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whom we came close to developing a licensing agreement which would have <br /> provided royalty payments to MAS for the next eleven years, based on TMI sales. <br /> Unfortunately, these discussions fell apart at the eleventh hour due to the massive <br /> MAS short term financial obligations TMI would have had to provide "up front" cash <br /> to honor—something they were not prepared to do. Further, the real feasibility of the <br /> royalty concept (even though this was our only avenue by this time)was thrown into <br /> question by the existing substantial warranty obligations the royalty stream would <br /> have had to finance and the interest burden of the close to $1.6million debt being <br /> carried by the company by this time. <br /> Even as the inevitable loomed, there were small indications of hope in the form of orders <br /> in both Canada and England which might have provided some of the short term cash <br /> required to finance the "TMI deal". Sadly, while MAS fulfilled those orders, the team at <br /> MAS was unable to receive payment for those goods due to various contractual, dis- <br /> satisfaction and customer support issues. <br /> Pine Island Bank, as first position debt holder(which has been wholly supportive of MAS <br /> and given the company every opportunity to find other remedies), ultimately served <br /> written notice, after several earlier verbal indications, November 10"' and seized the <br /> assets shortly after. As we understand it, the bank is currently seeking interested parties <br /> to acquire the assets or the debt. The physical assets and receivables total an amount <br /> well shy of the bank's debt position (around $330,000) so offers in excess of that are <br /> unlikely (though possible if an acquirer sees adequate value in the customer base, the <br /> product and its underlying technology). Values in excess of the bank's requirement, if <br /> any, would, as we understand it, go to the government (for taxes owed), the employees <br /> (for back salary owed) and then "second position" debt-holders—the"debenture group"; <br /> given their exposure of close to $1.2million it is highly unlikely, even in the most <br /> optimistic scenario, any funds would remain beyond that. <br /> Mr. Bill Sanborn at the bank has been keeping us up to date on his progress and I'm <br /> sure that as he reaches his final conclusion we'll be among the first to know. In the <br /> absence of that final chapter, however, it's difficult to close this dialog other than to tell <br /> you, as your board and speaking in particular for the founders of the company, Tim <br /> Keefe and Jon Ylvisaker, that we share your sadness as investors and debt-holders and <br /> regret your loss as well as our own. <br /> You should fee!free to contact Bill Sanborn at Pine Island bank for more information, or <br /> if you are interested in acquiring the assets yourself. He can be reached in Pine Island at <br /> 507.356.8328 <br /> For, and on behalf of, the board of directors, MAS Technologies <br /> Jon Ylvisaker <br /> Tim Keefe <br /> Dave Dent <br /> David W. Johnson <br /> Martin Lymn <br />