DTM CORP /TX/, 10-K, 1999-03-31

DTM CORP /TX/
10-K, 1999-03-31
SPECIAL INDUSTRY MACHINERY, NEC

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (fee required) For the fiscal year ended December 31, 1998 or

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED) For the transition period from to

Commission file number 0-20993

DTM CORPORATION
(Exact Name of Registrant as Specified in its Charter)

Texas 74-2487065
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)

1611 Headway Circle, Building 2, Austin, Texas 78754
(Address of Principal Executive Offices) (Zip Code)

Registrant's telephone number, including area code: (512) 339-2922

Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
- ------------------------------ ---------------------------------------------
Common Stock, $.0002 Par Value Nasdaq National Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or shorter period that the registrant was
required to file such reports); and (2) has been subject to such filing
requirements for the past 90 days. Yes X . No .
--- ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]

As of March 29, 1999, the aggregate market value of the voting stock held by
non-affiliates (affiliates for these purposes only being directors, executive
officers and holders of more than 5% of the Registrant's Common Stock) was
approximately $4.3 million based upon the closing price of the Registrant's
Common Stock on such date, $1.25 per share as reported by the Nasdaq National
Market. As of March 29, 1999, the Registrant had 6,621,336 outstanding shares
of Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------

Portions of the Proxy Statement for the Registrant's 1999 Annual Meeting of
Shareholders are incorporated by reference in Part III.

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PART I

This Annual Report contains forward looking statements, within the meaning
of the Private Securities Litigation Reform Act of 1995, with respect to the
financial condition, results of operations and business of DTM Corporation
("we","DTM", the "Company" or the "Registrant"). Such statements are subject to
certain risks and uncertainties that could cause actual results to differ
materially and adversely from those set forth in the forward-looking statements,
including, without limitation: DTM had been unprofitable since inception through
the third quarter of 1998; the Company's stock price and public float could
cause its stock to be delisted from the Nasdaq National Market, further reducing
liquidity; additional capital sufficient to finance the business may not be
available or if available might cause significant dilution; quarterly
fluctuations in operating results and the difficulty in predicting results of
operations may adversely affect stock prices; seasonality of customer buying
habits, principally a slower third quarter, may adversely affect stock prices;
DTM may not emerge as a market leader, or even a major market participant and
its markets may not develop; price reductions, reduced margins and loss of
market share may occur as a result of increasing competition; the Company's
dependence on a single product that is priced at the high end of the range for
today's rapid prototyping products has caused it to be adversely affected in a
soft market; the Company's intellectual property and proprietary rights may not
be valid or infringe the rights of others; key personnel may leave; suppliers
may cause disruptions; DTM has significant international operations with the
inherent exposures; actions by controlling shareholder could adversely affect
stock prices; potential liabilities could result from undetected errors or
defects in Company products; possible issuance of preferred stock could
adversely affect common shareholders; sales of a large block of stock and sales
of shares issuable pursuant to employee stock options could adversely affect
stock prices; and the Company's stock price could be volatile, regardless of
DTM's financial performance. The Company cautions that the foregoing list of
important factors is not exclusive. The Company does not undertake to update any
written or oral forward-looking statement that may be made from time to time by
or on behalf of the Company. See "Item 7. Risk Factors That May Affect Future
Results and Safe Harbor Statement."

ITEM 1. BUSINESS

General

DTM Corporation develops, designs, manufactures, markets and supports, on
an international basis, rapid prototyping and rapid tooling systems and related
powdered materials and services based on proprietary selective laser sintering
technology initially developed by The University of Texas. This technology uses
laser energy to melt and bond ("sinter") powdered material to create a solid
object. DTM Corporation has an exclusive worldwide license from The University
of Texas (the "UT License") to practice selective laser sintering. The UT
License includes the original patents, plus a right of first refusal to all
improvements thereon. The Company's product line of Sinterstation Systems and
related powdered materials are based on this proprietary and patented selective
laser sintering technology.

Rapid prototyping is the creation of a solid three-dimensional model or
prototype directly from computer aided design ("CAD") data files. Rapid tooling
is the creation of durable tooling that can be subsequently employed to produce
quantities of injection molded plastic parts for market introduction. Use of the
Company's Sinterstation Systems can significantly reduce the time required to
produce models and prototypes for testing actual product fit and form, ergonomic
design and functionality from what otherwise could be months or weeks to days
or, in some cases, hours. The Company's Sinterstation Systems are used in the
design, development and market introduction of products in a wide range of
industries, including, but not limited to, the automotive, aerospace, medical,
electronic, telecommunications, computer, appliance, footwear, toy and power
tool industries.

DTM Corporation was incorporated in 1987 and in 1990 became a subsidiary of
The B.F.Goodrich Company ("BFGoodrich"). In May 1997, DTM completed its initial
public offering ("IPO"). On February 12, 1999, an investment partnership of
independent investors affiliated with Proactive Finance Group, LLC ("Proactive")
acquired BFGoodrich's remaining 47.7% interest in DTM. DTM now operates as an
independent company.

2
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"ProtoForm," "RapidSteel," "Sinterstation," "SLS", "RapidTool" and
"TrueForm" are registered trademarks of the Company in the United States. "DTM,"
"DuraForm" and "SandForm" are unregistered trademarks of the Company in the
United States. "Somos" is a registered trademark of E.I. DuPont de Nemours and
Company ("DuPont") in the United States.

DTM's executive offices are located at 1611 Headway Circle, Building 2,
Austin, Texas 78754. The Company's telephone number is 512/339-2922 and web page
is www.dtm-corp.com.

DTM's Selective Laser Sintering Technology

The Selective Laser Sintering Process

The Company's selective laser sintering process uses laser energy to sinter
powdered material to create solid objects from the powdered materials, that
serve as functional models and patterns. Customers input designs into the
Sinterstation Systems in the form of CAD drawings. From the CAD file,
Sinterstation Systems produce models, prototypes, patterns and tooling in the
specified shape. The patterns made in the sinterstation can, in turn, be used
for secondary processes such as the production of non-durable molds and
investment casting. Sinterstation Systems are also used to produce metal
prototype mold inserts. DTM's RapidTool products employ selective laser
sintering along with a furnace cycle to produce stainless steel/bronze mold
inserts or fully functional metal prototypes. A second product produces mold
inserts in selective laser sintering machines from a copper-reinforced
thermoplastic-based material system. These inserts can be manufactured in less
than 24 hours in a Sinterstation system without the use of a furnace.

Products

The Sinterstation Systems

DTM's Sinterstation Systems include hardware(material handling equipment),
documentation, software licenses, licenses for using DTM-supplied powdered
sintering materials and installation of the equipment. They can be configured
for use with a single sintering powder or for any combination of thermoplastic,
foundry sands or metal sintering powders. The size and number of objects that
can be built in the build chamber varies depending on the part size, type of
sintering powder used and part configuration. Objects that are larger than the
size of the build chamber can often be built in pieces and then assembled.

The Company has developed a library of application software designed to
control the selective laser sintering process. This software sets parameters and
directs the various components of the platform hardware based on the type of
material being used in the build process. The Company also has designed a range
of service, support and utility software programs to assist customers in the
prototype and mold building process.

The prices of the Sinterstation Systems sold in 1998 averaged approximately
$348,000, compared to approximately $346,000 in 1997 and approximately $369,000
in 1996. These values represent the average of initial orders during the
respective years and are influenced by the accessories, such as furnaces,on such
orders.

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Sintering Materials

The list prices for the following powdered sintering materials range from
$23 to $60 per pound, depending on the material, except for SandForm powder,
which sells for $4.50 per pound. The Company subcontracts with other
manufacturing organizations for the production of sintering materials or obtains
those materials directly from the manufacturer. Characteristics and uses of
selective laser sintering powders available through DTM for use in its
Sinterstation Systems are as follows:

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------

Material/
Year Introduced Description Characteristics Uses
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
DuraForm Polyamide Proprietary Excellent surface quality; outstanding Functional models of electronic,
Powder and engineering feature definition; excellent heat and computer and automotive enclosures.
DuraForm GF thermoplastic chemical resistance; machinable and may Plastic automotive intake manifolds.
(Glass-Filled) Powder be joined mechanically, or with Wind tunnel models. Medical device
1997/1998 adhesives; buffs to high-gloss with wet parts.
sanding
- ------------------------------------------------------------------------------------------------------------------------------------

Somos 201 DuPont-developed Rubber-like material that can withstand Functional, flexible models of
thermoplastic thermoplastic "under-the-hood" high temperatures and rubber-based automotive parts such as
elastomer powder elastomer harsh environments seals, door moldings and boot covers.
1997 Parts for medical devices. Sport shoe
soles. Models for the computer and
toy industries, including membrane
keyboards.
- ------------------------------------------------------------------------------------------------------------------------------------

SandForm Si & Zr II Polymer-coated silica or Interchangeable with existing sand mold Sand cores and molds for producing
Foundry Sand Powders zirconium sand and core materials; particle size and prototype sand castings for the
1996/1997 particles materials characteristics that enable automotive and aerospace industries.
fast production of smooth sand mold Production runs of sand-cast metal
patterns parts when only limited part
quantities are required. Manufacture
of cast metal parts that would be
impossible to produce using
conventional technologies.
- ------------------------------------------------------------------------------------------------------------------------------------

CastForm PS Proprietary Capable of producing accurate investment Expendable patterns for producing
Powder Polystyrene polymer casting patterns that are compatible prototype investment-cast metal parts
1999 with traditional foundry processes for the aerospace, medical and
automotive industries. Production
runs of investment cast metal parts
when only limited quantities are
required.
- ------------------------------------------------------------------------------------------------------------------------------------

RapidSteel2.0 Metal DTM-developed stainless Creates durable metal mold inserts that Mold inserts for injection molding
Powder steel particles with a can produce thousands of plastic parts prototype plastic parts. Tooling for
1998 polymer binder bridge and pre-production plastic
injection molding. Mold inserts for
diecasting prototype non-ferrous
metal parts.
- ------------------------------------------------------------------------------------------------------------------------------------

Copper Polyamide Proprietary engineering Creates limited life metal-based mold Mold inserts for injection molding
1998 plastic copper composite inserts that can produce hundreds of prototype plastic parts.
plastic parts
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

The Company sells its Sinterstation Systems with application capabilities
selected by the customer. Thereafter, customers can add new application
capabilities by purchasing the relevant application modules, which consist of
the software developed by the Company for optimal processing of the materials.

Research and Development

The Company's research and development effort focuses on improving core
technologies that are critical to future growth. These include development of
new powdered sintering materials, as well as improved powder handling
technology, laser beam delivery systems and thermal control systems. The
Company's development efforts are augmented by development arrangements with key
customers, materials suppliers and hardware suppliers. The Company also
collaborates on research and development with universities and research
institutions that operate Sinterstation Systems.

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During 1998, 1997 and 1996, the Company expended approximately $3.5
million, $4.9 million and $4.3 million for research and development,
respectively. In part as result of these research and development efforts, DTM
introduced the following:

. In August 1998, the Sinterstation 2500plus;

. In 1998, three new sintering powders: DuraForm GF powder, a glass filled
material for more durable functional prototypes;Copper PA for short-run
tooling that does not require a furnace cycle; and RapidSteel 2.0, our
second generation material for long-run tooling;

. In the second half of 1997, four new sintering powders: Somos 201
powder, a new material supplied by DuPont that yields highly flexible
parts with rubber-like characteristics; DuraForm Polyamide powder, an
improved material for functional prototypes; and two improved SandForm
powders for sand casting applications;

In early 1999, DTM introduced a new sintering powder, CastForm PS, the
first rapid prototyping solution for the investment casting industry that is
compatible with traditional foundry processes.

Longer term, the Company believes that the selective laser sintering
technology is capable of processing an even wider range of materials, thereby
improving the performance of the Company's products in current applications and
advancing the technology into new applications. The Company is conducting
preliminary experiments to (i) broaden the performance of the Sinterstation
System to include the production of prototype metal parts in a range of durable
materials (ii) broaden the metal mold inserts product line to include additional
durable materials and (iii) develop ceramic materials for the production of
special tooling and part applications. There can be no assurance that the
Company will be able to develop these new materials or that, if developed, these
materials can be successfully marketed.

The Company has increasingly relied upon the materials research of
companies in the specialty chemicals industry for formulations of powdered
materials to be used in the Company's Sinterstation Systems. There can be no
assurance the Company will be able to continue such arrangements. Independent
research, development and manufacture of unique powdered materials could be
prohibitive. There can be no assurance that formulations will be available from
third parties that meet the Company's goals of higher performance powdered
materials and powdered materials suitable for new applications.

In the design of the hardware for its Sinterstation Systems, the Company
has incorporated specialized hardware technologies which have been developed for
other industries and purchases them as components from suppliers. Because DTM
does not have specialized hardware design capabilities internally, it could be
adversely affected if suppliers of specialized hardware do not continue to
furnish key components, or make available upgrades and enhancements that
contribute to the improvement to the Company's products. There can be no
assurance that available specialized hardware technologies that meet the
Company's reduced cost objectives will be available as purchased components.

Marketing and Customers

Customers

The Company's Sinterstation Systems are purchased by manufacturers,
universities, military and defense organizations and by service bureaus. These
service bureaus utilize rapid prototyping equipment to provide services to other
organizations involved in product development. Much of the Company's historical
growth has come from the sale of products to service bureaus in North America
and Europe. However, since 1996 the Company has focused more of its marketing
efforts on manufacturers throughout the world.

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Many of the Company's customers have purchased more than one Sinterstation.
In 1998, approximately 31% of Sinterstation Systems sold by the Company were to
existing customers, compared to 40% in 1997 and 24% in 1996. DTM has
experienced significant repeat business, but cannot predict that it will
continue to do so. Failure to maintain this repeat business could have a
material adverse effect on the Company and its financial performance.

The Company does not consider itself dependent on any particular customer.
In 1998, 1997 and 1996, no customer represented 10% or more of DTM's revenues.

Product Distribution; Foreign Operations

The Company distributes its products in the United States, Canada, Western
Europe and key Pacific Rim and South American countries. In the United States
and Canada, the Company employs a direct sales force. In Germany, DTM GmbH, a
wholly owned German subsidiary, distributes DTM's products. In the United
Kingdom, DTM (UK) LTD., a wholly owned U.K. subsidiary, distributes DTM's
products. The Company also distributes its goods and provides services in the
Pacific Rim and South America through a network of independent agents, including
agents in Brazil, China, India, Japan, Singapore, South Korea and Taiwan. DTM
distributes its products in France, Italy, Portugal, Spain and Sweden
through independent agents.

In 1998, growth in the Company's domestic revenues overcame a small
decrease in international revenues. In the previous two years, the growth of the
Company's international revenues outpaced its domestic revenues. The Company's
international revenues as a percentage of total revenues were 53%, 60% and 49%
in 1998, 1997 and 1996, respectively.

Marketing and Sales

The Company's marketing programs utilize a mix of seminars, trade shows,
direct mailings, literature, videos, press releases, telemarketing, brochures
and customer and application profiles to identify prospects that match a typical
Sinterstation System user profile.

Seasonality

The Company's revenues are affected by capital budgeting and spending
patterns in the North American market and shortened selling periods in certain
international markets. Due to these seasonal factors, the Company typically
experiences slowdowns in sales of Sinterstation Systems during the first quarter
as the result of capital spending patterns in the North American market and
during the third quarter as the result of shortened selling periods in certain
international markets.

Service and Support

The Company maintains a staff of field service and support personnel in
Europe, Singapore and North America. The field service organization is
responsible for the installations of new Sinterstation Systems and for
conducting the Company's warranty service and maintenance program.

The Company also maintains a staff of applications support personnel in
Europe and North America. The Company's applications support personnel assist
customers with System operation, provide advice and assistance on building
unusually complicated parts and keeping customers informed of changes and
advancements in the selective laser sintering technology and Sinterstation
System operating procedures.

The Company's Sinterstation Systems are sold with a limited 12-month
warranty on parts and labor. The Company's customers may extend factory support
beyond the 12-month warranty by purchasing an annual maintenance contract. For
those customers choosing not to purchase annual maintenance contracts, DTM also
provides repair and maintenance services on a time and materials basis.

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Manufacturing

The Company currently utilizes suppliers to produce certain of the major
sub-assemblies of the Sinterstation Systems. The sub-assemblies are built by
these suppliers and shipped to Austin, Texas for assembly. The Sinterstation
System then is put through calibration and testing by the Company. Assembly and
final testing at the Company's site comprises a 21-day cycle. When the
Sinterstation System arrives at the customer's location, DTM personnel install
it and perform on-site testing.

Procurement lead-time for the major sub-assemblies of the Sinterstation
Systems can be up to 12 weeks. Due to the Company's long lead time for major
sub-assemblies, it places orders for such parts on a forecast basis with the
intention of moving raw materials inventory quickly into work in process. While
the Company subcontracts for manufacture of Sinterstation System components,
powdered sintering materials and accessories from single-source, third-party
suppliers, multiple sources exist for almost all of the components of the
Company's products.

The Company's manufacturing facilities in Austin, Texas are currently
configured to assemble and test the Sinterstation Systems. The Company believes
that it will have sufficient manufacturing capacity to fulfill demand for its
Sinterstation Systems in 1999. See "Item 2. Properties."

