATES UAR'S SOLE AND EXCLUSIVE REMEDY WITH
RESPECT TO CLAIMS OF INFRINGEMENT OF THIRD PARTY PROPRIETARY RIGHTS OF ANY
KIND.

UAR shall defend, at its expense, any action brought against
Autodesk for any claim which alleges the UAR Product infringes a United States
copyright or patent. Autodesk shall provide all reasonable assistance in
connection with any claim therewith.

13. TERM AND TERMINATION.

13.1 Term. The term of the Agreement shall commence upon the
Effective Date and unless terminated earlier in accordance with the terms of
this Agreement, shall continue for one (1) year.

13.2 Termination for Cause. Autodesk may terminate this
Agreement upon thirty (30) days written notice of a material breach.

13.3 Termination for Convenience. This Agreement may be
terminated without administrative or judicial resolution by either party for any
reason or no reason, by giving the other party written notice ninety (90) days
in advance.

13.4 Termination for Insolvency. Either party may terminate
this Agreement immediately, upon written notice, (i) upon the institution by or
against the other of insolvency, receivership or bankruptcy proceedings or any
other proceedings for the settlement of the other's debts, (ii) upon the
other's making an assignment for the benefit of creditors or (iii) upon the
other's dissolution or ceasing to conduct business in the normal course.

13.5 Fulfillment of Orders Upon Notice of Termination. Upon
delivery of notice of termination pursuant to this Paragraph 13 ("Term and
Termination"), Autodesk shall not be obligated to fulfill any unfulfilled orders
or any orders received by Autodesk subsequent to the date of delivery of notice
of termination. In Autodesk's sole discretion Autodesk may continue to fulfill
orders if UAR (i) submits prepayments for any such

6
<PAGE> 7

order and (ii) pays all credit balances then outstanding prior to any shipment
of Software or Documentation by Autodesk.

13.6 Return of Materials. All Autodesk Confidential
Information, data, photographs, samples, literature, and sales aids of every
kind shall remain the property of Autodesk. Within thirty (30) days after the
termination of this Agreement, UAR shall return all such items as Autodesk may
direct, at Autodesk's shipping expense.

13.7 Survival of Certain Terms. The provisions of Paragraph
4.3 ("Payment"), Paragraph 5.1 ("Customer Support"), Paragraph 7 ("Warranties"),
Paragraph 9 ("Ownership of Proprietary Rights"), Paragraph 10
("Confidentiality"), Paragraph 11 ("Trademarks"), Paragraph 12 ("Proprietary
Rights Indemnity"), Paragraph 13 ("Term and Termination"), Paragraph 14
("Consequential Damages Waiver") and Paragraph 15 ("Limitation of Liability")
shall survive the termination of this Agreement for any reason. All other
rights and obligations of the parties shall cease upon termination of this
Agreement.

14. CONSEQUENTIAL DAMAGES WAIVER.

THE PARTIES AGREE THAT IN NO EVENT WILL AUTODESK BE LIABLE TO
UAR OR ANY OTHER PARTY, UNDER ANY THEORY OF LIABILITY, WHETHER IN AN ACTION
BASED ON A CONTRACT, TORT (INCLUDING NEGLIGENCE) OR ANY OTHER LEGAL THEORY,
HOWEVER ARISING, FOR ANY COSTS OF PROCUREMENT OF SUBSTITUTE GOODS OR SERVICES BY
UAR OR FOR ANY LOSS OF USE, INTERRUPTION OF BUSINESS, OR INDIRECT, SPECIAL,
INCIDENTAL, OR CONSEQUENTIAL DAMAGES OF ANY KIND, WHETHER OR NOT AUTODESK HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGE. THIS LIMITATION SHALL APPLY
NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY.

