Photon Dynamics, Inc., Photon Dynamics Nova Scotia Company and Image Processing Systems Inc.

Headnote

Mutual Reliance Review System for Exemptive Relief Applications - relief from the registration and prospectusrequirements in respect of certain trades made in connection with a merger involving a Canadian reporting issuer anda U.S. company where exemptions not available for technical reasons - first trade in shares of Canadian reporting issuershall be a distribution unless in compliance with certain conditions - first trade in shares of U.S. issuer shall be adistribution unless executed on a stock exchange outside of Canada.

Continuous Disclosure - Canadian reporting issuer exempted from continuous disclosure requirements provided U.S.issuer files continuous disclosure materials in Canada.

Applicable Ontario Statutory Provisions

Securities Act, R.S.O.1990, c.S.5, as am., 25, 53, 72(5), 74(1), 75, 77, 78, 79, 80(b)(iii), 81, 107, 108, 109 and 121(2).

Applicable Ontario Rules

Rule 45-501 Exempt Distributions, (1998) 21 OSCB 6548

Rule 72-501 Prospectus Exemption for First Trade over a Market outside Ontario (1998) 21 OSCB 3873.

IN THE MATTER OF

THE SECURITIES LEGISLATION OF ALBERTA, BRITISH COLUMBIA, MANITOBA, NEW BRUNSWICK,NEWFOUNDLAND, NOVA SCOTIA, ONTARIO, PRINCE EDWARD ISLAND, QUEBEC AND SASKATCHEWAN

AND

IN THE MATTER OF THE MUTUAL RELIANCE REVIEW SYSTEM FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF PHOTON DYNAMICS, INC., PHOTON DYNAMICS NOVA SCOTIA COMPANY AND IMAGEPROCESSING SYSTEMS INC.

MRRS DECISION DOCUMENT

WHEREAS the local securities regulatory authority or regulator (the "Decision Maker") in each of Alberta, BritishColumbia, Manitoba, New Brunswick, Newfoundland, Nova Scotia, Ontario, Prince Edward Island, Quebec andSaskatchewan (collectively, the "Jurisdictions") has received an application from Photon Dynamics, Inc. ("Photon"),Photon Nova Scotia Company ("Photon ULC") and Image Processing Systems Inc. ("IPS") (collectively, the "Filer") fora decision under the securities legislation, regulations and/or rules of the Jurisdictions (the "Legislation") that:

a. the requirements contained in the Legislation to be registered to trade in a security and to file a preliminaryprospectus and a prospectus and receive receipts therefor prior to distributing a security (the "Registration andProspectus Requirements") shall not apply to certain trades of securities in connection with the proposedreorganization of the capital structure of IPS by way of plan of arrangement (the "Plan of Arrangement") andthe simultaneous acquisition by Photon ULC, a wholly-owned subsidiary of Photon, of certain securities of IPS(the "Transaction");

b. the requirements contained in the Legislation requiring IPS to issue a press release and file a report regardingmaterial changes (the "Material Change Reporting Requirements"), to file an annual report (where applicable),to file and deliver interim and annual financial statements and to file an information circular (collectively withthe Material Change Reporting Requirements, the "Continuous Disclosure Requirements") shall not apply toIPS; and

c. the requirement contained in the Legislation for an insider of a reporting issuer to file reports disclosing theinsider's direct or indirect beneficial ownership of, or control or direction over, securities of the reporting issuer(the "Insider Reporting Requirements") shall not apply to each insider of IPS;

AND WHEREAS pursuant to the Mutual Reliance Review System for Exemptive Relief Applications (the"System"), the Ontario Securities Commission is the principal regulator for this application;

AND WHEREAS the Filer has represented to the Decision Makers that:

1. Photon was incorporated in the State of California on May 12, 1986. Photon is subject to the reportingrequirements of the United States Securities Exchange Act of 1934, as amended. Photon is not currently areporting issuer or the equivalent in any province or territory of Canada, will not become a reporting issuer orthe equivalent by virtue of the Transaction and does not intend to become a reporting issuer or the equivalentin any province or territory of Canada after the completion of the Transaction.