Intellectual Property

Researchers at The University of Texas initially developed the selective
laser sintering technology commercialized by DTM. The first selective laser
sintering patent was issued to The University of Texas in 1989. The main
University of Texas patents covering selective laser sintering expire in 2006.
While the original patents expire in 2006, the Company has been granted patents
for improvements to the original inventions. Because of this, the Company
believes that it will continue to enjoy certain protections at least through
2010. DTM has an exclusive worldwide license from The University of Texas to use
the selective laser sintering technology, the term of which continues until
expiration of the patent rights that are the subject of the UT License. The UT
License includes the original patents plus a right of first refusal for all
improvements thereon. The UT License require that DTM commercialize the
technology, which DTM has done and continues to do in key markets. Under the UT
License, DTM is required to make royalty payments equal to 4% of net sales of
Sinterstation Systems. In connection with obtaining the UT License, the Company
issued 20,442 shares of Common Stock to The University of Texas. Under the UT
License, The University of Texas reserves the right to practice the patented
technology for research and educational purposes. The UT License can be
terminated by The University of Texas (i) if DTM becomes bankrupt or insolvent,
(ii) if DTM commits a material breach or default under the UT License and fails
to cure that breach or default within 90 days of notice thereof or (iii) as to
foreign jurisdictions, after 1997, if DTM failed to commercialize the technology
in that jurisdiction. The UT License provides that DTM will indemnify The
University of Texas from expenses or damages incurred by The University of Texas
arising from DTM's use of the licensed subject matter.

The Company has further refined and improved the selective laser sintering
process and materials and has been issued patents in its own name for many of
those developments. As of February 1, 1999, the Company owned or had exclusive
licenses to 31 United States patents and two allowed United States applications.
As of the same date, the Company owned or had exclusive licenses under eight
European patents. In addition, the Company owns or has exclusive rights under 19
other issued international patents. Technology that is covered by existing
patents or is the subject matter of pending patent applications includes some or
all of the following: (i) the fundamental elements of the selective laser
sintering process; (ii) related inventions on powder delivery, beam delivery and
thermal control; (iii) certain of the sintering powders that DTM has developed;
and (iv) certain post-processing steps for part finishing. It is anticipated
that DTM will make additional patent application filings as a result of research
currently in progress. Recent filings include new inventions involving
laser/scanning control.

Some of the Company's patents have been acquired from third parties other
than The University of Texas. DTM acquired certain patents in the powdered
materials area through assignment from BFGoodrich in 1992. In 1992, DTM also
acquired a patent that was originally issued to Ross Housholder in 1981. The
Company believes that the Housholder patent is a pioneer patent in the rapid
prototyping field. This patent will expire in 1999. However, the Company
believes that patents discussed in the first paragraph of this section will
afford certain protection to the Company through at least 2010.

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Most of the key claims of the U.S. patents covering selective laser
sintering, excluding the Housholder patent, have been submitted internationally.
The first European Patent Convention patent, which was issued by the European
Patent Office ("EPO") in December 1994, gives patent protection in Austria,
Belgium, France, Germany, Italy, the Netherlands, Sweden, Switzerland and the
United Kingdom. This patent was recently the subject of an opposition appeal
filed by a competitor, EOS GmbH ("EOS"), a German competitor, before the appeal
board of the EPO. EOS asserted that the main patent claims resulted from an
unallowable amendment and that the patent was invalid based on both novelty and
inventive step. In December 1998, the appeal board ruled that the main patent
claims be amended to more closely reflect the working of the specification and
that in the amended form the patent was novel and had inventive step. No more
appeals are available to EOS on that patent. EOS has filed opposition
proceedings against three other DTM patents in the EPO. The aforementioned
appealed patent and one of the three patents being opposed are part of the
infringement litigation discussed under "Item 3. Legal Proceedings." The Company
intends to defend the validity of this patent vigorously. See "Item 3. Legal
Proceedings."

The Company has six trademarks registered with the U.S. Patent and
Trademark Office.

The Company can give no assurance that the issued patents to which it holds
rights will be adequate to protect its interests or, if challenged, held valid.
The Company's competitors could develop non-infringing systems, materials or
technologies that are equivalent or superior to those of the Company.
Competitors currently do and also may in the future practice technology covered
by DTM's patents or other legal or contractual protections regardless of the
fact that it is legally protected, forcing the Company to engage in costly
litigation to defend its interests. While DTM defends its intellectual property
vigorously, there can be no assurance that it will be successful in its various
litigation in many countries. A failure by the Company to protect its
intellectual property position could have a material adverse effect on its
business, financial condition and results of operations.

Competition

The Company faces significant worldwide competition in the market for rapid
prototyping systems and materials. Several United States-based companies other
than DTM are in various stages of developing and marketing rapid prototyping
systems and services. These companies include 3D Systems Corporation ("3D
Systems"), ExtrudeHone Corporation ("ExtrudeHone") Helisys, Inc. ("Helisys"),
Sanders Prototype, Inc., Soligen Technologies, Inc., Stratasys, Inc.
("Stratasys") and Z corporation. ("Zcorp"). Of these, 3D Systems, Helisys and
Stratasys compete with DTM on a worldwide basis. The Company also faces
competition in various regions outside North America from companies such as EOS
and several Japanese companies, including CMET (Mitsubishi), DMEC (Sony) and
Teijin.

A number of the companies participating in the rapid prototyping industry
have developed or may be developing desk-top systems that are sold or will be
sold primarily on the basis of price. DTM believes that these companies include
3D Systems, Denken Engineering Co., Ltd., Extrude Home Helisys, Kira
Corporation, Sanders Prototype, Inc., Stratasys and Zcorp, among others. Their
products are based on ink jet printing, plastic extrusion or paper laser cutting
and laminating technologies and generally sell for far less than the Company's
products, which are not desk-top systems.

The Company believes that its principal competitors for the plastic model,
functional prototype and pattern-creation segments of the rapid prototyping
market are 3D Systems, Teijin, CMET, DMEC and EOS. 3D Systems, Teijin, CMET and
DMEC employ a stereolithography ("SLA")-based process that utilizes ultraviolet
light sources to polymerize liquid monomers into a solid plastic object. 3D
Systems was the first company to commercially introduce rapid prototyping
technology. The Company competes with 3D Systems on a worldwide basis while its
competition to date with CMET and Teijin has been confined to Japan. Before
1997, EOS, located in Munich, Germany, marketed systems based on both SLA and
selective laser sintering technologies, principally in Western Europe. In 1997,
EOS announced that it had sold its SLA product line to 3D Systems. EOS has been
sued in Germany, France and Italy by DTM for infringement of selective laser
sintering technology patents. See "Intellectual Property" and "Item 3. Legal
Proceedings." The Company considers a process marketed by 3D Systems to be
worldwide competition for

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its RapidTool process and an EOS process to be a competitor of the RapidTool
process in Europe and certain Pacific Rim countries.

The Company competes for business with other rapid prototyping companies
primarily on the basis of product performance and price, as well as reliability,
accuracy, versatility and product service. The Company also competes for
business with conventional machining and milling techniques, which continue to
be the most common methods by which plastic models, functional prototypes and
tool inserts are manufactured. The Company is experiencing the effects of this
significant competition in the form of sales discounts, additional services and
extended terms.

The Company may be competing with other technologies that lessen the need
for physical models, such as computer visualization and new generation of CAD
programs that more reliably model and present images of assembled products.

The Company's current technology is not amenable to be configured as a
desk-top product. If mechanical design engineers and other users of design,
modeling and prototyping technologies develop a preference for either desk-top
rapid prototyping systems or approaches that are fully electronic as the
standard for proving design specifications, then the Company could be materially
adversely affected.

Executive Officers

The executive officers of the Company and their ages as of March 1, 1999
are as follows:

Executive Officers Age Position
------------------ --- --------
John S. Murchison, III 58 Chief Executive Officer and President
Geoffrey W. Kreiger 49 Chief Financial Officer, Treasurer and Secretary
Kevin McAlea 40 Vice President, Marketing and Business Development

John S. Murchison, III joined the Company as Chief Executive Officer and
President in September 1990. Prior to joining the Company, Mr. Murchison was
General Manager for the Pratt Group, a privately held Australian-based company
with worldwide holdings in packaging, insurance, banking and trading, from 1987
to 1990.

Geoffrey W. Kreiger joined the Company in December 1997 as Controller,
Treasurer and Secretary. On February 19, 1999, he was appointed Chief Financial
Officer. Prior to joining the Company, Mr. Kreiger was Executive Vice President
of Austin Software Foundry, Inc., from 1996 to 1997. Prior to that, he was
President, Datamarine Unit, and Chief Financial Officer and Director of
Datamarine International, Inc., a manufacturer of communications equipment and
consumer electronics, from 1988 to 1995. Mr. Kreiger is a Certified Public
Accountant.

Kevin McAlea, Ph.D. was appointed Vice President, Marketing and Business
Development in 1997. He had been Director of Process and Materials Research
since joining DTM in 1993. Before joining DTM, Dr. McAlea spent more than eight
years in materials research and development for General Electric Company. His
last position was managing the Polymer Physics Program at GE's Corporate
Research and Development Center.

Employees

At December 31, 1998, the Company had 116 employees, compared to 113 at the
end of 1997. None of the Company's employees are represented by a labor union.
The Company has no prior experience with a work stoppage and considers its
relations with its employees to be good.

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Recent Developments

In October 1998, the Company was notified by The Nasdaq Stock Market
("Nasdaq") that the Company had failed to maintain a market value of public
float ("MVPF") greater than or equal to $5.0 million in accordance with
Marketplace Rule 4450(a)(2) under the listing maintenance standards required by
Nasdaq for an issurer's securities to remain listed on the Nasdaq National
Market System ("NMS"). The Company was given a 90-day period to demonstrate its
compliance with the MVPF requirement by complying with the $5.0 million MVPF
requirement for 10 consecutive days.

The Company was unable to comply with the MVPF requirement for ten
consecutive days during the 90-day period. However, because the Company believed
that it soon would be able to comply with all of the required maintenance
criteria to remain listed on NMS, including the MVPF requirement, it submitted
to Nasdaq an official request for an oral hearing to appeal the delisting of
DTM's Common Stock from NMS. In March 1999, the delisting proceedings against
the Company were "mooted" by Nasdaq at the Company's request, since, among other
things, the Company had demonstrated recent compliance with the MVPF requirement
and was found to be in compliance with all other NMS listing requirements.

There can be no assurance that the Company will be able to demonstrate
continued compliance with the MVPF requirement, or any other maintenance
standards required by Nasdaq, to ensure that its Common Stock remains listed on
the NMS. As of March 29, 1999, the Company's MVPF had again fallen below the
$5.0 million requirement. The delisting of the Company's Common Stock from the
NMS would have the adverse effect of reducing the visibility, liquidity and
prestige of DTM's stock and could adversely affect the ability or willingness of
broker-dealers who sell or make a market in the Company's Common Stock and the
ability of investors to sell their shares of the Company's Common Stock in the
secondary market.

ITEM 2. PROPERTIES

The Company currently leases a 50,000-square foot facility at 1611
Headway Circle, Buildings 1 and 2, Austin, Texas. The Company also maintains
off-site sales and/or service offices located in various areas of the United
States and in Singapore, in Birmingham, England and in Hilden, Germany, all of
which are leased. DTM expects that such facilities will be sufficient to support
the Company's operations through the remainder of 1999. See "Item 1. Business--
Manufacturing."

ITEM 3. LEGAL PROCEEDINGS

The Company has initiated proceedings against EOS and related parties in
a number of courts, primarily in Europe, to enforce its patent rights in various
jurisdictions. The Company initiated patent infringement litigation in March
1996 in the 3rd Chamber--1st section of the Court of Paris, France against EOS,
EOS S.A. (France) and against one of EOS's customers. The Company also initiated
patent infringement litigation in April 1996 in the County Court No. 1 in
Munich, Germany against EOS. In December 1996, the Company initiated similar
litigation in the court of Pinerolo, Italy against EOS. In December 1997, the
Company initiated similar litigation in No. 29 Civil Department of Tokyo
District Court against Hitachi Zosen Joho System K.K., an EOS distributor. In
each of these cases, the Company has alleged that EOS is selling rapid
prototyping systems in Europe and Japan that make unauthorized use of selective
laser sintering technology covered by the two European and one Japanese patents
under which DTM has exclusive rights. The Company seeks injunctive relief plus
damages. This litigation will be pursued in conjunction with the EPO proceeding
in which EOS has opposed the validity of the European patents. Hearings have
begun in the German, French, Italian and Japanese lawsuits. It is not possible
at this time to predict the outcome of these proceedings, although a ruling
unfavorable to the Company could have a material adverse effect on the Company's
business and financial performance. See `Item 1. Business--Intellectual
Property.'

EOS has informed the Company that EOS has obtained the worldwide right to
enforce certain U.S. patents owned by 3D Systems. EOS has also informed DTM in
early 1998 that EOS may bring patent infringement litigation against DTM in the
U.S. courts relating to the 3D patents. It is not possible at this time to
predict the outcome of this possible action, although the Company has conducted
a review of the 3D patents and believes that it

10
<PAGE>

is not infringing or has valid defenses. If such a lawsuit is filed, the Company
intends to defend itself vigorously. However, a ruling that would have the
effect of allowing EOS to sell rapid prototyping systems that use selective
laser sintering in the U.S. could have a material adverse effect on the
Company's business and financial performance.

Although the Company believes that it has meritorious defenses to the
claims of liability or for damages in the various actions against the Company,
there can be no assurance that additional lawsuits will not be filed against the
Company. Further, there can be no assurance that the foregoing actions will not
have a disruptive effect upon the operations of the Company's business or that
the resolution of the foregoing actions will not have a material adverse effect
upon the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS

None.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "DTMC." The high and low transaction prices for each calendar quarter
of 1997 and 1998, subsequent to the initial public offering of the Company's
Common Stock on May 2, 1997 at $8 per share, are set forth below.

<TABLE>
<CAPTION>
Stock Prices
High Low
---- ---
<S> <C> <C>
1997
- ----
Second Quarter (from May 2, 1997) $ 8.500 $ 4.000
Third Quarter $ 5.000 $ 3.063
Fourth Quarter $ 3.125 $ 1.000

1998
- ----
First Quarter $ 2.000 $ 1.250
Second Quarter $ 2.625 $ 1.375
Third Quarter $ 2.000 $ 1.000
Fourth Quarter $ 1.375 $ 0.563
</TABLE>

As of March 29, 1999, the Company had 6,621,336 shares of Common Stock
outstanding, which were held by approximately 400 beneficial owners, represented
by 60 shareholders of record.

The Company has never declared or paid cash dividends on its Common Stock
and does not anticipate that it will pay dividends in the foreseeable future.
The Company intends to reinvest any earnings in the development and expansion of
its business. Furthermore, the Company is now restricted from paying dividends
by the terms of its loan agreement with a bank and it expects that this
restriction will be part of future borrowing arrangements.

11
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

The following table of selected financial data should be read in
conjunction with the Financial Statements required by Item 8 and Management's
Discussion and Analysis of Financial Condition and Results of Operation included
in Item 7.

Year Ended December 31,
1998 1997 1996 1995 1994
-------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Statements of Operations Data:
Revenues ............................. $ 27,795 $ 25,308 $ 24,379 $ 14,211 $ 9,239
Cost of sales ..................... 16,094 14,721 14,445 9,676 5,881
Gross margin ...................... 42.1% 41.8% 40.7% 31.9% 36.3%
Selling, general and administrative 11,387 10,579 9,980 6,620 5,249
Research and development .......... 3,538 4,871 4,292 3,521 3,840
Provision for litigation settlement 1,700 -- -- -- --
Stock compensation ................ -- 2,927 -- -- --
Interest expense, net ............. 48 325 1,066 530 178
Net gain on sale of assets ........ (424) -- -- -- --
Cost of discontinued registration . -- -- 752 -- --
Tax expense (benefit) ............. 30 (827) (1,667) (2,138) (1,825)
------------------------------------------------------------
Net loss ............................. (4,578) (7,288) (4,489) (3,998) (4,084)
============================================================
Net loss per common share - basic .... $ (0.73) $ (1.45) $ (1.38) $ (1.23) $ (1.26)
============================================================
Weighted-average number of shares
outstanding ....................... 6,287 5,034 3,243 3,243 3,243

Balance Sheet Data (at period end):
Working capital ...................... $ 1,858 $ 4,964 $ 1,622 $ 236 $ 342
Total assets ......................... 12,306 17,548 17,897 10,639 8,560
Total debt ........................... -- 175 15,809 9,076 4,600
Total liabilities .................... 7,475 8,310 26,382 14,557 8,516
Shareholders' equity (deficit) ....... 4,831 9,238 (8,485) (3,918) 44
</TABLE>

12
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

BUSINESS, ENVIRONMENT AND RISK FACTORS

The following discussion and analysis should be read in conjunction with
the information set forth under "Selected Financial Data" and the Company's
Consolidated Financial Statements and notes thereto, as well as the section
below under the heading "Risk Factors That May Affect Future Results and Safe
Harbor Statement." The Company's future operating results may be affected by
various trends and factors, which are beyond the Company's control. These
include, among other factors, changes in general economic conditions, rapid or
unexpected changes in technologies and uncertain business conditions that affect
the rapid prototyping and rapid tooling industry. Accordingly, past results and
trends should not be used by investors to anticipate future results or trends.