15. LIMITATION OF LIABILITY.

AUTODESK'S AGGREGATE LIABILITY UNDER THE TERMS OF THIS
AGREEMENT SHALL BE LIMITED TO THE TOTAL PAYMENTS MADE BY UAR TO AUTODESK FOR THE
SOFTWARE AND DOCUMENTATION SHIPPED BY AUTODESK TO UAR FOR INCLUSION IN THE UAR
PRODUCT IN THE MOST RECENT FULL CALENDAR YEAR PRECEDING IMPOSITION OF SUCH
LIABILITY. THIS LIMITATION SHALL APPLY NOTWITHSTANDING ANY FAILURE OF ESSENTIAL
PURPOSE OF ANY LIMITED REMEDY.

16. GENERAL PROVISIONS.

16.1 Compliance With Laws.

a) Foreign Corrupt Practices Act.
In conformity with the United States Foreign Corrupt Practices Act and with
Autodesk's established corporate policies regarding foreign business practices,
UAR and its employees and agents shall not directly or indirectly make an offer,
payment, promise to pay, or authorize payment, or offer a gift, promise to give,
or authorize the giving of anything of value for the purpose of influencing an
act or decision of an official of any government within the Territory or the
United States Government (including a decision not to act) or inducing such a
person to use his influence to affect any such governmental act or decision in
order to assist Autodesk in obtaining, retaining or directing any such business.

b) Export Administration Act. In conformity
with the United States Export Administration Act and regulations promulgated
thereunder, UAR and its employees and agents shall not disclose, export or
reexport, directly or indirectly, any Product or technical data (or direct
products thereof) provided under this Agreement to destinations in Country
Groups S and Z as modified from time to time by the U.S. Department of Commerce,
or to destinations that are otherwise controlled or embargoed under U.S. law.
The countries and

7
<PAGE> 8

destinations listed as of the date hereof include the following:

Country Group S: Libya

County Group Z: North Korea, Cuba

Other: Iran, Iraq
Serbia, Montenengro

c) UAR shall comply with any and all laws,
regulations, or legal requirements of the territory that apply to execution and
performance of this Agreement.

16.2 Assignment. UAR shall not assign this Agreement, in
whole or in part, without the prior written approval of Autodesk. To obtain
prior written approval to assign this Agreement in the case of a change of
ownership, UAR must submit information regarding the proposed assignee, as
specified by Autodesk, at least thirty (30) days prior to the proposed date of
assignment. Autodesk will review the information and accept or reject the
proposed assignment, in writing, in Autodesk's sole discretion. For the
purposes of this paragraph, a change in the persons or entities who control 50%
or more of the equity securities or voting interest of UAR shall be considered
an assignment of this Agreement. Notwithstanding the foregoing, Autodesk's
rights and obligations under this Agreement, in whole or in part, may be
assigned by Autodesk and Autodesk may sell, pledge or otherwise transfer its
right to receive payments under this Agreement.

16.3 Injunctive Relief. It is expressly agreed that a
material breach of this Agreement by UAR shall cause irreparable harm and a
remedy at law would be inadequate. In addition to any and all remedies
available at law, Autodesk shall be entitled to an injunction or other
equitable remedies in all legal proceedings in the event of any threatened or
actual violation of any or all of the provisions of this Agreement.

16.4 Governing Law and Jurisdiction. This Agreement shall be
governed by and construed under the laws of the State of California. The federal
(Northern District of California) and state (Marin County) courts within the
State of California shall have jurisdiction to adjudicate any dispute arising
out of this Agreement.

16.5 Legal Expenses. The prevailing party in any legal action
brought by one party against the other arising out of this Agreement shall be
entitled, in addition to any other rights and remedies it may have, to
reimbursement for its expenses, including court costs, expert witness fees and
reasonable attorney's fees.

16.6 Independent Contractors. The relationship of Autodesk
and UAR established by this Agreement is that of independent contractors, and
nothing contained in this Agreement shall be construed to create an agency
relationship between the parties or to allow UAR to create or assume any
obligation on behalf of Autodesk for any purpose whatsoever.

16.7 Severability. In the event that any provision of this
Agreement shall be unenforceable or invalid under any applicable law or be so
held by applicable court decision, such unenforceability or invalidity shall not
render this Agreement unenforceable or invalid as a whole.