2. Photons authorized capital consists of 20,000,000 shares of common stock, no par value (the "PhotonCommon Shares") and 5,000,000 shares of preferred stock, no par value. As of July 31, 2000, there were11,720,470 Photon Common Shares and no preferred shares issued and outstanding. As part of theTransaction, Photon will issue one share of Series A preferred stock (the "Special Voting Share") to a trustee(the "Trustee") in accordance with the Exchange Agreement (as defined below in paragraph 19).

3. The Photon Common Shares trade on the Nasdaq National Market (the "NASDAQ"). Photon will makeapplications as required to the NASDAQ to list the additional Photon Common Shares issuable from time totime in connection with the Transaction.

4. Photon ULC is a wholly-owned subsidiary of Photon which was incorporated under the laws of the Provinceof Nova Scotia as an unlimited liability company on September 26, 2000. Photon ULC was incorporated asa vehicle to hold all of the IPS Common Shares which will be outstanding after the effective time of thecompletion of the Transaction (the "Effective Time") and to hold the various call rights related to theExchangeable Shares. Photon ULC s only material asset upon completion of the Transaction will be the issuedand outstanding IPS Common Share.

5. IPS is a corporation incorporated pursuant to the Business Corporations Act (Ontario) on April 8, 1988. Itsauthorized capital currently consists of an unlimited number of common shares (the "IPS Common Shares").As at September 30, 2000, there were 25,286,253 IPS Common Shares issued and outstanding. As atSeptember 30, 2000 there were outstanding warrants to purchase up to 476,191 IPS Common Shares (the "IPSWarrants") and options to purchase up to 2,826,495 IPS Common Shares (the "IPS Options").

6. IPS is a reporting issuer or the equivalent in each of the Jurisdictions and the IPS Common Shares trade onthe Toronto Stock Exchange (the "TSE").

7. Pursuant to an Acquisition Agreement for Plan of Arrangement (the "Acquisition Agreement") made as ofSeptember 27, 2000 between Photon, Photon ULC and IPS, the acquisition of IPS by Photon is intended tooccur in a sequence of transactions that effectively converts all of IPS's existing outstanding securities intoExchangeable Shares which will be exchangeable for Photon Common Shares.

8. Pursuant to the Acquisition Agreement and prior to the closing of the Transaction, a special meeting (the"Meeting") of the shareholders of IPS will be held in accordance with an interim order of the Ontario SuperiorCourt of Justice whereby such shareholders will be asked to pass certain resolutions approving thearrangement (the "Arrangement") and authorizing the filing of articles of arrangement (the "Articles ofArrangement").

9. In connection with the Meeting, IPS will mail to each shareholder (i) a notice of special meeting, (ii) a form ofproxy, (iii) the text of the special resolution approving the Arrangement and (iv) an information circular (the"Circular") containing prospectus level disclosure regarding the Transaction, each shareholder's dissent rights,the Arrangement, and the characteristics of the Exchangeable Shares and the Photon Common Shares.

10. Pursuant to the terms of the Plan of Arrangement, commencing at the Effective Time, the following events willoccur:

(a) the filing of the Articles of Arrangement will create (i) a new class of voting, convertible preferredshares designated as "preferred shares" (the "IPS Preferred Shares"); and (ii) a new class of sharesdesignated as "exchangeable shares" (the "Exchangeable Shares");

(b) Photon ULC will subscribe for one IPS Preferred Share for $1.00;

(c) each outstanding IPS Common Share held by a shareholder (other than IPS Common Shares heldby a shareholder who exercises its dissent rights and is ultimately entitled to be paid the fair value ofits IPS Common Shares) will be automatically converted into Exchangeable Shares on the basis ofthe Exchange Ratio (as such term is defined in the Acquisition Agreement);

(d) Photon ULC will convert its IPS Preferred Share into one IPS Common Share. At such time, PhotonULC will be the only holder of IPS Common Shares;

(e) each IPS Option will be assumed by Photon and each such IPS Option previously outstanding shallthen represent an option to acquire Photon Common Shares (the "Photon Options") provided that thenumber of Photon Common Shares that may be acquired and the strike price for each Photon Optionwill be adjusted on the basis of the Exchange Ratio (and after giving effect to currency conversions);

(f) each IPS Warrant will be converted into warrants ("Replacement Warrants") to acquire ExchangeableShares on the basis of the Exchange Ratio; and

(g) Photon will issue and deposit the Special Voting Share with the Trustee in accordance with theExchange Agreement (described below).