With the exception of historical information, the matters discussed below
under the heading "Results of Operations" and "Liquidity and Capital Resources"
may include forward-looking statements that involve risks and uncertainties. All
statements, trends and other information contained in this Annual Report on Form
10-K relative to markets for the Company's products and trends in revenue, gross
margin and anticipated expense levels constitute forward-looking statements.
These forward-looking statements generally can be identified by the use of words
such as "anticipate," "believe," "plan," "estimate," "expect," "intend," "may"
and "should" and other similar terminology. The Company wishes to caution
readers that a number of important factors, including those identified in the
section entitled "Risk Factors That May Affect Future Results and Safe Harbor
Statement" as well as factors discussed elsewhere in this report and in the
Company's other reports filed with the Securities and Exchange Commission, could
affect the Company's actual results and cause actual results to differ
materially from those forward-looking statements. See the discussion at the
beginning of Part I.

Overview

DTM Corporation designs, develops, manufactures, markets and supports, on
an international basis, rapid prototyping and rapid tooling systems and related
powdered sintering materials and services. The Company's Sinterstation Systems
and powdered sintering materials are based on proprietary and patented selective
laser sintering technology. DTM was incorporated in 1987 and completed its
initial public offering ("IPO") of Common Stock in May 1997. Prior to shipment
of its first generation Sinterstation in 1992, the Company derived revenues
solely from a rapid prototyping service bureau it operated in Austin, Texas. In
1993, the Company sold its service bureau. Since 1992, DTM has shipped over 240
Sinterstation Systems worldwide.

The Company's selective laser sintering process uses laser energy to sinter
powdered material to create solid objects that aid in the design and manufacture
of products. The company's Sinterstation Systems employ a combination of
software and hardware to produce functional models, patterns, injection holding
tooling and metal ports from a variety of powdered materials. Customers input
designs into the Sinterstation Systems in the form of the drawings. The
functional models are used to verify a design's form and fit. The patterns can,
in turn, be used for secondary processes such as the production of non-durable
molds and investment casting. The Company's RapidTool process employs selective
laser sintering along with a furnace cycle to produce steel/copper composite
mold inserts that are used by the injection molder to produce production parts
in quantity. A variant of the RapidTool process is the production of mold
inserts in the Sinterstation System from a copper-reinforced thermoplastic-based
material system, without the need for a furnace cycle. These inserts produced
with this product are used by the injection molder to produce short-run
production parts. Sinterstation Systems also can be used in combination with the
Company's RapidTool process with a furnace cycle to produce metal parts.
Customers input designs into the Sinterstation Systems in the form of CAD
drawings. The Company's Sinterstation Systems employ a combination of software
and hardware to produce functional models, patterns, injection-molding tooling
and metal parts from a variety of powdered materials.

13
<PAGE>

products in the United States, Canada, Western Europe and certain Pacific Rim
and South American countries. In the United States and Canada, the Company
employs a direct sales force. In Germany, DTM GmbH, a wholly owned subsidiary,
distributes DTM's products. DTM GmbH is a sales and service organization whose
efforts are augmented by sales agents in France, Italy, Portugal, Spain and
Sweden. In the United Kingdom, DTM (UK) LTD., a wholly owned subsidiary,
distributes and services DTM's products. The Company also distributes its goods
and provides services in the Pacific Rim and South America through a network of
independent agents, including agents in Brazil, China, India, Japan, Singapore,
South Korea and Taiwan.

DTM's Sinterstation Systems typically include hardware, material handling
equipment, documentation, licenses for using DTM supplied software, licenses for
using DTM-supplied powdered sintering materials and installation. They can be
configured for use with a single sintering powder or for any combination of
thermoplastic, foundry sands or metal sintering powders. DTM typically offers
its Sinterstation Systems packaged with a 12-month limited warranty and
preventive maintenance contract, installation services, training services and an
initial supply of sintering materials. DTM offers a wide range of proprietary
sintering materials and software that optimizes their use in the Sinterstation
System.

The total value of a packaged offering is allocated among its various
components: systems and related equipment sintering materials, immediate
services and deferred services. Revenues from the sale of products are
recognized when title has transferred to the customer, the Company's remaining
obligations are insignificant and collection of the related receivable is
probable, which typically is upon shipment. The Company defers from three to six
percent of the revenues, excluding certain accessories, from each Sinterstation
System sale to cover the cost of a one-year warranty period. This deferred
amount represents the Company's estimate of the cost of providing such warranty
and preventive maintenance service and is recognized ratably as service and
support revenue over the 12-month warranty period. Upon expiration of the 12-
month warranty period discussed above, the Company offers for sale to its
customers an annual maintenance contract, the revenues from which are recognized
ratably as service and support revenue over the related support period.

In August 1998, DTM commenced delivery of a third generation selective
laser sintering system platform, named the Sinterstation 2500plus. Manufacture
of the previous system platforms, marketed as the Sinterstation 2000 and
Sinterstation 2500, were discontinued in July 1998. With the introduction of the
Sinterstation 2500plus, DTM has over the past year introduced a completely new
generation of platforms, sintering materials and sintering processes. The
Company believes that the increased demand for its products beginning in the
second quarter of 1998 is a result of the new sintering materials that were
introduced in the previous ten months. However, there can be no assurance that
this increased demand will continue.

The introduction of the new Sinterstation 2500plus in August of 1998 was
the culmination of a year-long project to design a system with a lower
manufactured cost that would permit the Company to be more price competitive
while improving its gross margins. Mainly as a result of the Sinterstation
2500plus, fourth quarter 1998 total gross margins improved to 51.4% from 42.2%
in the fourth quarter of 1997. These higher gross margins allowed the Company to
become profitable in the fourth quarter of 1998.

Revenues for 1998 were at record levels. Overall, 1998 revenues overcame a
weak first quarter and increased by 10% over the prior year.

The Company has been attempting to remedy the softening in North American
demand that the Company experienced in mid-1997 through the introduction of
second generation sintering materials for functional prototyping, short-run
tooling and long-run tooling applications. In 1998, revenues derived from North
American customers were up 29% over 1997.

Internationally, 1998 revenues derived from European customers were up 21%
over 1997. Revenues derived from customers in the Pacific Rim were down 34% from
1997, due to the economic conditions in that region.

14
<PAGE>

Results of Operations

The following table sets forth for the periods indicated certain income
statement data as a percentage of total revenues and certain cost of sales data
as a percentage of respective product revenues and service and support revenues.

Year Ended December 31,
1998 1997 1996
-----------------------------------------
<S> <C> <C> <C>
Revenue:
Products................................ 87.0 % 89.0 % 90.5 %
Service and support..................... 13.0 % 11.0 % 9.5 %
----------- ---------- ------------
100.0 % 100.0 % 100.0 %
Gross Profit:
Products margin.......................... 42.6 % 43.1 % 41.0 %
Service and support margin............... 38.9 % 31.2 % 38.3 %
----------- ---------- ------------
Gross profit............................ 42.1 % 41.8 % 40.7 %
----------- ---------- ------------

Operating expenses:
Selling, general and administrative..... 41.0 % 41.8 % 40.9 %
Research and development................ 12.7 % 19.2 % 17.6 %
Provision for litigation settlement..... 6.1 % - -
Stock compensation (EAP)................ - 11.6 % -
----------- ---------- ------------
59.8 % 72.6 % 58.5 %
----------- ---------- ------------
Operating loss.............................. (17.7)% (30.8)% (17.8)%

Other income (expense):
Interest expense, net................... (0.2)% (1.3)% (4.4)%
Gain on asset sales..................... 1.5 % - -
Cost of discontinued registration....... - - (3.1)%
----------- ---------- ------------
1.3 % (1.3)% (7.5)%
----------- ---------- ------------

Loss before income tax...................... (16.4)% (32.1)% (25.3)%

Income tax (expense) benefit................ (0.1)% 3.3 % 6.9 %
----------- ---------- ------------
Net loss.................................... (16.5)% (28.8)% (18.4)%
============ ========== ============

</TABLE>
Revenues. Revenues increased 9.8% to $27.8 million in 1998 as compared to
$25.3 million in 1997 and $24.4 million in 1996. The growth in revenues in 1998
was attributable to market growth in North America as domestic revenues grew by
29.3% to $13.0 million and international revenues declined by 3.0% to $14.8
million. This decline in international revenues was, primarily, due to the
economic conditions in the Pacific Rim countries. The growth in 1998 occurred in
the last three quarters of 1998, with revenues contracting in the first quarter
of 1998. The growth in revenues in 1997 was attributable to market growth
internationally as revenues derived internationally grew by 26.9%, while
revenues derived from customers in North America declined by 18.7%. The growth
in 1997 occurred in the first two quarters of 1997, with revenues contracting in
the last two quarters of 1997. See "Selected Quarterly Results" below. Unit
volumes of Sinterstation Systems and most powdered materials increased during
1998 and 1997.

As stated above, the Company's 1998 international revenues were $14.8
million, or 53.2%, of total revenues, compared to 60.2% and 49.3% of total
revenues in 1997 and 1996, respectively. Germany was the only foreign country
from which more than 10% of the Company's revenues were derived. Revenues
derived from German customers amounted to 23%, 27% and 23% of total revenues in
1998, 1997 and 1996, respectively. Except for sales occuring in Germany, Japan
and the United Kingdom, the Company's international revenues were primarily
denominated in U. S. dollars. The Company does not hedge all of its foreign
currency exchange

15
<PAGE>

rate risk. The effect of foreign exchange rate fluctuations on exchange
transactions and translation of foreign operations did not have a significant
impact on the Company's operating results in any period. However, in 1998 and
1997 DTM did experience downward pressure on its international prices as the
U.S. dollar strengthened significantly against most European and Asian
currencies. If this strengthening continues, the Company expects continued
downward pressure on the Company's sales prices in the international markets.

Revenues in past periods may not be indicative of revenues in the future,
which may be affected by other business environment and risk factors previously
discussed, as well as other factors included elsewhere herein.

Gross Profit. Gross profit was $11.7 million, or 42.1%, of revenue, in
1998, compared to $10.6 million, or 41.8%, and $9.9 million, or 40.7%, of total
revenues in 1997 and 1996, respectively. The gross profit increases in 1998 and
1997 were due to sequentially higher worldwide unit volume each year. The gross
margin percentage increases in 1998 and 1997 were affected primarily by a
product mix shift toward powdered materials, including increased volumes of
nylon powders. The 1998 gross margin would have been 44.5% had it not been
depressed by an inventory write off of $675,000 in the second quarter of 1998
caused by new product introductions. The 1998 gross margin improved to 51.4% in
the fourth quarter of 1998, reflecting a full quarter shipment of the new
Sinterstation 2500plus. The service and support gross margin in 1998 returned to
1996 levels, primarily due to reduced travel costs of servicing certain
international customers as a result of using more on-site employees.

The Company believes there is a risk that gross margin percentages may
decline in the face of the strong U.S. dollar. Other factors, including changes
in material and labor costs, may also have an adverse effect on gross margins.
Past gross margins are not necessarily indicative of future gross margins.

Selling, General and Administrative Expense. Selling, general and
administrative expense was $11.4 million or 41.0% of revenues in 1998, compared
to $10.6 million or 41.8% of revenues and $10.0 million or 40.9% of revenues in
1997 and 1996, respectively. The increase in both 1997 and in 1996 was primarily
related to the increased costs associated with sales and sales support staffs
and commission expense resulting from higher sales levels. Selling, general and
administrative expense may vary as a percentage of revenues in the future.

Research and Development Expense. Research and development expense
decreased by 27.4% to $3.5 million in 1998, from $4.9 million in 1997 and $4.3
million in 1996. As a percentage of revenues, research and development expense
was 12.7%, 19.2% and 17.6% in 1998, 1997 and 1996, respectively. The higher 1997
expense levels were, primarily, due to initial design and prototype cost
associated with multiple significant new product development projects that were
commenced in 1997 and culminated in 1998 with the introduction of several new
material systems and the new Sinterstation Model 2500plus. The Company plans to
continue its commitment to research and development in 1999, as the Company
believes that the markets for its products are characterized by technological
innovation for hardware, software and powdered materials. Research and
development expense may increase in absolute dollars in future periods, and such
expenditures may vary as a percentage of sales. There can be no assurance that
the Company's research and development efforts will result in commercially
successful new technology and products in the future, and those efforts may be
affected by other factors.

Provision For Litigation Settlement. In 1998, DTM settled the shareholder
class action lawsuit pending against it. The charge to its second quarter
statement of operations in the amount of $1.7 million, consisted of $3.0
million, the proposed value of the settlement, and $200,000 in other costs, net
of the insurance recovery of $1.5 million. See Item 5 of Quarterly Report on
Form 10-Q for the Period Ended June 30, 1998, filed on August 12, 1998.

Stock Compensation (EAP). In connection with the 1997 IPO, the Company
incurred a one-time non-cash stock compensation expense of approximately $2.9
million as a result of previously outstanding stock appreciation rights
converting by formula into immediately vested stock options at exercise prices
below the market value of the common stock. This charge was recorded in the
second quarter of 1997.

Interest Expense. Net interest expense for 1998 was $48,000, a decrease of
$277,000 compared to interest expense of $325,000 for 1997 and $1.1 million for
1996. This reflects the decrease in the average

16
<PAGE>

daily balance of the Company's outstanding indebtedness stemming from the
repayment of substantially all outstanding indebtedness in May 1997 from the
proceeds of the IPO.

Gain on Sale of Assets. In the third and fourth quarters of 1998, the
Company sold used Sinterstation Model 2500 and Model 2000 systems under a
previously announced program to sell systems that had been used internally for
development and support activities or under a discontinued rental program. The
Company recognized a net gain of $424,000 on those sales in 1998.

Cost of Discontinued Registration. In the fourth quarter of 1996, the
Company expensed $752,000 of legal, accounting and other professional services
related to an attempted initial public offering, which was commenced in 1996 and
postponed.

Income Taxes. As a result of its tax sharing arrangement with BFGoodrich,
its then controlling shareholder, the Company was allocated an income tax
benefit of $827,000 in 1997 and $1.7 million in 1996. In May 1997, BFGoodrich's
ownership interest fell below 80% and such benefits were no longer available to
the Company. In the fourth quarter of 1997, the Company recorded the final
accounting for this tax allocation arrangement.

Net Loss. The Company had net losses, excluding special charges, of $2.2
million, $5.2 million and $4.5 million in 1998, 1997 and 1996, respectively. The
$3.0 million decrease in net loss from 1997 to 1998 was primarily due to
increased product and service revenues, improved gross margins on Sinterstation
systems, reduced research and development expense, reduced interest expense and
gains from the sale of internally used Sinterstation Systems. Operating results
for 1998 included a special charge of $1.7 million for the estimated cost of
settling the shareholder class action litigation and $675,000 of an inventory
write-off relating to new product introductions. The operating results for 1997
were adversely affected by a special charge of $2.9 million arising from the
conversion of stock appreciation rights by DTM employees in connection with the
Company's IPO in May 1997. Additionally, operating results for 1997 were
benefited from $827,000 of tax credits allocated from the Company's parent. The
allocation of income tax benefits ended with the Company's IPO in May 1997. Net
loss, including special charges, for 1998 was $4.6 million, compared to $7.3
million in 1997 and $4.5 million in 1996.

17
<PAGE>

Selected Quarterly Results

The following table sets forth certain unaudited quarterly results of
operations for the three-month periods ended March 31, 1997 through December 31,
1998. This information has been presented on substantially the same basis as the
audited consolidated financial statements appearing elsewhere herein. The
unaudited quarterly results of operations should be read in conjunction with the
Company's audited consolidated financial statements and related notes. The
quarterly financial information presented herein should not be relied upon as an
indication of future quarterly performance. In 1998, the quarterly increase
(decrease) in revenues in comparison to the comparable period in the prior year
was (27.3)%, 10.0%, 106.9% and 12.4% in the first, second, third and fourth
quarters, respectively. In 1997, the quarterly increase (decrease) in revenues
in comparison to the comparable period in the prior year was 38.6%, 22.4%,
(24.5)% and (17.5)% in the first, second, third and fourth quarters,
respectively.

<TABLE>
<CAPTION>
March June September December
-----------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
1998:
Revenues................................................... $ 5,834 $ 7,479 $ 5,902 $ 8,580
Cost of sales............................................ 3,427 5,113 3,381 4,173
Gross margin............................................. 41.3% 31.6% 42.7% 51.4%
Selling, general and administrative...................... 2,747 2,604 2,876 3,160
Research and development................................. 988 855 850 845
Provision for litigation settlement...................... - 1,700 - -
Interest expense (income), net........................... 6 14 10 18
Net gain on sale of assets............................... - - (258) (166)
Tax expense (benefit).................................... - - - 30
===============================================
Net income (loss).......................................... $(1,334) $(2,807) $ (957) $ 520
Net income (loss) per common share - basic................. $ (0.21) $ (0.45) $ (0.15) $ 0.08
===============================================

1997:
Revenues................................................... $ 8,023 $ 6,799 $ 2,852 $ 7,634
Cost of sales............................................ 4,541 4,051 1,714 4,415
Gross margin............................................. 43.4% 40.4% 39.9% 42.2%
Selling, general and administrative...................... 2,957 3,066 2,266 2,290
Research and development................................. 1,133 1,260 1,203 1,275
Stock compensation (A).................................. - 2,927 - -
Interest expense (income), net........................... 300 61 (39) 3
Tax expense (benefit) (B)................................ (197) (310) 29 (349)
===============================================
Net loss................................................... $ (711) $(4,256) $(2,321) $ -
===============================================
Net income (loss) per common share - basic (C)............. $(0.22) $ (0.82) $ (0.37) $ -
===============================================
</TABLE>
- -----------------------------------------------
(A) This item is a non-cash stock compensation charge incurred in connection
with the May 1997 IPO.
(B) Tax benefit is an allocation from majority shareholder and is no longer
available after May 1997. A final accounting was made in the three months
ended December 31, 1997.
(C) Annual net loss per share does not equal the sum of the individual quarters
due to differences in the average number of shares outstanding during the
respective periods.