16.8 Waiver. The failure of either party to require
performance by the other party of any provision hereof shall not affect the full
right to require such performance at any time thereafter; nor shall the waiver
by either party of a breach of any provision hereof be taken or held to be a
waiver of the provision itself

16.9 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.

16.10 Entire Agreement. This Agreement sets forth the entire
agreement and understanding

8
<PAGE> 9

of the parties relating to the subject matter herein. This Agreement merges and
supersedes all prior or contemporaneous agreements, discussions and
understandings between the parties, oral or written, regarding such subject
matter. No modification to, or amendment of, this Agreement, shall be effective
unless in writing and signed by the party to be bound.

"Autodesk" "UAR"
AUTODESK, INC. FARO TECHNOLOGIES
By:/s/ Glen Vondrick By:/s/ Gregory A. Fraser
- ---------------------------------- ------------------------------------

Glen Vondrick Gregory A. Fraser
- ---------------------------------- ------------------------------------
Printed Name Printed Name

Director of OEM Sales Vice President
- ---------------------------------- ------------------------------------
Title Title

9/9/96 8/30/96
- ---------------------------------- ------------------------------------
Date Date

<PAGE> 1

EXHIBIT 10.10

PATENT AND CONFIDENTIALITY AGREEMENT

Full Name of Employee:
- ---------------------

- ---------------------------------------------
THIS PATENT AND CONFIDENTIALITY AGREEMENT is between the undersigned
employee (the "Employee") and FARO TECHNOLOGIES, INC., a Florida corporation
(the "Employer") and is effective as of the date set forth underneath the
Employee's signature. It witnesses as follows:

In consideration of Employee's employment or continued employment by
FARO TECHNOLOGIES INC. and its respective subsidiaries, affiliate companies, or
partnerships of which the company is a part, or any of them (hereafter,
collectively referred to as the "Employer") and the compensation to be paid to
Employee for such employment from time to time, Employee hereby agrees as
follows:

1. Assignment of work product; disclosure; confidentiality

(a) Without further consideration, Employee gives, transfers and
assigns to the Employer or to any agent, nominee or assignee, as requested by
the Employer, any and all of his fights to inventions, improvements, discoveries
and ideas made or conceived by Employee, either solely or jointly with others,
relating directly or indirectly to the Employer's business or any extension
thereof during the term of Employee's employment.

(b) Employee agrees to fully disclose exclusively to the Employer all
ideas, products, formulas, methods, plans, developments, improvements, or
patentable inventions, of any kind, known, made or discovered in whole or in
pail by Employee alone or with others during die period of his employment by the
Employer. Employee also agrees to fully disclose exclusively to the Employer all
ideas, products, formulas, methods, plans, developments, improvements or
patentable inventions which relate directly or indirectly to die business of the
Employer and which are known, made or discovered in whole or in part by Employer
alone or with others at any time during the period of employment by the
Employer. All disclosures are to be made promptly after conception or discovery
of the idea, product, formula, method, plan, development, improvement or
invention,

(c) Nothing in this Agreement shall be construed as requiring any
communication to the Employer of an idea, product, formula, method, plan,
development, improvement or invention if protected by tiny other lawful
prohibition against such communication. Any idea, product, formula, method,
plan, development, improvement or invention which Employee is obligated
to disclose to the Employer under this Agreement shall be the property of the
Employer, regardless of whether it is actually disclosed by Employee to Employer

(d) Employee agrees to provide any and all necessary assistance to the
Employer in making any patent applications or other applications for obtaining
exclusive rights, and will do all other things (including but not limited to
testifying in any proceedings or suit, and executing

<PAGE> 2

any and all applications, assignments, or other documents or instruments) that
may be reasonably necessary to vest in the Employer or the Employees assigns all
of the rights and interest in, and to apply for, obtain and protect any patent
or letters patent, trademark or trade name, or copyrights in the United States
and Canada and any foreign country, as well as any state or other subdivision
thereof for or relating to, die ideas, products, formulas, methods, plans,
developments, improvements or inventions. Employee agrees, at the Employees
expense, to tender all such assistance as the Employer may require in any
proceeding before a patent office or in any litigation involving die aforesaid
inventions,improvements, ideas or discoveries, whether during the period of
employment with the Employer or after the termination thereof.