11. Each Exchangeable Share, together with the Exchange Agreement and Support Agreement described below,will provide holders thereof with a security of a Canadian issuer having economic attributes which aresubstantially equivalent, in all material respects, to those of a Photon Common Share. Exchangeable Shareswill be received by holders of IPS Common Shares on a Canadian tax-deferred, roll-over basis. TheExchangeable Shares will be exchangeable by a holder thereof for Photon Common Shares on a one-for-onebasis (subject to certain adjustments) at any time at the option of such holder and will be required to beexchanged upon the occurrence of certain events, as more fully described below. Dividends will be payableon the Exchangeable Shares contemporaneously and in the equivalent amount per share as dividends on thePhoton Common Shares.

12. The Exchangeable Shares will rank senior to the IPS Common Shares and the IPS Preferred Shares, inrespect of the payment of dividends and the distribution of assets in the event of the liquidation, dissolution orwinding-up of IPS. The rights, privileges, restrictions and conditions attaching to the Exchangeable Shares (the"Exchangeable Share Provisions") will provide that each Exchangeable Share will entitle the holder to dividendsfrom IPS payable at the same time as, and economically equivalent to, each dividend paid by Photon on PhotonCommon Shares. Subject to the Liquidation Call Right of Photon ULC (described below in this paragraph), onthe liquidation, dissolution or winding-up of IPS, a holder of Exchangeable Shares will be entitled to receivefrom IPS for each Exchangeable Share held an amount equal to the then current market price of a PhotonCommon Share, to be satisfied by delivery of one Photon Common Share (subject to adjustment), togetherwith, on the designated payment date therefor and to the extent not already paid by IPS on a dividend paymentdate, all declared and unpaid dividends on each such Exchangeable Share (such aggregate amount, the"Liquidation Amount"). Upon a proposed liquidation, dissolution or winding-up of IPS, Photon ULC will have anoverriding call right (the "Liquidation Call Right") to purchase all of the outstanding Exchangeable Shares fromthe holders thereof (other than Photon or its affiliates) for a price per share equal to the Liquidation Amount.

13. The Exchangeable Shares will be non-voting (except as required by the Exchangeable Share Provisions or byapplicable law) and will be retractable at the option of the holder at any time. Subject to the Retraction CallRight of Photon ULC (described below in this paragraph), upon retraction the holder will be entitled to receivefrom IPS for each Exchangeable Share retracted an amount equal to the then current market price of a PhotonCommon Share, to be satisfied by delivery of one Photon Common Share (subject to adjustment), togetherwith, on the designated payment date therefor and to the extent not already paid by IPS on a dividend paymentdate, all declared and unpaid dividends on each such retracted Exchangeable Share (such aggregate amount,the "Retraction Price"). Upon being notified by IPS of a proposed retraction of Exchangeable Shares, PhotonULC will have an overriding call right (the "Retraction Call Right") to purchase from the holder all of theExchangeable Shares that are the subject of the retraction notice for a price per share equal to the RetractionPrice.