<PAGE>

Liquidity and Capital Resources

During 1998, operating activities used $1.3 million in net cash, compared
to a use for such purposes of $3.0 million in 1997 and $4.1 million in 1996. The
1998 cash flows from operating activities would have been positive had it not
been for settlement and legal expenditures of $1.9 million on the two lawsuits
that were settled in 1998. In 1998, inventory levels and collection cycles
returned to normal levels from the higher levels experienced in 1997 as result
of a soft North American market.

Accounts receivable, less allowance, represented approximately 54 days of
quarter sales at December 31, 1998, compared to 59 days at December 31, 1997.
Inventory, less allowance, represented approximately 75 days on hand at December
31, 1998, compared to 119 at December 31, 1997.

The Company's investing activities include expenditures for patents and
licenses, capitalized software costs and furniture and equipment, principally
consisting of the Company's Sinterstation Systems built for internal use and
rental purposes. Capital expenditures for 1998 of $1.7 million included the
first quarter 1998 acquisition of $568,000 of Sinterstation 2500plus Systems for
internal use in support of the new platform and older models for support and a
now discontinued rental program. In the third quarter, the Company recognized
$568,000 in proceeds from the sale of the previously mentioned Sinterstation
2500plus Systems to a leasing company and then leased them back under an
operating lease. The sale/leaseback transaction for the Sinterstation 2500plus
Systems represents off balance sheet financing that will be partially repaid
over the next two years. Operating expenses for the next two years are not
significantly affected by this sale/leaseback transaction. Also in the third and
fourth quarters of 1998, the Company recognized $808,000 in proceeds from the
sale to customers of older model Sinterstation Systems that had been used
internally or in the rental program. Thus after these transactions, net cash
used by investing activities was approximately $346,000, $1.7 million and $3.0
million for 1998, 1997 and 1996, respectively.

For 1999, the Company has planned for approximately $800,000 in capital
expenditures. This includes an additional Sinterstation 2500plus System to
support the new platform and Year 2000 compliance expenditures. The Company
intends to fund this additional investment from operations as well as from any
proceeds from the sale of older model internally used systems. The Company
continues to market its refurbished Model 2000/2500 program. Any income
resulting from these sales will be recognized as proceeds from the sale of
assets.

At December 31, 1998, the Company had a $2.0 million line of credit with
Chase Bank, Texas NA, expiring in April 1999. At December 31, 1998, there were
no amounts outstanding on this line of credit. Borrowings under this line of
credit bear interest at prime minus 1.5% and were guaranteed by BFGoodrich, the
then controlling shareholder. Due to the change in control of the Company that
occurred on February 12, 1999, this credit line is no longer available to DTM.

On February 12, 1999, the Company received a commitment from a bank to
replace the line of credit with a temporary spot factoring line while it
negotiates a permanent line of credit.

At December 31, 1998, the Company's only indebtedness was its advance from
BFGoodrich in the amount of $909,000. In connection with the February 12, 1999
change in control, Proactive, the new shareholder, informed the Company that it
had acquired the Company's liability to BFGoodrich in the amount of
approximately $909,000. This liability is currently non-interest bearing and is
due on demand. Proactive has informed the Company that it intends to require
formalization of this indebtedness on commercial terms.

The Company believes that it has the financial resources needed to meet
business requirements, including capital expenditures, working capital
requirements, the debt obligations outstanding and operating lease commitments
for facilities and equipment through December 31, 1999. However, there can be no
assurance that this will be the case.

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<PAGE>

Effect of Inflation

The Company's business operations are subject to inflationary pressures.
Due to the competitive environment in this industry, there can be no assurance
that the Company will be able to increase prices in the event of increased labor
and material costs.

New Accounting Standard

In June 1998, the Accounting Standards Board issued Statement of Financial
Accounting Standards Statement No. 133, "Accounting for Derivative Instruments
and Hedging Activities," which is required to be adopted in years beginning
after June 15, 1999. The Statement permits early adoption as of the beginning of
any fiscal quarter after its issuance. Derivatives that are not hedges must be
adjusted to fair value through income. If the derivative is a hedge, depending
on the nature of the hedge, changes in the fair market value of the derivative
will either be offset against the change in fair value of the hedged assets,
liabilities, or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of the derivative's change in fair value will be immediately
recognized in earnings.

The Company has not yet determined what the effect of Statement of
Financial Accounting Standards Statement No. 133 will be on its earnings and
financial position and has not yet determined the timing or method of adoption.
However, the Statement could increase volatility in earnings and comprehensive
income.

Year 2000 Plan

Many currently installed computer systems and software products are coded
to accept only two-digit entries in date code fields. These date code fields
will need to accept four-digit entries to distinguish 21st century dates from
20th century dates. As a result, computer systems and/or software used by many
companies may need to be upgraded to comply with such "Year 2000" requirements.
Significant uncertainty exists concerning the potential effects associated with
such compliance.

The Company has evaluated its Sinterstation Systems and believes that it
will have no exposures with respect to the Year 2000 issue.

The Company has begun to develop a plan to upgrade or replace its internal
information technology to comply with Year 2000 requirements and begun to
evaluate packaged software solutions to assess Year 2000 compliance. The Company
currently expects this compliance project to be substantially completed by mid-
1999 and to cost between $50,000 and $150,000. This estimate includes internal
costs, but excludes the costs to upgrade and replace systems in the normal
course of business. The Company does not expect this project to have a
significant effect on its operations. As of December 31, 1998, approximately
$20,000 has been expensed. Such expenses are being funded through operating cash
flows. In a worst case scenario, the Company believes its information systems
might not properly account for amounts due from customers or due to suppliers at
the end of 1999 and the preparation of its financial statements may be delayed.

The Company has performed an evaluation of its non-information systems
(embedded technology such as microcontrollers) and does not believe that it has
significant exposures in this area with respect to the Year 2000 issue.

The Company has not made inquiries of its key vendors as to their status
with respect to the year 2000 compliance issues. There can be no assurance that
Year 2000 compliance issues at these vendors may not cause these vendors to
disrupt the Company's production plans.

Based upon available information, the Company does not believe any material
exposure to significant business interruption exists as a result of Year 2000
compliance issues, or that the cost of the remedial actions will have a material
adverse effect on its business, financial condition or results of operations.
Accordingly, the Company has not adopted any formal contingency plan in the
event its Year 2000 compliance project is not completed in a timely manner.

20
<PAGE>

The estimates and conclusions set forth herein regarding Year 2000
compliance contain certain forward-looking statements and are based on
management's estimates of future events and information provided by third
parties. There can be no assurance that such estimates and information provided
will prove to be accurate. Risks to completing the Year 2000 compliance project
include the availability of resources, the Company's ability to discover and
correct potential Year 2000 problems and the ability of suppliers and other
third parties to bring their systems into Year 2000 compliance.

RISK FACTORS THAT MAY AFFECT FUTURE RESULTS AND SAFE HARBOR STATEMENT

Investors are cautioned that this Form 10-K contains forward-looking
statements that involve risks and uncertainties, including the following: (i)
the Company's plans, strategies, objectives, expectations and intentions are
subject to change at any time at the discretion of management and the Board of
Directors; (ii) the Company's plans and results of operations will be affected
by the Company's ability to manage its growth and working capital; (iii) the
Company's business is highly competitive and the entrance of new competitors or
the expansion of the operations by existing competitors in the Company's markets
could adversely affect the Company's plans and results of operations. In
addition, the Company identifies the risk factors discussed below which may
affect the Company's actual results and may cause actual results to differ
materially from those contained in forward looking statements.

Limited Operating History and Lack of Profitability

The Company was incorporated in 1987 and shipped its first Sinterstation
Systems in 1992. The Company only became profitable in the fourth quarter of
1998. Prior to the fourth quarter of 1998, the Company had been unprofitable
from its inception; most recently recognizing net losses of approximately $7.3
million for the year ended December 31, 1997 and $5.1 million for the nine
months ended September 30, 1998. There can be no assurance that the Company can
achieve, or if it achieves, maintain, profitability in the future.

Possible Delisting of Securities from The Nasdaq National Market; Limited
Liquidity of Trading Market

Shares of the Company's Common Stock are quoted on the National Market
System ("NMS") of The Nasdaq Stock Market ("Nasdaq"). Nasdaq has recently
promulgated new rules that make continued listing of companies on the NMS more
difficult and has significantly increased its enforcement efforts with regard to
the Nasdaq standards for such listing. The Company has been having difficulty
maintaining one such standard, the $5.0 million market value of public float
requirement. Public float is defined for purposes of this calculation as shares
that are not held directly or indirectly by any officer or director of the
Company or any person who is the beneficial owner of more than 10 percent of the
total shares outstanding. On March 29, 1999, the Company's public float was
believed to be no less than 3,464,146 shares of Common Stock and the minimum bid
price was $1.25 per share. This resulted in a market value of public float of
$4.3 million. The Company plans to seek an appeal of any attempt by Nasdaq to
delist the Company's securities. However, there can be no assurance that such an
appeal would be successful and, therefore, that the Company could avoid having
its securities delisted.

In addition, Nasdaq also requires companies whose stock is included for
quotation on the NMS maintain $4,000,000 in net tangible assets and a minimum
bid price of $1.00. As of December 31, 1998, the Company had net tangible assets
of $4,831,000, for such purpose. However, during the fourth quarter of 1998, the
Company failed to maintain a minimum bid price of $1.00. While the Company
believes it is currently in compliance with these standards, if the Company
fails to continue to satisfy these requirements, its Common Stock may be
delisted from the NMS.

If the Company is delisted from the NMS, it may choose to list its Common
Stock on the Nasdaq SmallCap Market, the OTC Bulletin Board or some other
quotation medium, such as the Pink Sheets, depending on its ability to meet the
specific listing requirements. If the Company is delisted from the NMS, it is
unlikely that the Company would be able to have its Common Stock included for
quotation on the Nasdaq SmallCap Market. As a result, an investor would find it
more difficult to dispose of, or to obtain accurate quotations of the price of,
the Company's Common Stock.

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<PAGE>

Additionally, if the Company's Common Stock is not traded on a national
securities exchange or on Nasdaq, it may be subject to so-called "penny stock"
rules that impose additional sales practice and market-making requirements on
broker-dealers who sell or make a market in such securities. Consequently, the
delisting of the Company's Common Stock from the NMS could adversely affect the
ability or willingness of broker-dealers who sell or make a market in the
Company's Common Stock and the ability of investors of the Company's Common
Stock to sell their securities in the secondary market. Such delisting may also
have the adverse effect of reducing the visibility, liquidity and prestige of
the Company's Common Stock.

Future Capital Needs; Uncertainty of Additional Financing; Possibility of
Significant Dilution

The Company's future capital requirements will depend on a number of
factors, including its profitability, growth rate, working capital requirements,
expenses associated with protection of its patents and other intellectual
property and costs of future research and development activities. Developing
technology companies such as DTM typically need large amounts of capital to fund
growth. However, the Company's cash requirements may vary materially from those
now planned as a result of unforeseen changes that could consume a significant
portion of the available resources before that time.

Future operating results will depend, in part, on the Company's ability to
obtain and manage capital sufficient to finance its business. To the extent that
funds expected to be generated from the Company's operations are insufficient to
meet current or planned operating requirements or to maintain its listing on the
Nasdaq NMS, the Company will seek to obtain additional funds through bank
facilities, equity or debt financing, collaborative or other arrangements with
corporate partners and others from other sources. Additional funding may not be
available when needed or on terms acceptable to the Company, which could have a
material adverse effect on the Company's business, financial condition and
results of operations. If adequate funds are not available, the Company may be
required to delay or to eliminate certain expenditures or to license to third
parties the rights to commercialize technologies that the Company would
otherwise seek to develop itself. In addition, in the event that the Company
obtains any additional funding, such financing may have a substantially dilutive
effect on the holders of the Company's securities. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources"

Quarterly Fluctuations in Operating Results

The Company's revenues and operating results have varied substantially from
quarter to quarter and may continue to do so. DTM typically experiences a
relatively long lead-time, often from six to 24 months, to complete a
Sinterstation System sale and has historically experienced no backlog.
Furthermore, new product introductions, seasonality of customer buying patterns
and other factors can cause fluctuations in quarterly results. These
fluctuations have precluded, and may continue to preclude, the Company from
managing its inventories effectively from quarter to quarter. Further, a
majority of the sales of the Company's Sinterstation Systems occur at the end of
the quarter, often in the last weeks of the quarter. Accordingly, the Company's
ability to forecast the timing and amount of specific sales is limited, and the
deferral or loss of one or more significant sales could materially adversely
affect operating results in a particular quarter. The current 12-week
manufacturing cycle of the new Sinterstation System Model 2500plus negatively
impacts the Company's ability to control its inventories. The failure of the
Company to complete a particular Sinterstation System sale in any given quarter
can have a material adverse effect on the Company's business and financial
performance for that quarter and quarterly fluctuations could cause a material
adverse effect on the price at which the Company's Common Stock trades. The
tendency for a large number of the Company's sales made during a quarter to be
completed at or near the end of the quarter also hinders the Company's ability
to predict sales, control sales prices and enforce its standard terms.

Emerging Rapid Protyping Market

The market for rapid prototyping products and services, such as those
marketed by the Company, is in an early stage of development and includes
multiple, competing technologies, many of which are not yet fully developed.
Participants in this market are moving to address new applications, many of
which may not yet be known or accepted by potential users. Rapid prototyping
requires that a CAD file describe a

22
<PAGE>

design. Organizations who are not using CAD are not, generally, potential
customers for rapid prototyping products and services. Significant education of
the end user in both CAD modeling and rapid prototyping in general has in some
cases been a prerequisite to product acceptance. It is not clear at this time
which one or more technologies will gain broad market acceptance. There can be
no assurance that DTM will emerge as a market leader, or even a major market
participant, as the market evolves and matures.

Emerging Rapid Tooling Market

The market for rapid tooling products and services, such as those marketed
by the Company, is in an even earlier stage of development than rapid
prototyping. Participants in this market, including the Company, are moving to
address new applications, many of which may not yet be known or accepted by
potential users. The companies who use traditional machining methods to make
tooling have made large capital investments in traditional equipment and have
mature infrastructures for doing so. They may be highly resistant both on
financial and cultural bases to adopting new technologies. There can be no
assurance that rapid tooling technologies will evolve to the point that the
perceived value will overcome those obstacles. There can be no assurance that
DTM will emerge as a market leader, or even a major market participant, as the
market evolves and matures.

Competition

The market for rapid prototyping systems is intensely competitive. In
marketing its Sinterstation Systems, the Company experiences competition from
many sources. Certain of the Company's competitors are better known and have
greater financial, research and development, production and marketing resources
than DTM. The principal worldwide competitors are 3D Systems Corporation and
Stratasys, Inc. EOS GmbH is a significant competitor outside of North America.
Competition has increased as a result of the introduction of new products or
product enhancements by these competitors and the entry into the industry by
other companies. Increased competition has in the past resulted, and may in the
future continue to result, in price reductions, reduced margins and loss of
market share, all of which have materially adversely affected the Company's
business and financial results.

Limited Product Company

The Company currently offers one model of Sinterstation Systems for sale.
The sale of Sinterstation Systems comprised 61% of revenues in the year ended
December 31, 1998 and 66% of revenues in each of the years ended December 31,
1997 and 1996. The remaining revenues were comprised of sales of powdered
sintering materials, spare parts and services to the installed base of
Sinterstation owners. Sinterstation Systems are priced at the premium end of the
range of today's rapid prototyping products and are sold on the basis of
performance and suitability to specific applications. In a downturn or a soft
market, the Company's dependence upon a limited range of products, as opposed to
a wide range of products at different price points, has caused the Company's
financial performance to be adversely affected and may continue to do so.

Intellectual Property And Proprietary Rights

In pursuing protection for its proprietary rights in its Sinterstation
Systems, materials and related technology, the Company currently relies on a
combination of patent, copyright, trademark and trade secret rights, as well as
contractual provisions. The Company typically seeks patent protection for its
selective laser sintering technology, including, where deemed appropriate, the
selective laser sintering process, its Sinterstation Systems and the materials
used in its Sinterstation Systems. However, patent protection may not always be
available. There can be no assurance that patents will be issued under any or
all of the patent applications to which the Company has rights. In addition, the
laws of various countries in which the Company's products may be sold may not
protect the Company's products and intellectual property rights to the same
extent as the laws of the United States.

In addition, the Company can give no assurance that the issued patents to
which it holds rights will be adequate to protect its interests or, if
challenged, held valid. The Company's competitors could develop non-infringing
systems, materials or technologies that are equivalent or superior to those of
the Company. A competitor currently does and others also may practice technology
covered by DTM's patents or other legal or

23
<PAGE>

contractual protections regardless of the fact that it is legally protected. Any
litigation to enforce the Company's intellectual property rights would be
expensive, time-consuming, may divert management resources and may not be
adequate to protect the Company's business. While DTM defends its intellectual
property vigorously, there can be no assurance that it will be successful in its
various litigation in many countries. If the Company were unsuccessful in
enforcing its intellectual property rights or other contractual rights in the
context of third-party offers to sell selective laser sintering systems or
sintering powders or if the Company were found to have violated state or federal
antitrust laws, the Company's future revenues might be adversely affected. For
example, a court granted a temporary summary judgment against the Company in
1997, ruling that a customer had been given an implied personal license by DTM
to one of DTM's patented sintering materials. Although the summary judgment was
stayed in connection with a settlement agreement in this case, there can be no
assurance that intellectual property claims against the Company in the future
will not have a material adverse effect on the Company's business, financial
performance and results of operations.