(e) There are no ideas, products, formulas, methods, plans,
developments, improvements or patentable inventions which Employee desires to
exclude from the operation of this Agreement, except those, if any, designated
by a patent number, application serial number or brief description where no
application has been filed, on the list attached hereto and signed by Employee
and Employer.

(f) Employee agrees and acknowledges that Employee previously may have
acquired, or that during the course of his employment with the Employer, he will
or may be exposed to, or that he may assimilate or have access to certain trade
secrets and information of the Employer including but not limited to products,
formulas, concepts, inventions, methods, processes, costs, operations, product
uses, customers and purchasers (including confidential information of any of the
Employer's customers and information with respect to potential customers and
customer leads) which have not been publicly disclosed or are not matters of
common knowledge in the fields of work of the Employer. Employee agrees that
both during and after the period of employment and performance of services for
the Employer, Employee will not, without prior written consent from the
Employer, in any fashion, form or manner, either intentionally or negligently,
or directly or indirectly, divulge, disclose or communicate any such
confidential information to any third person, partnership, joint venture,
company, corporation or other organization or use such confidential information
other than in the ordinary course of the performance of services for
the Employer, nor shall Employee so divulge, disclose or communicate any other
information of any kind, nature or description concerning any matters affecting
or relating to die business of the Employer, including without limitation any
other information concerning the business of the Employer, its manner of
operation, or its assets, products, formulas, plans, processes, concepts or
other data of any kind, nature or description, without regard to whether any or
all of the foregoing matters would be deemed confidential, material or
important.

(g) The Employee allows certain of its employees to have access to the
following online services: Microsoft Exchange, all FARO servers, and the
Internet. Use of the services by the Employee is strictly limited to legitimate
business purposes of the Employer, and under no circumstances shall the Employee
use these services for personal reasons or any other purpose not related to the
business of the Employer. Furthermore, the Employee is advised that under
certain circumstances transmission of data or messages on the Internet or
through Internet e-mail is not secure and that the transmission of company trade
secrets or any other proprietary information of the Employer on the Internet or
through Internet e-mail is strictly prohibited, unless the Employer has
established appropriate safeguards against the interception or

<PAGE> 3

misdelivery of such information including, but not limited to the establishment
of firewalls, encryption methods, or other technology that will prevent the
unintended interception of data transmission by third parties on die Internet or
any other on-line service.

(h) The foregoing obligations of confidentiality shall cease to apply
to such parts of the confidential information which Employee has the prior
written permission of all owners thereof to disclose or to use or if the
information becomes general public knowledge through no fault of Employee.

(i) Upon termination of employment by the Employer for whatever reason,
Employee agrees to deliver to the Employer all books, records, products,
formulas, manuals, letters, notes, memoranda, notebooks, sketches, drawings,
plans, equipment, computer tapes and diskettes, and all other documents or
materials of a confidential nature or otherwise relating to the Employer's
business, and also all copies of any of the foregoing, which are in Employee's
or his agents' or affiliates' possession or control, and Employee specifically
agrees that he shall not retain any copies or reproductions of such information.

2. Noncompetition and Nonsolicitation. If a "Non-Competition and
Non-Solicitation Agreement" is attached hereto, die Employee agrees to the terms
thereof

Such Addendum is 11 is not D attached

3. Remedies: The failure of the Employee to strictly comply with
the terms of this Agreement shall be cause for immediate dismissal from
employment and in addition, the Employer shall have the following remedies:

(a) Employee hereby agrees to indemnify the Employer in respect of
any and all claims, losses, costs, liabilities and expenses (including
reasonable attorneys' and legal assistants' fees) directly or indirectly
resulting from or arising out of any breach or claimed breach of this Agreement.