14. Subject to the Redemption Call Right of Photon ULC (described below in this paragraph), IPS shall redeemall the Exchangeable Shares then outstanding on the date which is five years from the Effective Date (the"Automatic Redemption Date"). The board of directors of IPS may accelerate the Automatic Redemption Datein certain circumstances, as described in the Exchangeable Share Provisions, including if there are fewer than10% of the number of Exchangeable Shares issued as a result of the Arrangement outstanding (other thanExchangeable Shares held by Photon and its affiliates, and as such number of shares may be adjusted asdeemed appropriate by the board of directors to give effect to any subdivision or consolidation of or stockdividend on the Exchangeable Shares, any issue or distribution of rights to acquire Exchangeable Shares orsecurities exchangeable for or convertible into Exchangeable Shares, any issue or distribution of othersecurities or rights or evidences of indebtedness or assets, or any other capital reorganization or othertransaction affecting the Exchangeable Shares). Upon such redemption, a holder will be entitled to receive fromIPS for each Exchangeable Share redeemed, an amount equal to the then current market price of a PhotonCommon Share on the last business day prior to the Automatic Redemption Date, to be satisfied by the deliveryof one Photon Common Share (subject to adjustment), together with, to the extent not already paid by IPS ona dividend payment date, all declared and unpaid dividends on each such redeemed Exchangeable Share(such aggregate amount, the "Redemption Price"). Upon being notified by IPS, of a proposed redemption ofExchangeable Shares, Photon ULC will have an overriding call right (the "Redemption Call Right") to purchasefrom the holders all of the outstanding Exchangeable Shares (other than Photon or its affiliates) for a price pershare equal to the Redemption Price.

15. Upon the liquidation, dissolution or winding-up of Photon, the Exchangeable Shares will be automaticallyexchanged for Photon Common Shares pursuant to the Exchange Agreement (described below), in order thatholders of Exchangeable Shares may participate in the dissolution of Photon on the same basis as holders ofPhoton Common Shares. Upon the insolvency of IPS, holders of Exchangeable Shares may put their sharesto Photon in exchange for Photon Common Shares, pursuant to the Exchange Right described in greater detailbelow.

16. The Special Voting Share will be authorized for issuance pursuant to the Acquisition Agreement and will beissued under the Exchange Agreement (described in paragraph 19 below) to the Trustee for the benefit of theholders of the Exchangeable Shares outstanding from time to time (other than Photon and its affiliates). TheSpecial Voting Share will carry a number of voting rights, exercisable at any meeting of the holders of PhotonCommon Shares, equal to the number of Exchangeable Shares outstanding from time to time (that are notowned by Photon and its affiliates). The holders of the Photon Common Shares and the holder of the PhotonSpecial Voting Share will vote together as a single class on all matters. Holders of Exchangeable Shares willexercise the voting rights attached to the Photon Special Voting Share through the mechanism of the ExchangeAgreement. Each voting right attached to the Special Voting Share must be voted by the Trustee pursuant tothe instructions of the holder of the related Exchangeable Share. In the absence of any such instructions froma holder, the Trustee will not be entitled to exercise any voting rights.

17. Upon the exchange of all of a holder's Exchangeable Shares for Photon Common Shares, all rights of theholder of Exchangeable Shares to exercise votes attached to the Special Voting Share will cease.

18. In order to assist non-residents of Canada in exchanging their Exchangeable Shares without having to delivera certificate under section 116 of the Income Tax Act (Canada), the Exchangeable Shares will be listed on theTSE for two or three trading days following the Effective Date. However, the Exchangeable Shares aregenerally non-transferrable. In the event that, on or prior to the Automatic Redemption Date, any holder ofExchangeable Shares notifies IPS that such holder desires to (i) transfer or otherwise attempts to transfer anysuch shares to any other person or entity or (ii) vote against or dissent from any resolution other than a matterwhich would have an adverse affect on the attributes of the Exchangeable Shares (any such notification orattempt, a "Transfer/Dissent Attempt"), then such holder shall, by such action, be deemed to have made aRetraction Request and the sole right of the transferee in respect of such shares shall be to receive the PhotonCommon Shares and dividends to which such person is entitled as a result of the Retraction Request.