Furthermore, unrelated third parties hold many patents and pending patent
applications under which the Company is not a licensee that relate to the design
and manufacture of rapid prototyping systems and materials. If such a third
party brought infringement litigation against the Company, and if the Company
was not successful in defending such litigation or in obtaining a license, the
Company's business and financial performance could be materially adversely
affected. The Company has been threatened with such litigation by a competitor.

Certain key intellectual property used in the selective laser sintering
process is licensed to the Company by The University of Texas System. As a
licensee, the Company's rights to practice the technology are not absolute. The
University of Texas could terminate, attempt to terminate or amend the license
if the Company could be shown to be in material default of the terms of the
license. Even if DTM has a basis for objection, defense of its rights as a
licensee could be costly and the outcome would be uncertain. Loss of significant
rights as a licensee under this license could have a material adverse effect on
the Company's business and financial performance.

Dependence on Key Personnel

The Company's success depends to a substantial extent on a relatively few
key management employees. Losing the services of one or more key employees could
have a material adverse effect on the Company's business and financial
performance. The Company's success also depends on its ability to continue to
attract highly talented technical personnel. Candidates with appropriate
training and expertise may be in short supply in the geographic areas where the
Company is attempting to recruit personnel. The Company has put in place
incentive compensation plans intended to provide motivation for continued
employment of key employees. However, the exercise prices of employee stock
options are currently above market value and, management incentive goals have
not been met for the past three years and certain sales force incentive goals
were not met last year. This has resulted in reduced incentive compensation for
Company employees. During the last half of 1997, several executive officers left
the Company. The Company can give no assurance that it will be able to retain
employees or continue to attract, assimilate and retain other skilled personnel.

Dependence on Third Party Suppliers

The Company subcontracts for manufacture of Sinterstation System
components, powdered sintering materials and accessories from single-source,
third-party suppliers. A disruption in supply or failure of a supplier to remain
competitive in functionality or price could have a material adverse effect on
the Company's sales or reputation for timely delivery, and, hence, on the
Company's business, financial performance and results of operations.

International Operation

Revenues from customers located outside the U.S. represented 53%, 60% and
50% of the Company's total revenues in 1998, 1997 and 1996, respectively. The
Company believes that continued growth and profitability will require expansion
of its sales in international markets. This expansion may be costly and time-
consuming and may not generate returns for a significant period of time, if at
all.

24
<PAGE>

Fluctuations in exchange rates as well as interest rates have significantly
affected DTM's sales in foreign markets. In particular, a strengthening U.S.
dollar has adversely affected the price competitiveness of DTM's products and
services in the international markets. A significant and increasing portion of
international sales are denominated in currencies other than U.S. dollars,
thereby exposing the Company to gains and losses on non-U.S. currency
transactions. There can be no assurance that any hedging activity by the Company
to limit currency exchange risk will be successful in avoiding exchange-related
losses. Nor can there be assurance that the Company's exposure to risks
associated with international operations will not continue to have a material
adverse effect on its liquidity, capital resources and results of operations.
The regulatory environment, including import/export laws, protective trade
policies and currency controls of foreign governments, also could materially
adversely affect the Company's business and financial performance.

During the last six months of 1997 and continuing through 1998, the Pacific
Rim region has experienced unstable local economies and significant devaluation
in local currencies. Sales to customers in this region constituted approximately
16% of total revenues in 1998, compared to 26% in 1997 and 17% in 1996.
Instabilities may continue to worsen, which could have a material adverse effect
on the Company's business, financial performance and results of operations.

Control of the Company

Proactive currently controls approximately 47.7% of the outstanding Common
Stock. At this percentage, Proactive could control elections of the Company's
Board of Directors and could control or substantially affect the outcome of most
matters submitted to the Company's shareholders for their vote or consent.
Proactive could also cause, prevent or delay a change in control of the Company.

Product Liability

Products as complex as those offered by the Company may contain undetected
defects or errors when first introduced or as enhancements are released that,
despite testing by the Company, are not discovered until after the product has
been installed and used by customers, which could result in delayed market
acceptance of the product or damage to the Company's reputation and business.
The Company attempts to include provisions in its agreements with customers that
are designed to limit the Company's exposure to potential liability for damages
arising out of defects or errors in the Company's products. However, the nature
and extent of such limitations vary from customer to customer and it is possible
that such limitations may not be effective as a result of unfavorable judicial
decisions or laws enacted in the future. The sale and support of the Company's
products entails the risk of product liability claims. Any such claim brought
against the Company, regardless of its merit, could result in material expense
to the Company, diversion of management time and attention, and damage to the
Company's business reputation and its ability to retain existing customers or
attract new customers.

Year 2000 Compliance

The Company has begun an evaluation of its internal information technology
and non-information systems to assess Year 2000 compliance and has a plan to
bring all such systems into compliance by mid-1999. There can be no assurance
that the project will identify and address all significant Year 2000 problems in
a prompt and cost-effective manner. Furthermore, the Company has not adopted any
formal contingency plan in the event its Year 2000 project is not completed in a
timely manner. A delay in completion of the Company's compliance project or any
unforeseen Year 2000 problems, if not fixed, could have a material adverse
effect on the Company's business financial condition and results of operations.

Possible Issuance of Preferred Stock

The Company's Articles of Incorporation authorize the issuance of up to
3,000,000 shares of Preferred Stock, $0.001 par value ("Preferred Stock"), the
terms of which would be determined by the Board of Directors at the time of
issuance, without further shareholder approval. The Board of Directors would
determine whether these shares would carry voting rights, preferences in the
payment of dividends, sinking fund provisions and liquidation, redemption or
conversion rights, if any. The Company has no current plans to issue Preferred
Stock. However, if such stock is issued in the future, the rights of the

25
<PAGE>

holders of Common Stock could be materially adversely affected. It is possible
that the Board of Directors could grant future holders of Preferred Stock rights
that could restrict the Company's ability to merge or sell its assets to a third
party, resulting in preservation of the control of the Company by its then
current owners. The Preferred Stock provisions of the Company's Articles of
Incorporation could inhibit a third party from acquiring a significant amount of
the Common Stock, thereby delaying or preventing changes of the management or
control of the Company, and possibly materially adversely affecting the Common
Stock price as a result.

Shares Eligible for Future Sale; Probable Resale of Common Stock Issued in
connection with Settlement of Shareholder Class Action Litigation

Sales of shares of Common Stock into the market by Proactive, employees
exercising options or recipients of shares to be distributed in settlement of
the Company's shareholder class action litigation escrow could cause a decline
in the price of such stock. The shares of the Common Stock owned by Proactive
will be freely tradeable, subject to the resale limitations of Rule 144, as
promulgated by the U.S. Securities and Exchange Commission, that are applicable
to an affiliate of the Company, after a minimum of one year has elapsed from
the date on which Proactive acquired such shares. In addition, if the Company
purposes to register any of its securities under the Securities Act of 1933, as
amended, whether for its own account, for the account of other shareholders or
both, Proactive is entitled to notice of such registration and is entitled to
include its shares of the Company's Common Stock in the registration.

DTM employees hold immediately exercisable options to purchase 417,000
shares of Common Stock. The Company registered the issuance and the sale of the
shares of Common Stock that would be issued upon exercise of options under the
stock option plans on a Form S-8 Registration Statements. As a result, the
Common Stock acquired by employees of DTM upon exercise of options outstanding
under the stock option plans will be freely tradeable (subject to compliance
with certain provisions of Rule 144, in the case of affiliates of the Company).

The non-cash component of the settlement of the shareholder class action
resulted in the issuance of 334,485 shares of the Company's Common Stock into a
settlement escrow on February 4, 1999. Such shares are freely tradable. The
escrow agent has advanced the Company, that the escrow agent intends to sell
such shares prior to the planned May 1999 distribution to the recipients of the
settlement sales of Common Stock into the market by the escrow agent or, if
distributed the recipients of the settlement could cause a decline in the price
of such stock.

Market Volatility

The Company's Common Stock is listed on the Nasdaq National Market.
Historically, the stock market has experienced volatility that has particularly
affected the market price of common stock of technology-related companies. That
volatility sometimes has been unrelated to the operating performance of such
companies.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Information related to quantitative and qualitative disclosure regarding
market risk is set forth under the captions "Marketing and Customers" in Item 1
and in Management's Discussion and Analysis of Financial Condition and Results
of Operations and the risk factors under Item 7 above. Such information is
incorporated herein by reference.

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<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Consolidated Financial Statements
Page
<S> <C>
Report of Independent Auditors 29
Consolidated Statements of Operations for the years ended December 31, 1998, 1997 and 1996 31
Consolidated Balance Sheets as of December 31, 1998 and 1997 32
Consolidated Statements of Shareholders' Equity (Deficit) for the years ended December 31,
1998, 1997 and 1996 34
Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996 35
Notes to Consolidated Financial Statements 36
</TABLE>

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28
<PAGE>

Report of Independent Auditors

Board of Directors and Shareholders
DTM Corporation

We have audited the consolidated balance sheets of DTM Corporation and its
subsidiaries as of December 31, 1998 and 1997, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1998. 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 audit 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, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of DTM Corporation
and its subsidiaries at December 31, 1998 and 1997, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles.

Ernst & Young LLP

Austin, Texas
February 5, 1999, except for
Note 14 as to which the date
is February 19, 1999

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30
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DTM Corporation

Consolidated Statements of Operations
(In thousands, except share amounts)

<TABLE>
<CAPTION>
Year ended December 31,
1998 1997 1996
----------------------------------------------------
<S> <C> <C> <C>

Revenue:
Products $ 24,168 $ 22,530 $ 22,070
Service and support 3,627 2,778 2,309

27,795 25,308 24,379
Cost of sales:
Products 13,878 12,809 13,021
Service and support 2,216 1,912 1,424
----------------------------------------------------
16,094 14,721 14,445
----------------------------------------------------

Gross profit 11,701 10,587 9,934

Operating expenses:
Selling, general and administrative 11,387 10,579 9,980
Research and development 3,538 4,871 4,292
Provision for litigation settlement 1,700 - -
Stock compensation (EAP) - 2,927 -
----------------------------------------------------
16,625 18,377 14,272
----------------------------------------------------
Operating loss (4,924) (7,790) (4,338)

Other income (expense):
Interest expense, net (48) (325) (1,066)
Gain on sale of assets - net 424 - -
Cost of discontinued registration - - (752)
----------------------------------------------------
376 (325) (1,818)
----------------------------------------------------

Loss before income taxes (4,548) (8,115) (6,156)
Income tax (expense) benefit (30) 827 1,667
----------------------------------------------------
Net loss $ (4,578) $ (7,288) $ (4,489)
====================================================

Net loss per common share basic $ (0.73) $ (1.45) $ (1.38)
====================================================

Weighted-average number of shares outstanding 6,286,851 5,034,183 3,243,391
====================================================
</TABLE>

See accompanying notes.

31
<PAGE>

DTM Corporation

Consolidated Balance Sheets
(In thousands, except share amounts)

<TABLE>
<CAPTION>
December 31,
1998 1997
--------------------------------
<S> <C> <C>

Assets
Current assets:
Cash $ 429 $ 2,050
Accounts receivable, less allowance of $416 in 1998
and $495 in 1997 5,186 4,981
Inventory 3,456 5,839
Prepaid expenses and other 262 404
--------------------------------
Total current assets 9,333 13,274

Property, plant and equipment:
Sinterstation systems 2,857 3,665
Other machinery and equipment 4,051 3,972
Leasehold improvements 1,428 1,336
Office furniture 382 365
--------------------------------
8,718 9,338
Accumulated depreciation and amortization 7,330 7,039
--------------------------------
1,388 2,299
Capitalized software development costs, net of accumulated
amortization of $872 in 1998 and $517 in 1997 629 753

Patent and license fees, net of accumulated amortization of
$1,373 in 1998 and $1,097 in 1997 956 1,080

Other assets - 142
--------------------------------

Total assets $12,306 $17,548
================================
</TABLE>

32
<PAGE>

<TABLE>
<CAPTION>
December 31,
1998 1997
---------------------------------------
<S> <C> <C>
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 3,090 $ 4,863
Due to shareholder 909 909
Deferred service revenues 1,830 1,604
Other deferred revenues 200 -
Customer deposits 155 -
Employee and agent compensation 891 759
Accrued litigation settlement - stock portion 400 -
Short-term borrowings - 175
---------------------------------------
Total current liabilities 7,475 8,310

Commitments and contingencies

Shareholders' equity:
Common Stock, $.0002 par value: 60,000,000 shares authorized;
6,286,851 issued and outstanding in 1998 and 1997 1 1
Additional paid-in capital 53,161 53,161
Accumulated deficit (48,335) (43,757)
Accumulated other comprehensive income (loss) 4 (167)
---------------------------------------
Total shareholders' equity 4,831 9,238
---------------------------------------

Total liabilities and shareholders' equity $ 12,306 $ 17,548
=======================================
</TABLE>

See accompanying notes.

33
<PAGE>

DTM Corporation

Consolidated Statements of Shareholders' Equity
(In thousands, except share amounts)

<TABLE>
<CAPTION>
Accumulated Other
Additional Accumulated Comprehensive
Shares Common Stock Paid-in Capital Deficit Income (Loss) Total
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996 3,243,391 $1 $28,019 $(31,980) $ 42 $(3,918)

Net loss - - - (4,489) - (4,489)
Translation adjustment - - - - (78) (78)
--------------
Comprehensive loss (4,567)
--------------

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

Balance at December 31, 1996 3,243,391 1 28,019 (36,469) (36) (8,485)

Net loss - - - (7,288) - (7,288)
Translation adjustment - - - (131) (131)
--------------
Comprehensive loss (7,419)
--------------

Conversion of shareholder debt 187,500 - 1,500 - - 1,500
Issuance of common stock in public offering 2,852,191 - 20,707 - - 20,707
Stock compensation (EAP) - - 2,927 - - 2,927
Exercise of common stock options 3,769 - 8 - - 8

Balance at December 31, 1997 6,286,851 1 53,161 (43,757) (167) 9,238

Net loss - - - (4,578) - (4,578)
Translation adjustment - - - - 171 171
--------------
Comprehensive loss (4,407)
--------------

--------------------------------------------------------------------------------------
Balance at December 31, 1998 6,286,851 $1 $53,161 $(48,335) $ 4 $ 4,831
======================================================================================

</TABLE>

34
<PAGE>

DTM Corporation

Consolidated Statements of Cash Flows
(In thousands)

<TABLE>
<CAPTION>
Year ended December 31,
1998 1997 1996
--------------------------------------------------
<S> <C> <C> <C>
Operating activities
Net loss $(4,578) $ (7,288) $(4,489)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 1,929 2,341 2,170
Provision for doubtful accounts - 148 389
Provision for obsolescence 675 - -
Provision for litigation settlement - non-cash portion 400 - -
Stock compensation (EAP) expense - 2,927 -
Gain on disposal of equipment (424) - -
Changes in assets and liabilities used in operating
activities:
Accounts receivable (205) 2,076 (4,653)
Inventory 1,708 (1,004) (2,692)
Prepaid expenses and other assets 284 286 995
Accounts payable and accrued expenses (1,773) (3,097) 162
Due to shareholder - 295 3,343
Deferred service revenues 226 130 569
Other deferred revenues 200 - -
Customer deposits 155 - -
Employee and agent compensation 132 234 94
--------------------------------------------------
Net cash used in operating activities (1,271) (2,952) (4,112)

Investing activities
Purchases of machinery and equipment (1,339) (889) (1,898)
Capitalized software development costs (231) (268) (374)
Patent and license expenditures (152) (620) (698)
Proceeds from sale of machinery and equipment 1,376 - -
--------------------------------------------------
Net cash used in investing activities (346) (1,777) (2,970)

Financing activities
Proceeds from public stock offering - 20,707 -
Proceeds from exercise of stock options - 8 -
Proceeds from short-term borrowings - 371 3,448
Repayments of short-term borrowings (175) (965) (3,355)
Draws on line of credit from financial institutions 1,800 800 2,840
Repayment on line of credit from financial institutions (1,800) (11,840)
Draws on line of credit from shareholder - - 3,800
Repayments of line of credit from shareholder - (2,500) -
--------------------------------------------------
Net cash provided by (used in) financing activities (175) 6,581 6,733

Effect of foreign exchange rate changes 171 (131) (78)
--------------------------------------------------

Net change in cash (1,621) 1,721 (427)
Cash at beginning of year 2,050 329 756
--------------------------------------------------
Cash at end of year $ 429 $ 2,050 $ 329
==================================================

Noncash item:
Conversion of shareholder debt to equity $ - $ 1,500 $ -
</TABLE>

See accompanying notes

35
<PAGE>

DTM Corporation

Notes to Consolidated Financial Statements

December 31, 1998

1. Organization and Significant Accounting Policies

Organization

DTM Corporation (the "Company") designs, develops, manufactures, markets
and supports, on an international basis, rapid prototyping and rapid tooling
systems and related powdered sintering materials and services. The DTM
Corporation Sinterstation Systems and powdered sintering materials are based on
proprietary and patented selective laser sintering technology. DTM Corporation
was formed in November 1987, became a subsidiary of a large specialty chemicals
company in 1990 and completed its initial public offering ("IPO") in May 1997.
On February 12, 1999, the large specialty chemical company, referred to above,
divested its remaining 47% interest in DTM to a partnership of independent
investors (see also Note 14).