(b) Employee agrees that damages at law will be an insufficient
remedy to the Employer if Employee violates the terms of this Agreement and that
the Employer will suffer irreparable damage as a result of such violation.
Accordingly, it is agreed that the Employer shall be entitled, upon application
to a court of competent jurisdiction, to obtain in injunctive relief to enforce
the provisions of this Agreement, which injunctive relief shall be in addition
to any other lights or remedies available to the Employer. In any action or
proceeding by the Employer to obtain a temporary restraining order and
preliminary injunction, the Employee hereby agrees to waive the necessity of the
Employees posting an injunction bond in order to obtain the temporary
restraining order and/or preliminary injunction. If the Employee's action for a
temporary restraining order and/or motion for preliminary injunction is granted
in whole or in part and the Employer is ultimately unsuccessful in obtaining a
permanent injunction to enforce the covenant, the Employee hereby waives any and
all rights he may have against the Employer for any injuries or damages,
including consequential damages, sustained by the Employee and arising directly
or indirectly from the issuance of the temporary restraining order and/or
preliminary injunction.

<PAGE> 4

(c) If the Employer engages the services of an attorney or any
other third party or in any way initiates legal action to enforce its rights
under this Agreement, Employee agrees to pay to the Employer all costs and
expenses incurred by the Employer relating to the enforcement of this Agreement
(including reasonable attorneys' and legal assistants' fees before, at and after
trial and in appellate, bankruptcy and probate proceedings).

4. MISCELLANEOUS. When used herein, one gender means any
gender. The term "I", "me" or "mine" means the Employee. The term "Company" or
"Corporation" means Employer. Any use of the singular shall include plural and
vice versa. Use of the word "shall" means such action is mandatory. The title of
this Agreement and the paragraph headings are used for the purpose of
convenience only and shall not be used to interpret or explain any portion of
the text hereof

IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year indicated below.

Witnesses: Employee Signature:
---------------------
- ------------------------
Print Name:
- ------------------------ -----------------------------
Date:
-----------------------------------
FARO Technologies, Inc,

By:
-------------------------------------

Print Name:
----------------------------

Its:
------------------------------------

Date:
-----------------------------------

NONCOMPETITION AND NONSOLICITATION ADDENDUM

Employee hereby further agrees to the following:

Noncompetition and Nonsolicitation. The Employee acknowledges that the
Employer, through its employment of DIE Employee, is providing the Employee with
special, unique, and extraordinary training, education and experience,
confidential information, and business and professional contacts. The Employee
further acknowledges that such training, confidential information, and contacts
are solely the result of his employment by the Employer, and that they
constitute legitimate business interests of the Employer. In consideration of
the foregoing and of the benefits generally provided to the Employee by the

<PAGE> 5

Employer pursuant to the terms of this Agreement and otherwise, the Employee
agrees to abide and be bound by the restrictions and prohibitions of this
Addendum, which restrictions are intended by the parties to extend to any and
all activities of the Employee, whether as an independent contractor, partner or
joint venturer, or as an officer, director, stockholder, agent, employee or
salesman for any person, firm, partnership, corporation or other entity, or
otherwise. The Employee acknowledges that the restrictions and prohibitions of
this Addendum are reasonably necessary to protect the legitimate business
interests of the Employer.

(a) During the term of the Employee's employment, whether pursuant to
this Agreement airy automatic or other renewal hereof, or otherwise, and for a
period of twenty-four (24) months after the expiration or termination of this
Agreement or termination of his employment with the Employer, regardless of the
reason for such termination, the Employee shall not, directly or indirectly,
within a one hundred (100) mile radius of the Employer's current office
locations or such other locations as may constitute offices of the Employer at
the time of termination of the Employee's employment hereunder (the "Restricted
Territory"), enter into, engage in, be employed by, or consult with any
business, regardless of form (i.e., partnership, joint venture, profession
association or other type of corporation, limited liability company, sole
proprietorship or otherwise), in competition with the Employer's business.