19. Contemporaneously with the closing of the Transaction, Photon, Photon ULC, IPS and the Trustee will enterinto an exchange agreement (the "Exchange Agreement"). Under the Exchange Agreement, Photon will grantto the Trustee, as trustee for and on behalf of the holders of the Exchangeable Shares, a put right (the"Exchange Right"), exercisable upon the insolvency or bankruptcy of IPS or Photon, to require Photon topurchase from a holder of Exchangeable Shares all or any part of its Exchangeable Shares. The purchase pricefor each Exchangeable Share purchased by Photon will be an amount equal to the then current market priceof a Photon Common Share, to be satisfied by the delivery to the holder, of one Photon Common Share(subject to adjustment), together with an additional amount equivalent to the full amount of all declared andunpaid dividends on such Exchangeable Share.

20. Under the Exchange Agreement, upon the liquidation, dissolution or winding-up of Photon, Photon will berequired to purchase each outstanding Exchangeable Share, and each holder will be required to sell all of itsExchangeable Shares (such purchase and sale obligations are hereafter referred to as the "AutomaticExchange Right"), for a purchase price per share equal to the then current market price of a Photon CommonShare, to be satisfied by the delivery to the holder of one Photon Common Share (subject to adjustment),together with an additional amount equivalent to the full amount of all declared and unpaid dividends on eachsuch Exchangeable Share.

21. Contemporaneously with the closing of the Transaction, Photon, Photon ULC and IPS will enter into a SupportAgreement which will provide that Photon will not declare or pay any dividend on the Photon Common Sharesunless IPS simultaneously declares and pays an economically equivalent dividend on the ExchangeableShares and that Photon will ensure that IPS and Photon ULC will be able to honour the redemption andretraction rights and dissolution entitlements that are attributes of the Exchangeable Shares under theExchangeable Share Provisions and the related Redemption, Retraction and Liquidation Call Rights describedabove.

22. The Support Agreement will also provide that if Photon makes any changes to the Photon Common Shares(e.g., subdivision, consolidation or reclassification), then the Exchangeable Shares are automatically adjustedsuch that the holders of such Exchangeable Shares will receive, upon exercise of their Exchangeable Shares,the same number of Photon Common Shares and other consideration that they would have received had theyexchanged their Exchangeable Shares immediately prior to the effective date or record date of such event.

23. The steps under the Transaction and the attributes of the Exchangeable Shares contained in the ExchangeableShare Provisions, the Support Agreement and the Exchange Agreement as described above involve or mayinvolve a number of trades of securities (the "Trades") and there may be no registration and prospectusexemptions available under the Legislation for certain of the Trades.

24. The fundamental investment decision to be made by an IPS shareholder is made at the time of the Transaction,when such holder votes in favour of the special resolution approving the Arrangement. As a result of thisdecision, a holder receives Exchangeable Shares in exchange for its IPS Common Shares. As theExchangeable Shares will provide certain Canadian tax benefits to certain Canadian holders but will otherwisebe the economic equivalent in all material respects to the Photon Common Shares, all subsequent exchangesof Exchangeable Shares are in furtherance of the holders initial investment decision to acquire ExchangeableShares on the closing of the Transaction.

25. If not for income tax considerations, Canadian holders of IPS Common Shares could have received PhotonCommon Shares without receiving Exchangeable Shares. The receipt of Exchangeable Shares under theTransaction will enable certain holders of IPS Common Shares to defer Canadian income tax.

26. As a result of the economic and voting equivalency between the Exchangeable Shares and the PhotonCommon Shares, holders of Exchangeable Shares will have a participating interest determined by referenceto Photon, rather than IPS; accordingly it is the information relating to Photon, not IPS, that will be relevant toholders of both the Photon Common Shares and the Exchangeable Shares. Certain information required tobe provided in respect of IPS as a reporting issuer under the Legislation would not be relevant to the holdersof the Exchangeable Shares.

27. All disclosure material furnished to the holders of Photon Common Shares in the United States will be providedto the holders of Photon Common Shares, Exchangeable Shares and Replacement Warrants resident inCanada.

28. The Circular discloses that, in connection with the Arrangement, applications have been made for exemptionsfrom disclosure and insider reporting obligations; the Circular specifies the disclosure requirements from whichIPS has applied to be exempted and identifies the disclosure that will be made in substitution therefor if suchexemptions are granted.