The consolidated financial statements include the accounts of DTM and its
subsidiaries, both of which are wholly-owned sales and service operations
domiciled in Europe. All significant intercompany accounts and transactions have
been eliminated.

Although the Company reported its first quarterly profit in the fourth
quarter of 1998, it incurred a full-year operating loss and generated negative
cash flows from operating activities in 1998. The 1998 cash flows from operating
activities were positive before the approximately $1,851,000 in expenditures
relating to two lawsuits that were settled in 1998.

Management has plans to improve the results of operations of the Company,
which include a focus on increasing revenue through sales of a new generation of
products and services. Based on management's cash flow projections for 1999,
management believes that the Company will have sufficient working capital to
operate the business during 1999. In the event that the Company requires
borrowings to finance operations in 1999, the Company currently has a $2,000,000
line of credit with a bank (see Note 5).

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.

Inventory

Inventories are carried at the lower of cost or market, with cost
determined using the first-in, first-out (FIFO) method.

36
<PAGE>

DTM Corporation

Notes to Consolidated Financial Statements (continued)

Long-lived Assets

The Company evaluates the carrying values of long-lived assets to determine
if the facts and circumstances suggest that they may be impaired. If this review
indicates that long-lived assets will not be recoverable, as determined based on
the undiscounted cash flows of the entity over the remaining amortization
period, the carrying value of the long-lived assets will be reduced accordingly.
No impairment adjustments have been necessary in 1998 or in previous years.

Property, Plant and Equipment

Internally used Sinterstation Systems and other machinery and equipment is
stated at cost. Depreciation is computed on the straight-line method over the
useful life of each asset, which lives range from three to five years. Leasehold
improvements are amortized on the straight-line method over the life of the
related lease or the useful life of the respective asset, whichever is shorter.

Capitalized Software Development Costs

The Company's principal products include a software component. Costs
incurred in the development of software, once technological feasibility has been
established but prior to general release to customers, are capitalized.
Technological feasibility is established when a product design and working model
of the software product have been completed and when the completeness of the
working model and its consistency with the product design have been confirmed by
testing. Amortization is provided on a product by product basis at the greater
of amortization based on the estimated revenues of the products or the straight-
line amortization over their estimated economic lives of not more than three
years. DTM capitalized software development costs of $231,000, $268,000 and
$374,000 during 1998, 1997 and 1996, respectively. Amortization expense of
capitalized software development costs is included in cost of product sales in
the consolidated statements of operations and amounted to $355,000, $363,000 and
$369,000 during 1998, 1997 and 1996, respectively.

Patent and License Fees

Patent and license fees represent the costs associated with filing and
maintaining patent applications and obtaining, maintaining and defending rights
under patents under which DTM operates. DTM capitalized patent and license fees
of $152,000, $620,000 and $698,000 during 1998, 1997 and 1996, respectively.
These fees are amortized for accounting purposes over a five-year estimated
economic useful life utilizing the straight-line method and are included in
selling, general and administrative expenses.

Foreign Currency Translation

The financial statements of foreign subsidiaries have been translated into
U.S. dollars in accordance with FASB Statement No. 52, Foreign Currency
Translation. All balance sheet accounts have been translated using the exchange
rates in effect at the balance sheet date. Income statement amounts have been
translated using the average exchange rate for the year. The gains and losses
resulting from changes in exchange rates from year to year have been reported in
other comprehensive income. The effect on the statements of income of
transaction gains and losses is insignificant for all years presented.

37
<PAGE>

DTM Corporation

Notes to Consolidated Financial Statements (continued)

Foreign Currency Forwards

DTM enters into export sales of Sinterstation Systems to third party
customers that are denominated in foreign currencies. To hedge against exposures
to changes in foreign currency exchange rates on such committed sales, the
Company enters into foreign currency exchange contracts. This is currently done
only on a sale by sale basis and only for contract periods that match the
expected foreign currency collections from the sale.

A forward foreign exchange contract obligates the Company to exchange
predetermined amounts of specified foreign currencies at specified exchange
rates on specified dates or to make an equivalent U.S. dollar payment equal to
the value of such exchange. For contracts that are designated and effective as
hedges, discounts or premiums (the difference between the spot exchange rate and
the forward exchange rate at inception of the contract) are recognized in
revenues when the sale is recorded. Unrealized gains and losses from foreign
currency exchange contracts resulting from changes in the spot exchange rate are
included in the cumulative translation adjustment account as part of other
comprehensive income (the deferral accounting method).

Recognition of Revenue

Revenues from the sale of Sinterstation Systems are recognized when title
has transferred to the customer, when the Company's remaining obligations are
insignificant and when collectibility of the related receivable is probable,
which is upon shipment. The Company defers from three to six percent of the
revenues, excluding certain accessories, from each Sinterstation System sale for
warranty and preventive maintenance service. This deferred amount represents the
Company's estimate of the cost of providing such warranty and preventive
maintenance service and is recognized ratably as service and support revenue
over the 12-month initial service and warranty period.

Upon expiration of the 12-month initial service and warranty period
discussed above, the Company offers for sale to its customers an annual
maintenance contract. The deferred revenues from such maintenance contracts are
recognized ratably as service and support revenue over the related support
period.

Net Loss Per Share

The Company follows the provisions of Statement of Financial Accounting
Standards No. 128, Earnings Per Share (SFAS 128). Basic net loss per share is
computed by dividing net loss available to common stockholders by the weighted-
average number of common shares outstanding during the period. The computation
of diluted loss per share is similar to basic net loss per share, except that
the denominator is increased to include the number of additional common shares
that would have been outstanding if the potentially dilutive common shares had
been issued. Diluted net loss per share has not been presented as the effect of
the assumed exercise of stock options, warrants and contingently issued shares
is antidilutive due to the Company's net loss.

38
<PAGE>

DTM Corporation

Notes to Consolidated Financial Statements (continued)

Accumulated Other Comprehensive Income

The sole component of accumulated other comprehensive income for all
periods presented was currency translation adjustments.

Advertising Costs

The cost of advertising is expensed as incurred. The Company incurred
$675,000, $482,000 and $757,000 in advertising costs during 1998, 1997 and 1996,
respectively.

Stock-Based Compensation

The Company grants stock options for a fixed number of shares to employees
with an exercise price equal to the fair market value of the shares at the date
of the grant. The Company accounts for stock option grants in accordance with
the provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees
("APB 25"), and related Interpretation. The Company has chosen this method
because the Company believes that the alternative fair value accounting provided
for under FASB Statement No. 123, Accounting for Stock-Based Compensation,
requires the use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, because the exercise price of the
Company's employee stock option grants equals the market price of the underlying
stock on the date of the grant, no compensation expense is recognized.

Impact of Recently Issued Accounting Standards

In June 1998, the FASB issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities. The Company expects to adopt the new
Statement effective January 1, 2000. The Statement will require the Company to
recognize all derivatives on the balance sheet at fair value. The Company does
not anticipate that the adoption of this Statement will have a significant
effect on its results of operations or financial position.

2. Allowance for Doubtful Accounts

The Company maintains an allowance for doubtful accounts related to its
trade accounts receivable. The activity in this allowance account for the years
ended December 31, is as follows (in thousands):

Balance at Charges to
Beginning of Costs and Balance at End
Period Expenses Write-Offs of Period
-------------------------------------------------------------

1996 $263 $389 $ 12 $640
1997 640 148 293 495
1998 495 - 79 416

39
<PAGE>

DTM Corporation

Notes to Consolidated Financial Statements (continued)

3. Inventory

Inventory at December 31 consisted of the following (in thousands):

1998 1997
---------------------------

Raw materials and purchased parts $1,809 $2,863
Finished goods 1,776 3,101
---------------------------
3,585 5,964
Reserve for inventory obsolescence (129) (125)
---------------------------
$3,456 $5,839
===========================

4. Patent and License Agreements

On December 3, 1987, the Company entered into a patent license agreement
with the Board of Regents of The University of Texas System, whereby the Company
is licensed to make, have made and sell products utilizing the selective laser
sintering technology. In consideration of rights granted in the license
agreement, the Company issued 20,442 shares of its common stock to The
University of Texas System.

The agreement provides for royalty payments in the amount of four percent
of the Company's net sales for products covered by the license agreement (gross
receipts net of commissions, returns, freight, discounts and sales taxes).
Royalty expense, included in cost of sales, was $618,000, $552,000 and $676,000
during 1998, 1997 and 1996, respectively.

5. Financing Arrangements

At December 31, 1998, DTM had no short-term debt outstanding. At December
31, 1997, DTM had $175,000 of short-term debt outstanding under the terms of a
financing arrangement with a leasing company, which was repaid in 1998. The
weighted average interest rates on outstanding short-term borrowings were 15
percent at December 31, 1997. The weighted average interest rates during 1998,
1997 and 1996 were 18, 18 and 21 percent, respectively. The debt was
collateralized by certain equipment and accounts receivable.

At December 31, 1998, the Company had a $2,000,000 line of credit with a
bank, with no amounts outstanding, and guaranteed by its then controlling
shareholder. Interest on borrowings under this line of credit was at prime minus
1.5%. Due to the change in control that occurred on February 12, 1999, this
credit line is no longer available to the Company (see Note 14).

In May 1997, in connection with the Company's IPO, the then outstanding
borrowings under lines of credit from banks and a loan from its controlling
shareholder were completely repaid.

Interest paid in connection with all of the above financing arrangements
was approximately $32,000 in 1998, $471,000 in 1997 and $1,079,000 in 1996.
Amounts paid for interest to the Company's then controlling shareholder were
approximately $118,000 in 1997 and $153,000 in 1996.

40
<PAGE>

DTM Corporation

Notes to Consolidated Financial Statements (continued)

6. Commitments and Contingencies

DTM leases facilities and equipment under noncancelable operating leases.
Total rent expense incurred under these leases was approximately $462,000,
$378,000 and $332,000 during 1998, 1997 and 1996, respectively. Future minimum
payments under these leases are as follows (in thousands):

1999 $ 471
2000 398
2001 275
2002 275
2003 275
Thereafter 936
----------
$2,630
==========

As of December 31, 1998 and 1997, the Company had purchase commitments for
inventory totaling approximately $1,800,000 and $3,425,000, respectively.

In the ordinary course of business, the Company becomes involved in legal
proceedings and claims. In one such instance, the Company has initiated patent
infringement litigation in France, Germany and Italy against a competitor and
against one of that competitor's customers. The Company also initiated patent
infringement litigation in Japan against the competitor's distributor in the
Pacific Rim. In each of these cases, the Company alleges that the competitor is
selling rapid prototyping systems in Europe and Japan that make unauthorized use
of selective laser sintering technology covered by the European and Japanese
patents under which the Company has exclusive rights. The Company seeks
injunctive relief plus damages. It is anticipated that this litigation will be
pursued in conjunction with European and Japanese proceedings in which the
competitor has opposed the validity of those European and Japanese patents.
Hearings have begun in each of these lawsuits. It is not possible at this time
to predict the outcome of these proceedings.

In early 1998, the Company was informed by this competitor that it has
obtained the worldwide right to enforce certain U.S. patents and that it may
bring patent infringement litigation against the Company in the U.S. courts. If
the competitor does initiate this litigation, the Company intends to vigorously
oppose the action. It is not possible at this time to predict the outcome of
this possible action. The Company believes that it is not infringing or has
valid defenses and intends to contest this possible action vigorously, and that
its selective laser sintering patents around the world should be upheld.
However, a ruling that would have the effect of allowing the competitor to sell
rapid prototyping systems based upon selective laser sintering in the U.S. could
have a material adverse effect on the Company's business and financial
performance.

7. Common Stock

At December 31, 1998, 3,000,000 shares of Preferred Stock with a par value
of $.001 per share were authorized, none of which have been issued.

At December 31, 1998, under the terms of a proposed settlement of a
shareholder class action the Company was obligated to issue $400,000 worth of
its common stock. Pursuant to the agreed upon formula and the entry of final
settlement of this matter, the Company issued 334,485 freely tradable shares of
DTM common stock into the settlement escrow on February 4, 1999.

41
<PAGE>

DTM Corporation

Notes to Consolidated Financial Statements (continued)

At December 31, 1998 the Company has reserved 657,755 shares of common
stock for issuance in connection with the 1998 and 1996 stock option plans.
Additionally, the Company has reserved 362,487 shares of common stock at
December 31, 1998 for exercise of outstanding options issued in connection with
the IPO in May 1997 under the effectively discontinued Equity Appreciation Plan
(the "SAR Plan").

8. Financial Instruments

Off Balance Sheet Risk

The Company enters into forward exchange contracts to hedge certain firm
sales commitments denominated in foreign currencies. The purpose of the
Company's foreign currency hedging activities is to protect the Company from
risk that the eventual dollar cash flows resulting from the sale of products to
international customers will be adversely affected by changes in exchange rates.
At December 31, 1998, the Company had forward exchange contracts, all having
maturities of less than three months, to exchange various foreign currencies for
U.S. dollars in the amount of $1,116,000. No such contracts existed at the end
of 1997. The table below summarizes by currency, contractual amounts of the
Company's forward exchange contracts at December 31, 1998 (in thousands):

Forward Unrealized
Contracts Gain/(Loss)
---------------------------------

Currency:
Deutschmarks $ 443 $ 6
Yen 475 (19)
French Francs 198 4
---------------------------------
Total $1,116 $ (9)
=================================

There were no realized gains or losses deferred from hedging firm sales
commitments at December 31, 1998 or 1997.

The Company is exposed to credit loss in the event of nonperformance by
counterparties on foreign exchange contracts, but the Company does not
anticipate nonperformance by any of these counterparties. The amount of such
exposure is generally the unrealized gains in such contracts.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to significant
credit risk consist principally of cash investments and trade accounts
receivable.

The Company maintains cash with various financial institutions. These
financial institutions are located throughout the country, Germany and the
United Kingdom. The Company performs periodic evaluations of the relative credit
standing of those financial institutions that are considered in the Company's
investment strategy.

Concentrations of credit risk with respect to trade accounts receivable is
somewhat limited due to the number of entities comprising the Company's customer
base and the diverse industries in which they operate. However, the value of a
single sale of a Sinterstation System is material to the Company. It is the
Company's policy to perform a credit evaluation at the time of each sale of a
Sinterstation System. The Company relies upon customer provided deposits and
financial statements, reports from external credit

42
<PAGE>

DTM Corporation

Notes to Consolidated Financial Statements (continued)

reporting agencies, comfort letters from financial institutions providing
customer finance in North America, Uniform Commercial Code liens on the
equipment and for certain export sales, confirmed letters of credit.

Fair Value of Financial Investments

The Company believes that the carrying amount of its financial instruments,
including cash, accounts receivable, accounts payable, short-term debt and
forward currency exchange contracts, approximates fair value. Fair value for
forward currency exchange contracts is estimated based on quoted market prices
for similar instruments.

9. Stock Option Plans

Options that are granted under the 1998 and 1996 stock option plans are
exercisable at market price at the date of the grant. The options, subject to
termination of employment, expire ten years from the date of grant, are not
transferable other than on death, and are generally exercisable in three annual
installments commencing one year from the date of grant.

Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
statement. The fair value for these options was estimated at the date of the
grant using a Black-Scholes option pricing model. The following weighted average
assumptions were used in these calculations for 1998 and 1997, respectively:
risk-free interest rate of 6%; no expected dividends; a volatility factor of the
expected market price of the Company's common stock of .60 and a weighted-
average expected life of the option of 4 years.

The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options, which have no vesting restrictions
and are fully transferable. In addition, option valuation models require input
of highly subjective assumptions including expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the option's vesting period. The Company's
pro forma information follows (in thousands except for earnings per share
information):

1998 1997
---------------------------------------

Pro forma net loss $(4,834) $(8,048)
=======================================
Pro forma net loss per common
share - basic $ (0.77) $ (1.60)
=======================================

43
<PAGE>

DTM Corporation

Notes to Consolidated Financial Statements (continued)

A summary of the Company's stock option activity, and related information
for the years ended December 31 follows (options in thousands):

<TABLE>
<CAPTION>
1998 1997
--------------------------------------------------------------------
Weighted Weighted
Average Average
Exercise Exercise
Stock Options Price Stock Options Price
--------------------------------------------------------------------

<S> <C> <C> <C> <C>
Outstanding at beginning of year 610 $4 $ -
Granted at fair market value 182 2 97 8
Granted below fair market value - - 507(a) 2
Granted above fair market value - - 117(a) 14
Exercised - - (4) 2
Canceled (157) 3 (107) 12
--------------------------------------------------------------------
Outstanding at end of year 635 $3 610 $ 4
====================================================================

Options exercisable at year-end 417 $3 553 $ 3
Weighted-average fair value of options
granted during the year:
Granted at fair market value $ 2 $ 4
Granted below fair market value - 6(a)
Granted above fair market value - 3(a)
</TABLE>

(a) Represents options issued at the time of the IPO pursuant to the terms of
the stock appreciation rights agreements. Due to the terms and conditions of
the SAR Plan, the SARs or stock options then outstanding were accounted for
by the Company as compensation expense in the amount of $2,927,000 to record
the appreciation in the value of the SARs through the date of the IPO. The
IPO triggered the change in control provision of the SAR Plan. Thus, all
outstanding SARs were converted into vested options that are exercisable for
ten years from the date of the original SAR grant.