(b) During the term of the Employee's employment, whether pursuant to
this Agreement airy automatic or other renewal hereof, or otherwise, and for a
period of twenty-four (24) months after the expiration or termination of this
Agreement, or the termination of his employment with the Employer, regardless of
the reason for such termination, the Employee shall not, directly or indirectly,
solicit or otherwise communicate with any person or business, regardless of form
(i.e., partnership, joint venture, profession association or other type of
corporation, limited liability company, sole proprietorship or otherwise) who
are, were or have been customers of the Employer with the purpose of causing
such person or business to terminate their business relationship with die
Employer, or to do business with, purchase from, or become customers of the
Employee. hi addition, the Employee agrees that during such period he shall not,
directly or indirectly, solicit or otherwise communicate with any employees with
the purpose of causing such employees to terminate their employment with the
Employer, and the Employee agrees that during such period lie shall not,
directly or indirectly, engage, employ, or otherwise hire any persons who are,
were or have been employees of the Employer during the term of this Agreement
and any renewal hereof

(c) The period of time during which the Employee is prohibited from
engaging in certain business practices pursuant to paragraphs 2(a) or (b) shall
be extended by the length of time dining which die Employee is in breach of such
covenants.

(d) It is understood by and between die parties hereto that the
restrictive covenants set forth in paragraphs (a) through (c) hereof are
essential elements of the employment arrangement between Employee and Employer,
and that but for such covenants, the Employer would not have

<PAGE> 6

agreed to hire the Employee. Such covenants by the Employee shall be construed
as agreements independent of any other provision in this Agreement and of the
employment arrangement between Employee and Employer and shall survive and
continue in effect after the termination or expiration of this Agreement. The
existence of any claim or cause of action of die Employee against the Employer
shall not constitute a defense to the enforcement by the Employer of such
covenants.

(e) It is agreed by the Employer and the Employee that if any portion
of the covenants set forth in this Addendum are held to be invalid,
unreasonable, arbitrary, or against public policy, then such portion of such
covenants shall be considered divisible both as to time and geographical area.
The Employer and the Employee agree that, if any court of competent Jurisdiction
determines the specified time period or the specified geographical area
applicable to this Addendum to be invalid, unreasonable, arbitrary or against
public policy, a lesser time period or geographical area which is determined to
be reasonable, non-arbitrary and not against public policy may be enforced
against the Employee. The Employer and the Employee agree that THE foregoing
covenants are appropriate and reasonable when considered in light of the nature
and extent of the business conducted by the Employer.

IN WITNESS WHEREOF, the parties hereto have executed this Addendum the
dates indicated below.

Witnesses: Employee Signature:
-----------------------
- ---------------------------
Print Name:
-------------------------------
- ---------------------------- Date:
-------------------------------------

<PAGE> 1

EXHIBIT 21.1

SUBSIDIARIES OF FARO TECHNOLOGIES, INC.

1. FARO Worldwide, Inc., a Florida corporation

2. FARO France, S.A.S., a French corporation

<PAGE> 1
EXHIBIT 23.2

INDEPENDENT AUDITORS' CONSENT

To the Board of Directors and Shareholders of
FARO Technologies, Inc.
Jacksonville, Florida

We consent to the use in this Registration Statement relating to 2,645,000
shares of Common Stock of FARO Technologies, Inc. on Form S-1 of our report
dated February 24, 1997 (July 30, 1997 as to Note 10), appearing in the
Prospectus, which is a part of this Registration Statement, and to the
references to us under the headings "Selected Consolidated Financial Data" and
"Experts" in such Prospectus.

Deloitte & Touche LLP
Jacksonville, Florida
August 5, 1997

<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 117,537
<SECURITIES> 0
<RECEIVABLES> 4,861,896
<ALLOWANCES> 9,534
<INVENTORY> 3,778,618
<CURRENT-ASSETS> 8,967,622
<PP&E> 1,434,574
<DEPRECIATION> 669,966
<TOTAL-ASSETS> 10,558,549
<CURRENT-LIABILITIES> 3,991,299
<BONDS> 0
0
0
<COMMON> 7,000
<OTHER-SE> 5,342,468
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