29. Upon completion of the Transaction, Canadian shareholders will hold less than 10% of the issued andoutstanding Photon Common Shares and will represent in number less than 10% of the total number of holdersof Photon Common Shares.

30. There is currently no market in Canada for the Photon Common Shares and none is expected to develop.

AND WHEREAS under to the System, this MRRS Decision Document evidences the decision of each DecisionMaker (collectively, the "Decision");

AND WHEREAS each of the Decision Makers is satisfied that the test contained in the Legislation that providesthe Decision Maker with the jurisdiction to make the Decision has been met;

THE DECISION of the Decision Makers under the Legislation is:

1. the Registration and Prospectus Requirements shall not apply to the Trades, provided that:

1.1 the first trade in the Exchangeable Shares or Replacement Warrants acquired pursuant to thisDecision in a Jurisdiction shall be deemed a distribution or a primary distribution to the public underthe Legislation of such Jurisdiction (the "Applicable Legislation") (other than such first trades whichare Trades or which are exempted under the Applicable Legislation), unless:

(a) at the time of the first trade, IPS is a reporting issuer or the equivalent under the ApplicableLegislation or where the Applicable Legislation does not recognize the status of a reportingissuer, the requirements described in paragraph two below are met;

(b) no unusual effort is made to prepare the market or to create a demand for the ExchangeableShares or Replacement Warrants;

(c) no extraordinary commission or consideration is paid to a person or company in respect ofthe trade;

(d) if the seller of the Exchangeable Shares or Replacement Warrants is an insider or officer ofIPS the seller has no reasonable grounds to believe that IPS is in default of any requirementof the Applicable Legislation; and

(e) except in Quebec, the first trade is not from the holdings of a person or company or acombination of persons or companies holding a sufficient number of any securities of IPSso as to affect materially the control of IPS or more than 20% of the outstanding votingsecurities of IPS, except where there is evidence showing that the holding of those securitiesdoes not affect materially the control of IPS, unless:

(i) if applicable, IPS is a reporting issuer or the equivalent under the ApplicableLegislation and is not in default of any requirement thereof;

(ii) the seller files with the applicable Decision Maker(s) and any other stock exchangerecognized by such Decision Maker(s) for this purpose on which the ExchangeableShares or Replacement Warrants , as applicable, are listed at least seven daysand not more than fourteen days prior to such first trade:

(A) a notice of intention to sell in the form prescribed by the ApplicableLegislation for control block distributions (the "Control Block Rules")disclosing particulars of the control position known to the seller, thenumber of Exchangeable Shares or Replacement Warrants to be sold andthe method of distribution; and

(B) a declaration signed by the seller as at a date not more than twenty-fourhours prior to its filing and prepared and executed in accordance with theControl Block Rules and certified as follows:

"the seller for whose account the securities to which this certificate relatesare to be sold hereby represents that the seller has no knowledge of anymaterial change which has occurred in the affairs of the issuer of thesecurities which has not been generally disclosed and reported to thesecurities regulatory authority in the Jurisdiction where the trade takesplace, nor has the seller any knowledge of any other material adverseinformation in regard to the current and prospective operations of theissuer which have not been generally disclosed",

provided that the notice required to be filed under section 1.1(e)(ii)(A) andthe declaration required to be filed under section 1.1(e)(ii)(B) shall berenewed and filed at the end of sixty days after the original date of filingand thereafter at the end of each twenty-eight day period so long as anyof the Exchangeable Shares or Replacement Warrants specified underthe original notice have not been sold or until notice has been filed that theExchangeable Shares or Replacement Warrants so specified or any partthereof are no longer for sale;

(iii) the seller files with the applicable Decision Maker(s) within three days afterthe completion of any such first trade, a report of the trade in the formprescribed by the Applicable Legislation ;

(iv) no unusual effort is made to prepare the market or to create a demand for theExchangeable Shares or Replacement Warrants and no extraordinarycommission or other consideration is paid in respect of such first trade; and