A summary of information about stock options outstanding and exercisable at
December 31, 1998 is as follows:

<TABLE>
<CAPTION>
Weighted-Average
Weighted-Average Options Outstanding Remaining Contractual Options Exercisable
Exercise Price Life
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>

$ 2.00 - $ 2.25 543,987 8.5 362,487
$ 8.00 - $ 9.00 57,000 8.4 19,950
$13.00 - $16.00 34,234 8.4 34,234
-------------------- --------------------
635,221 416,671
==================== ====================
</TABLE>

10. Management Incentive Plan

In January 1996, the Company's Board of Directors approved a DTM
Corporation Management Incentive Plan (the "MIP Plan"). The MIP Plan provides
for the grant of incentive compensation to key management employees who have the
potential to positively influence the performance of the Company as a reward for
levels of performance above the ordinary performance standards compensated by
base salary.

44
<PAGE>

DTM Corporation

Notes to Consolidated Financial Statements (continued)

Under the MIP Plan, each participant is assigned a "cash bonus target" of
20 to 50 percent of base salary and the Compensation Committee of the Board of
Directors creates personal and corporate performance targets, as well as minimum
thresholds. If the minimum thresholds are met, the bonus payable will be between
50 and 150 percent of the participant's cash bonus target. No expense was
recognized in connection with the MIP Plan in 1998, 1997 or 1996.

11. Unusual Charges

In connection with the settlement of the shareholder class action lawsuit
against the Company, the Company charged operations $1,700,000 in the second
quarter of 1998. A portion of this charge was non-cash as it related to the
future delivery of $400,000 worth of the Company's common stock to the
settlement escrow (see Note 7).

In connection with the 1997 IPO, the Company incurred a one-time non-cash
stock compensation expense of approximately $2,927,000 as a result of previously
outstanding stock appreciation rights converting into immediately vested stock
options at exercise prices below the market value of the common stock. This
charge was recorded in May 1997 (see Note 10).

During 1996, DTM attempted an IPO. However, due to market volatility and
other issues the IPO was postponed. The Company incurred approximately $752,000
of legal, accounting and other professional services related to the unsuccessful
IPO which were expensed in the fourth quarter of 1996.

12. Income Taxes

Pretax income (loss) for the years ended December 31 was taxed in the
following jurisdictions (in thousands):

Domestic $(4,963) $(7,727) $(6,522)
Foreign 415 (388) 366
-----------------------------------------------------------
$(4,548) $(8,115) $(6,156)
===========================================================
</TABLE>

Significant components of the provision for income tax expense (benefit)
are as follows (in thousands):

<TABLE>
<CAPTION>
1998 1997 1996
-----------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ - $ - $ -
Allocation from then parent (849) (1,741)
Foreign 30 22 74
State - - -
-----------------------------------------------------------
$ 30 $(827) $(1,667)
===========================================================
</TABLE>

45
<PAGE>

DTM Corporation

Notes to Consolidated Financial Statements (continued)

Deferred tax liabilities and assets are comprised of the following at
December 31 (in thousands):

<TABLE>
<CAPTION>
1998 1997
---------------------------------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards (for periods prior
to October 31, 1990) $ 1,569 $ 1,470
Net operating loss carryforward subsequent to
May 22, 1997 2,195 796
Stock options 774 1,091
Book over tax depreciation and amortization 370 594
Deferred revenue 693 529
Allowance for doubtful accounts 144 284
Other 102 234
---------------------------------------
Total deferred tax assets 5,847 4,998
Valuation allowance for deferred tax assets (5,847) (4,998)
---------------------------------------
Net deferred tax asset $ - $ -
=======================================
</TABLE>

A reconciliation of income tax benefit calculated at the statutory rate and
the provision for income tax expense (benefit) for the years ended December 31
is as follows (in thousands):

<TABLE>
<CAPTION>
1998 1997 1996
-----------------------------------------------------------------------------------
Amount Percent Amount Percent Amount Percent
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tax at U.S. statutory rates $(1,592) 35.0 % $(2,759) 34.0 % $(2,093) 34.0 %
Non-deductible settlement expenses 626 (13.8)% - - - -
Net operating loss not utilized 1,086 (23.9)% 1,880 (23.2)% 426 (6.9)%
Foreign net operating loss
utilized (115) 2.5 % - - - -
Other - net 25 (0.5)% 52 (0.6)% - -
-----------------------------------------------------------------------------------
$ 30 (0.7)% $ (827) 10.2 % $(1,667) 27.1 %
===================================================================================
</TABLE>

During the period October 31, 1990 to May 21, 1997, the Company was
included in the consolidated federal tax return of its then controlling
shareholder. The Company recorded the tax benefit allocated to it by its then
controlling shareholder during that period, which credited the Company with a
tax benefit approximating the benefit derived from the consolidation of the
Company. Such benefits were paid to the Company on a current basis. As a result
of the IPO, in May 1997, the then controlling shareholder's ownership interest
fell below 80 percent and such benefits are no longer available to the Company.
Based on the tax sharing agreement, if the then controlling shareholder loses
part of the tax benefit of any losses previously utilized or has to report
additional income as the result of a federal tax audit of the Company, the
Company will be required to reimburse any additional taxes paid.

DTM has net operating loss carryforwards totaling approximately $4,200,000
for federal income tax purposes that were incurred from inception to October 31,
1990. These carryforwards expire in the years 2002 to 2004. In addition, the
Company has a net operating loss carryforwards totaling approximately $5,931,000
for federal income tax purposes that were incurred from May 1997 to December
1998. These

46
<PAGE>

DTM Corporation

Notes to Consolidated Financial Statements (continued)

carryforwards expire in the years 2012 through 2013. Although available to the
Company, these carryforwards are subject to significant annual limitations due
to changes in the Company's ownership.

The exercise of certain stock options which have been granted under the
Company's stock option plans give rise to compensation which is includable in
the taxable income of the applicable options holder and deductible by the
Company for federal and state income tax purposes. Any realized tax benefit
arising from exercised options in excess of the benefit previously recorded, as
discussed in Note 10, is credited to additional paid-in capital.

13. Geographic and Customer Information

The Company and its subsidiaries operate in one industry segment: the
development, manufacturing and service of selective laser sintering systems and
related products. Operations outside of the United States consist principally of
sales, marketing and customer support. Revenues are attributed to geographic
areas based upon the location of the customers. Identifiable assets are those
assets that can be directly associated with a particular geographic area. The
following is a summary of geographic area data for the years ended December 31
(in thousands):

Revenues from external customers:
North America $13,015 $10,064 $12,371
Europe 10,407 8,615 7,822
PacRim 4,373 6,629 4,186
-----------------------------------------------
$27,795 $25,308 $24,379
===============================================
Long-lived assets by area:
North America $2,438 $3,608 $4,017
Europe 535 524 679
PacRim - - -
-----------------------------------------------
$2,973 $4,132 $4,696
===============================================
</TABLE>

14. Subsequent Events

On February 12, 1999, a partnership of individual investors purchased the
previous majority shareholder's interest in the Company.

On February 19, 1999, the Company entered into a temporary spot factoring
line of credit with a bank.

47
<PAGE>

DTM Corporation

Notes to Consolidated Financial Statements (continued)

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information concerning the directors of the Company is set forth in the
Proxy Statement to be delivered to shareholders in connection with the Company's
Annual Meeting of Shareholders to be held during 1999 (the "Proxy Statement")
under the heading "Nominees for Director," which information is incorporated
herein by reference.

The name, age and position of each executive officer of the Company is set
forth under the heading "Executive Officers of the Registrant" in Item 1 of this
report, which information is incorporated herein by reference.

The information required by Item 405 of Regulation S-K is set forth in the
Proxy Statement under the heading "Compliance with Section 16(a) of the
Securities Exchange Act of 1934", which information is incorporated herein by
reference.

ITEM 11. EXECUTIVE COMPENSATION

The information concerning management compensation and transactions with
management is set forth in the Proxy Statement under the heading "Executive
Compensation and Other Information," which information is incorporated herein by
reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information concerning security ownership of certain beneficial owners
and management is set forth in the Proxy Statement under the heading "Ownership
of Securities," which information is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information concerning certain relationships and related transactions
is set forth in the Proxy Statement under the heading "Executive Compensation
and Other Information," which information is incorporated herein by reference.

48
<PAGE>

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) The following documents are filed as part of this Annual Report on
Form 10-K:

1. Financial Statements:

The financial statements filed as a part of this report are listed
in the "Index to Consolidated Financial Statements and Financial
Statement Schedules" at item 8.

2. Financial Statement Schedules:

None. Schedules have been omitted since the required information is
not present, or not present in amounts sufficient to require
submission of the schedule, or because the information is included
in the above listed financial statements.

3. Exhibits:

The exhibits filed as part of this report are listed under
"Exhibits" at subsection (c) of this Item 14

(b) Reports on Form 8-K:

No reports on Form 8-K were filed on behalf of the Registrant during
the last quarter the Company's 1998 calendar year.

Exhibit
Number Description of Exhibit
- ------ ----------------------

3.1 Amended and Restated Articles of Incorporation of Registrant. (filed as
exhibit 3.1 to Registration Statement on Form S-1, dated May 21, 1996
(Reg. No. 333-04173) (" Form S-1") and incorporated by reference hereto)

3.2 Amended and Restated Bylaws of Registrant. (filed as exhibit 3.2 to
Registration Statement on Form S-1 and incorporated by reference hereto)

4.1 Form of Stock Certificate of Registrant. (filed as exhibit 4.1 to
Registration Statement on Form S-1 and incorporated by reference hereto)

10.1 DTM Corporation Equity Appreciation Plan. (filed as exhibit 10.1 to
Registration Statement on Form S-1 and incorporated by reference hereto)

10.2 Form of Supplemental Phantom Stock Appreciation Rights Agreement.
(filed as exhibit 10.2 to Registration Statement on Form S-1 and
incorporated by reference hereto)

10.3 DTM Corporation Management Incentive Plan, as Restated. (filed as
exhibit 10.3 to Registration Statement on Form S-1 and incorporated
by reference hereto)

10.4 DTM Corporation Stock Option Plan. (filed as exhibit 10.4 to
Registration Statement on Form S-1 and incorporated by reference hereto)

10.5 Patent License Agreement between DTM Corporation and the Board of
Regents, The University of Texas, effective as of December 3, 1987.
(filed as exhibit 10.5 to Registration

49
<PAGE>

Statement on Form S-1 and incorporated by reference hereto)

10.6 Supplement to Patent License Agreement between DTM Corporation and
the Board of Regents, The University of Texas dated March 20, 1992.
(filed as exhibit 10.6 to Registration Statement on Form S-1 and
incorporated by reference hereto)

10.7 DTM Corporation 1998 Stock Option Plan.(filed as exhibit 10.21 to the
Company's Quarterly Report on Form 10-Q for the period ended March
31, 1998 and incorporated by reference hereto)

10.11 Amended and Restated Shareholders Agreement. (filed as exhibit 10.11
to Registration Statement on Form S-1 and incorporated by reference
hereto)

10.12* Lease Agreement for Facilities in Austin, Texas.

10.13 Amendment to Patent License Agreement between DTM Corporation and the
Board of Regents of The University of Texas, dated as of October 27,
1994 (filed as exhibit 10.13 to Registration Statement on Form S-1
and incorporated by reference hereto)

10.18 Agreement between DTM Corporation and John S. Murchison, III, dated
October 9, 1997. (filed as Exhibit 10.2 to the Company's Quarterly
Report on Form 10-Q for the period ended September 30, 1997 and
incorporated by reference hereto)

21.1* Subsidiaries of the Registrant.

23.1* Consent of Independent Auditors, Ernst & Young LLP.

27.1* Current Financial Data Schedule for year ended December 31, 1998.

- --------------------
* Filed herewith

50
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Austin,
Texas, on March 30, 1999.

DTM Corporation

By: /s/ John S. Murchison, III
-----------------------------------
Chief Executive Officer and
President

Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

Signature Title Date
- --------- ----- ----

/s/ Lawrence Goldstein Director March 30, 1999
- ----------------------------
Lawrence Goldstein

/s/ Alexander MacLachlan Director March 30, 1999
- ----------------------------
Alexander MacLachlan

/s/ Anthony Mariotti Director March 30, 1999
- ----------------------------
Anthony Mariotti

/s/ John S. Murchison, III Chief Executive Officer, March 30, 1999
- ---------------------------- President and Director
John S. Murchison, III (Principal Executive Officer)

/s/ Thomas G. Ricks Director March 30, 1999
- ----------------------------
Thomas G. Ricks

/s/ James B. Skaggs Director March 30, 1999
- ----------------------------
James B. Skaggs

/s/ Geoffrey W. Kreiger Chief Financial Officer, March 30, 1999
- ---------------------------- Treasurer and Secretary
Geoffrey W. Kreiger (Principal Financial and
Accounting Officer)

<PAGE>

EXHIBIT 10.12

TABLE OF CONTENTS
<TABLE>
<CAPTION>

<S> <C>
1. LEASE OF PREMISES............................................................. 1
2. DEFINITIONS................................................................... 1
3. EXHIBITS AND ADDENDA.......................................................... 2
4. DELIVERY OF POSSESSION........................................................ 2
5. INTENDED USE OF THE PREMISES.................................................. 2
6. RENT.......................................................................... 3
6.1. Payment of Rent........................................................ 3
6.2. Additional Rent for Increases in Operating Expenses, Real Property
Taxes and Insurance Costs.............................................. 3
6.3 Determination and Payment of Operating Expenses, Real Property Taxes
and Insurance Costs.................................................... 4
6.4 Taxes on Tenant's Use and Occupancy.................................... 5
7. LATE CHARGES.................................................................. 5
8. SECURITY DEPOSIT.............................................................. 5
9. TENANT'S USE OF THE PREMISES.................................................. 5
9.1. Use.................................................................... 6
9.2. Observance of Law...................................................... 6
9.3. Insurance.............................................................. 6
9.4. Nuisance and Waste..................................................... 6
9.5. Load and Equipment Limits.............................................. 6
9.6. Hazardous Material..................................................... 6
9.7. Use of Common Area..................................................... 7
10. SERVICES AND UTILITIES........................................................ 7
11. REPAIRS AND MAINTENANCE....................................................... 8
11.1. Landlord's Obligations................................................. 8
11.2. Tenant's Obligations................................................... 8
11.3. Compliance with Law.................................................... 8
11.4. Notice of Defect....................................................... 8
11.5. Landlord's Liability................................................... 8
12. CONSTRUCTION, ALTERATIONS AND ADDITIONS....................................... 8
12.1. Landlord's Construction Obligations.................................... 8
12.2. Tenant's Construction Obligations...................................... 8
12.3. Tenant's Alterations and Additions..................................... 9
12.4. Payment................................................................ 9
12.5. Property of Landlord................................................... 9
13. LEASEHOLD IMPROVEMENTS; TENANT'S PROPERTY..................................... 10
13.1. Leasehold Improvements................................................. 10
13.2. Tenant's Property...................................................... 10
14. INDEMNIFICATION............................................................... 10
14.1. Tenant Indemnification................................................. 10
14.2. Landlord Not Liable.................................................... 10
15. TENANT'S INSURANCE............................................................ 10
15.1. Insurance Requirement.................................................. 10
15.2. Minimum Scope of Coverage.............................................. 10
15.3. Minimum Limits of Insurance............................................ 11
15.4. Deductible and Self-Insured Retention.................................. 11
15.5. Increases in Insurance Policy Limits................................... 11
15.6. Waiver of Subrogation.................................................. 11
15.7. Landlord's Right to Obtain Insurance for Tenant........................ 11
16. DAMAGE OR DESTRUCTION......................................................... 11
16.1. Damage................................................................. 11
16.2. Repair of Premises in Excess of One Hundred Eighty Days................ 11
16.3. Repair Outside Premises................................................ 11
16.4. Tenant Repair.......................................................... 11
16.5. Election Not to Perform Landlord's Work................................ 12
16.6. Express Agreement...................................................... 12
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
<S> <C>
17. EMINENT DOMAIN................................................................ 12
17.1. Whole Taking........................................................... 12
17.2. Partial Taking......................................................... 12
17.3. Proceeds............................................................... 12
17.4. Landlord's Restoration................................................. 12
18. ASSIGNMENT AND SUBLETTING..................................................... 12
18.1. No Assignment or Subletting............................................ 12
18.2. Landlord's Consent..................................................... 13
18.3. Tenant Remains Responsible............................................. 13
18.4. Conversion to a Limited Liability Entity............................... 13
18.5. Payment of Fees........................................................ 14
19. DEFAULT....................................................................... 14
19.1. Tenant's Default....................................................... 14
19.2. Landlord Remedies...................................................... 14
19.3. Damages Recoverable.................................................... 15
19.4. Landlord's Right to Cure Tenant's Default.............................. 15
19.5. Landlord's Default..................................................... 15
19.6. Mortgagee -Protection.................................................. 15
19.7. Tenant's Right to Cure Landlord's Default.............................. 15
20. WAIVER........................................................................ 16
22. TENANT ESTOPPEL CERTIFICATES.................................................. 16
22.1. Landlord Request for Estoppel Certificate.............................. 16
22.2. Failure to Execute..................................................... 16
23. NOTICE........................................................................ 16
24. TRANSFER OF LANDLORD'S INTEREST............................................... 17
25. SURRENDER OF PREMISES......................................................... 17
25.1. Clean and Same Condition............................................... 17
25.2. Failure to Deliver Possession.......................................... 17
25.3. Property Abandoned..................................................... 17
26. HOLDING OVER.................................................................. 17
27. RULES AND REGULATIONS......................................................... 17
28. CERTAIN RIGHTS RESERVED BY LANDLORD........................................... 17
29. ADVERTISEMENTS AND SIGNS...................................................... 18
30. RELOCATION OF PREMISES........................................................ 18
31. GOVERNMENT ENERGY OR UTILITY CONTROLS......................................... 18
32. FORCE MAJEURE................................................................. 18
33. BROKERAGE FEES................................................................ 18
34. QUIET ENJOYMENT............................................................... 18
35. TELECOMMUNICATIONS............................................................ 18
35.1. Telecommunications Companies........................................... 18
35.2. Tenant's Obligations................................................... 18
35.3. Landlord's Consent..................................................... 19
35.4. Indemnification........................................................ 19
35.5 Landlord's Operation of Building Telecommunications Lines and Systems.. 19
36. MISCELLANEOUS................................................................. 19
36.1. Accord and Satisfaction; Allocation of Payments........................ 19
36.2. Addenda................................................................ 19
36.3. Attorneys' Fees........................................................ 20
36.4 Captions and Section Numbers........................................... 20
36.5. Changes Requested by Lender............................................ 20
36.6. Choice of Law.......................................................... 20
36.7. Consent................................................................ 20
36.8. Authority.............................................................. 20
36.9. Waiver of Right to Jury Trial.......................................... 20
36.10. Counterparts........................................................... 20
36.11. Execution of Lease-, No Option......................................... 20
36.12. Furnishing of Financial Statements; Tenant's Representations........... 20
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
<S> <C>
36.13. Further Assurances..................................................... 20
36.14. Prior Agreements-Amendments............................................ 20
36.15. Recording.............................................................. 20
36.16. Severability........................................................... 21
36.17. Successors and Assigns................................................. 21
36.18. Time of the Essence.................................................... 21
</TABLE>
<PAGE>
LEASE
-----

This lease between Glenborough Properties, L.P., a California limited
partnership (herein Landlord), and DTM Corporation a(n) a Texas corporation
(herein Tenant), is dated for reference purposes only as of this 26th day of
----
March, 1998.