(v) the seller (or affiliated entity) has held the Exchangeable Shares,Replacement Warrants, and/or Photon Common Shares, in the aggregate,for a period of at least six months, provided that if:

(A) the Applicable Legislation provides that upon a seller to whom theControl Block Rules apply acquiring additional securities of a classpursuant to certain prescribed exemptions from prospectusrequirements under such legislation, all securities of such class aresubject to a hold period commencing the date the last security of theclass was acquired under such prescribed exemptions; and

(B) the seller acquires Exchangeable Shares or Replacement Warrantspursuant to any such prescribed exemptions;

then all Exchangeable Shares or Replacement Warrants, asapplicable, held by the seller will be subject to such hold periodcommencing on the date any such subsequent ExchangeableShares or Replacement Warrants are so acquired; and

1.2 the first trade in Photon Common Shares or Photon Options acquired pursuant to one of theTrades (other than a first trade of Photon Common Shares or Photon Options that is a Trade)in a Jurisdiction shall be deemed a distribution or primary distribution to the public under theLegislation of the Applicable Jurisdiction unless such first trade is executed on an exchange ormarket outside Canada.

2. the Continuous Disclosure Requirements shall not apply to IPS for as long as:

(a) Photon sends to all holders of Exchangeable Shares and Replacement Warrants resident inCanada all disclosure material furnished to holders of Photon Common Shares resident in theUnited States, including, without limitation, copies of its annual financial statements and all proxysolicitation materials prepared in connection with Photon's shareholder meetings;

(b) Photon files with the Decision Makers copies of all documents required to be filed by it with theUnited States Securities and Exchange Commission under the United States SecuritiesExchange Act of 1934, as amended, including without limitation, copies of any Form 10-K, Form10-Q, Form 8-K and proxy solicitation materials prepared in connection with Photon'sshareholders' meetings;

(c) Photon complies with the requirements of the NASDAQ in respect of making public disclosureof material information on a timely basis and forthwith issues in Canada and files with theDecision Makers any press release that discloses a material change in Photon's affairs;

(d) IPS complies with the Material Change Reporting Requirements in respect of material changesin the affairs of IPS that would be material to holders of Exchangeable Shares or ReplacementWarrants, but not holders of Photon Common Shares;

(e) prior to or coincident with the distribution of the Exchangeable Shares, Photon causes IPS toprovide to each recipient or proposed recipient of Exchangeable Shares or ReplacementWarrants resident in Canada a statement that, as a consequence of this Decision, IPS and itsinsiders will be exempt from certain disclosure requirements in Canada applicable to reportingissuers and their insiders and specifying those requirements IPS and its insiders have beenexempted from and identifying the disclosure that will be made in substitution therefor (whichmay be satisfied by the inclusion of such a statement in the Circular);

(f) Photon includes in all future mailings of proxy solicitation materials to holders of ExchangeableShares a clear and concise statement explaining the reason for the mailed material being solelyin relation to Photon and not in relation to IPS, such statement to include a reference to theeconomic equivalency between the Exchangeable Shares and the Photon Common Shares andthe right to direct voting at Photon's stockholders' meetings pursuant to the ExchangeAgreement;

(g) Photon remains the direct or indirect beneficial owner of all the issued and outstanding commonshares of IPS; and

(h) IPS has not issued any securities to the public other than the Exchangeable Shares.

3. The Insider Reporting Requirements shall not apply to insiders of IPS in respect of securities of IPSprovided such insider:

(a) does not receive, in the ordinary course, information as to material facts or material changesconcerning Photon before the material facts or material changes are generally disclosed;

(b) is not a director or senior officer of a significant subsidiary of Photon as defined in ProposedNational Instrument 55-101 (a "Significant Subsidiary"); or

(c) is not also an insider of Photon, excluding any director or senior officer of a subsidiary of Photonthat is not a Significant Subsidiary.

December 20th, 2000.

"Howard I. Wetston"       "J.A. Geller"