1. LEASE OF PREMISES.

In consideration of the Rent (as defined in Section 6.) and the provisions of
this Lease, Landlord leases to Tenant and Tenant leases from Landlord the
Premises shown by diagonal lines on the floor plan attached hereto as Exhibit
"A", and further described in Section 2.13. The Premises are located within the
Building and Project (as described in Sections 2.13. and 2.14.). Tenant shall
have the nonexclusive right (unless otherwise provided herein) in common with
Landlord, other tenants, subtenants and invitees, to use the Common Area (as
defined in Section 2.5.). This Lease confers no rights either with regard to the
subsurface of the land below the ground level of the Building in which the
Premises is located or with regard to airspace, interior or exterior, above the
ceiling of the Building.

2. DEFINITIONS.

As used in this Lease the following terms shall have the following meanings:

2.1 ANNUAL BASE RENT:

$150,000.00 beginning December 1, 1997 ending December 31, 2000
-------------- ------------------ -----------------
$165,000.00 beginning January 1, 2001 ending December 31, 2003
-------------- ------------------ -----------------
$187,500.00 beginning January 1, 2004 ending December 31, 2006
-------------- ------------------ -----------------
$ -0- beginning -0- ending -0-
-------------- ------------------ -----------------
$ -0- beginning -0- ending -0-
-------------- ------------------ -----------------

Notwithstanding anything herein to the contrary, Tenant's Base Rent for the
month of December 1997 shall be abated. Nothing herein shall be construed as
abating any Additional Rent or other charges payable by Tenant under the Lease

2.2 BASE YEAR: The calendar year 1998 actuals.
---------

2.3 COMMENCEMENT DATE: December 1, 1997. If the Commencement Date is
----------------- ----------------
other than the first day of a month, then the Expiration Date of the Lease shall
be extended to the last day of the month in which the Lease expires.

2.4 COMMON AREA: The building parking areas, landscaped areas and other
-----------
generally understood public or common area.

2.5 EXPIRATION DATE: December 31, 2006, unless otherwise sooner
--------------- -----------------
terminated in accordance with the provisions of this Lease.

2.6 LANDLORD'S ADDRESS FOR NOTICE:
-----------------------------

c/o Glenborough Corporation
400 South El Camino Real, Suite 1100
San Mateo, CA 94402-1708

RENT PAYMENT ADDRESS:

Glenborough Properties L.P.
2650 Thousand Oaks Blvd., Suite 2370
Memphis, TN 38118

TENANT'S MAILING ADDRESS:

DTM Corporation
1611 Headway Circle, Bldg. II
Austin, TX 78754

2.6 LISTING AND LEASING AGENT(S): Carter King & Company, (Tenant's Agent)
----------------------------
and Glenborough Realty Trust.

MONTHLY INSTALLMENTS OF BASE RENT:
- ---------------------------------

$ 12,500.00 beginning December 1, 1997 ending December 31, 2000
-------------- ------------------ -----------------
$ 13,750.00 beginning January 1, 2001 ending December 31, 2003
-------------- ------------------ -----------------
$ 15,625.00 beginning January 1, 2004 ending December 31, 2006
-------------- ------------------ -----------------
$ -0- beginning -0- ending -0-
-------------- ------------------ -----------------
$ -0- beginning -0- ending -0-
-------------- ------------------ -----------------
<PAGE>

Notwithstanding anything herein to the contrary, Tenant's Base Rent for the
month of December, 1997 shall be abated. Nothing herein shall be construed as
abating any Additional Rent or other charges payable by Tenant under the Lease

2.7 NOTICE: Except as otherwise provided herein, Notice shall mean any
-------
notices, approvals and demands permitted or required to be given under this
Lease. Notice shall be given in the form and manner set forth in Section 23.

2.8 PARKING: Tenant shall be entitled to at no charge the nonexclusive
--------
use of all unencumbered parking spaces and the exclusive use of sixty (60)
spaces as shown on the attached Exhibit F located on the Property.

2.9 PREMISES: That portion of the Building located 1611 Headway Circle,
--------- --------------------
Building II commonly referred to as Unit(s) Bldg. II, as shown by diagonal
- ----------- ----
lines on Exhibit "A". For the purposes of this Lease, the Premises is deemed to
contain approximately 30,000 square feet of Usable Area.
------

2.10 PROJECT: The building of which the Premises are a part (the Building)
--------
and any other buildings or improvements on the real property (the Property)
located at 1601-1611 A-C Headway Circle, Austin, Texas and further described at
Exhibit "B". The Project is commonly known as Walnut Creek Industrial.

2.11 SECURITY DEPOSIT (Section 8.): $ - 0 - .
------------------------------

2.12 STATE: The State of Texas.
------

2.13 TENANT'S PROPORTIONATE SHARE: 30%. Such share is a fraction, the
----------------------------- ---
numerator of which is the Usable Area of the Premises, and the denominator of
which is the Usable Area of the Project, as determined by Landlord from time to
time. The Project consists of three (3) building(s), and, for purposes of this
---------
Lease, the building(s) are deemed to contain approximately 100,000 square feet
--------
of Usable Area.

2.14 TENANT'S USE (Section 9.): Office, technological research,
----------------------- -
manufacturing, assembly, retail sales and leasing and storage and servicing of
manufacturing goods.

2.15 TERM: The period commencing on the Commencement Date and expiring at
-----
midnight on the Expiration Date.

2.16 USABLE AREA: As to both the Premises and the Project, the respective
-----------
measurements of floor area as may from time to time be subject to lease by
Tenant and all tenants of the Project, respectively, as determined by Landlord
and applied on a consistent basis throughout the Project.

3. EXHIBITS AND ADDENDA.

The exhibits and addenda listed below (unless lined out) are attached hereto and
incorporated by reference in this Lease:

3.1. Exhibit A -- Floor Plan showing the Premises.
3.2. Exhibit B -- Site Plan of the Project.
3.3. Exhibit C -- Building Standard Tenant Improvements.
3.4. Exhibit D -- Tenant Work Letter and Drawings.
3.5. Exhibit E -- Rules and Regulations.
3.6. Addenda: -- Attached hereto and made a part of this
Lease by reference are Sections 37- 50
3.7 Exhibit D-1 -- Expansion Tenant Improvements.
3.8 Exhibit F -- Expansion space.

4. DELIVERY OF POSSESSION.

If for any reason Landlord does not deliver possession of the Premises to Tenant
on the Commencement Date, and such failure is not caused by an act or omission
of Tenant, the Expiration Date shall be extended by the number of days the
Commencement Date has been delayed and the validity of this Lease shall not be
impaired nor shall Landlord be subject to any liability for such failure; but
Rent shall be abated until delivery of possession. Provided, however, if the
Commencement Date has been delayed by an act or omission of Tenant then Rent
shall not be abated until delivery of possession and the Expiration Date shall
not be extended.

Within ten (10) days of delivery of possession Landlord shall deliver to Tenant
and Tenant shall execute an Acceptance of Premises in which Tenant shall
certify, among other things, that (a) Landlord has satisfactorily completed
Landlord's Work to the Premises pursuant to Exhibit "D", unless written
exception is set forth thereon, and (b) that Tenant accepts the Premises.
Tenant's failure to execute and deliver the Acceptance of Premises shall be
conclusive evidence, as against Tenant, that Landlord has satisfactorily
completed Landlord's Work to the Premises pursuant to Exhibit "D".

5. INTENDED USE OF THE PREMISES.

see addendum

The statement in this Lease of the nature of the business to be conducted by
Tenant in the Premises does not constitute a representation or guaranty by the
Landlord as to the present or future suitability of the Premises for the conduct
of such business in the Premises, or that it is lawful or permissible under the
certificate of occupancy issued for the Building, or is otherwise permitted by
law. Tenant's taking possession of the Premises shall be conclusive

2
<PAGE>

evidence, as against Tenant, that, at the time such possession was taken, the
Premises were satisfactory for Tenant's intended use.

6. RENT.

6.1 Payment of Rent. Tenant shall pay business Rent for the Premises.
---------------
Monthly Installments of Rent shall be payable in advance on the first business
day of each calendar month of the Term. If the Term begins (or ends) on other
than the first (or last) day of a calendar month, Rent for the partial month
shall be prorated based on the number of days in that month. Rent shall be paid
to Landlord at the Rent Payment Address set forth in Section 2.8., or to such
other person at such place as Landlord may from time to time designate in
writing, without any prior demand therefor and without deduction or offset, in
lawful money of the United States of America. Tenant shall pay Landlord the
first Monthly Installment of Base Rent upon execution of this Lease.

Base Rent, together with Additional Rent and all other costs and expenses Tenant
assumes or is obligated to pay to Landlord under the Lease, may be collectively
referred to as Rent.

6.2 Additional Rent for Increases in Operating Expenses, Real Property
------------------------------------------------------------------
Taxes and Insurance Costs. If, in any calendar year during the term of this
- -------------------------
Lease, Landlord's Operating Expenses, Real Property Taxes and Insurance Costs
(hereinafter sometimes together referred to as Direct Costs) shall be higher
than in the Base Year specified in Section 2.3., then Additional Rent for such
Direct Costs payable hereunder shall be increased by an amount equal to Tenant's
Proportionate Share of the difference between Landlord's actual Direct Costs for
such calendar year and the actual Direct Costs of the Base Year.

6.2.1. Operating Expenses. As used in this Section 6.3., the term
------------------
Operating Expenses shall mean all costs and expenses of every kind and
nature, paid or incurred by Landlord, because of or in connection with the
maintenance and repair of the Project and such additional facilities and
personal property as Landlord may determine to be necessary or beneficial;
including, without limiting the generality of the foregoing: (a)
maintenance and repair of the roof, parking area, the lighting fixtures,
directional signs, alarm systems, the irrigation systems and all
landscaping of the Project; (b) the cost of compliance with all applicable
laws and any covenants, conditions or restrictions (including payment of
charges assessed pursuant thereto); (c) auditing, accounting, legal and
other outside services; (d) depreciation or rental of maintenance and
operating machinery and equipment; (e) energy studies and the amortized
cost of any energy or other cost saving equipment used by Landlord to
provide services pursuant to the terms of the Lease (including the
amortized cost to upgrade the efficiency or capacity of Project
telecommunication lines and systems if responsibility therefor is assumed
by Landlord as discussed in Section 35. hereof); (f) the cost of all
utilities provided to the Common Area; (g) reasonable attorneys' fees
and/or consultant fees incurred by Landlord in contracting with a company
or companies to provide electricity (or any other utility) to the Project,
any fees for the installation, maintenance, repair or removal of related
equipment, and any exit fees or stranded cost charges mandated by the
State; (h) supplies and materials consumed in connection with the Project;
(i) a management fee would no exceed a fee charged by comparable product in
the Austin Market; (j) all costs and expenses related to fire safety; and
(k) the maintenance, repair and replacement of any intrabuilding cabling
network (ICN), if any.

Notwithstanding the foregoing, the following shall not be included
within Operating Expenses: (i) costs of capital improvements (except any
improvements that might be deemed "capital improvements" related to the
enhancement or upgrade of the ICN and related equipment) and costs of
curing design or construction defects; (ii) depreciation; (iii) interest
and principal payments on mortgages and other debt costs and ground lease
payments, if any, and any penalties assessed as a result of Landlord's late
payments of such amounts; (1v) real estate broker leasing commissions or
compensation; (v) any cost or expenditure (or portion thereof) for which
Landlord is reimbursed, whether by insurance proceeds or otherwise; (vi)
attorneys' fees, costs, disbursements, advertising and marketing and other
expenses incurred in connection with the negotiation of leases with
prospective tenants of the Project; (vii) rent for space which is not
actually used by Landlord in connection with the management and operation
of the Project; (viii) all costs or expenses (including fines, penalties
and legal fees) incurred due to the violation by Landlord, its employees,
agents, contractors or assigns of the terms and conditions of the Lease, or
any, valid, applicable building code, governmental rule, regulation or law,
or the violation by any Tenant of its lease terms; (ix) except for' the
referenced management compensation, any overhead or profit increments to
any subsidiary or affiliate of Landlord for services on or to the Project,
to the extent that the costs of such services exceed competitive costs for
such services; (x) the cost of constructing tenant improvements for Tenant
or any other tenant of the Project; (xi) Operating Expenses specially
charged to and paid by any other tenant of the Project, and (xii) The cost
of special services, goods or materials provided to any other tenant of the
Project.

6.2.2 Real Property Taxes. As used herein, the term Real Property
-------------------
Taxes shall include every form of tax (other than general net income or
estate taxes of Landlord), charge, levy, assessment, fee, license fee,
service fee (including, without limitation, those based on commercial
rentals, energy or environmental grounds as well as any increase due to
reassessment or escape assessment whether caused by sale or lease of the
Premises, Building or Project), ordinary or extraordinary, imposed by any
authority having direct or indirect power to tax, including, without
limitation, any city, county, state or federal government or quasi-
government entity or any improvement utility, beautification or similar
district against any legal or equitable interest of Landlord in, or against
Landlord's right to rent, the Premises, Building or Project, and any such
tax, charge, levy, assessment or fee imposed, in addition to or in
substitution for any tax previously included within the definition of real
property tax, partially or totally, whether or not foreseeable or now
within the contemplation of the parties provided that all separately
identifiable real property taxes attributable solely to Tenant's business
or Tenant's improvements which are valued at an amount in excess of the
Building standard improvements, shall be paid entirely by Tenant, and not
prorated

3
<PAGE>

with other tenants of the Building. Tenant's obligation to pay its share of
the assessments, as provided in this Section 6.3., shall be calculated on
the basis of the amount due if Landlord allows the assessments to go to
bond, and the assessment is to be paid in installments, even if Landlord
pays the assessment in full. Real Property

Taxes for each tax year shall be apportioned to determine the Real
Property Taxes for the subject calendar years.

Landlord, at Landlord's sole discretion, may contest any taxes levied
or assessed against the Building or Project during the Term. If Landlord
contests any taxes levied or assessed during the Term, Tenant shall pay
Landlord Tenant's Proportionate Share of all costs incurred by Landlord in
connection with the contest.

see addendum

6.2.3. Insurance Costs. The term Insurance Costs shall mean all
---------------
costs and expenses paid or incurred by Landlord to obtain and keep in force
during the Term of this Lease policies of insurance providing coverage for
(a) Commercial General Liability; (b) loss of or damage to the Building or
Project in such amount or percentage of replacement value but not less than
80% as Landlord or its insurance advisor deems reasonable in relation to
the age, location, type of construction and physical condition of the
Building or Project and the availability of such insurance at reasonable
rates; and (c) loss of rental income for a period of one year, which
insurance shall also cover all Real Property Taxes and Insurance Costs for
the same period.

6.3. Determination and Payment of Operating Expenses, Real Property Taxes
--------------------------------------------------------------------
and Insurance Costs. Tenant's Proportionate Share of increases in Operating
- -------------------
Expenses, Real Property Taxes and Insurance Costs shall be paid as follows:

6.3.1. Monthly Estimate. On or before the last day of each December
----------------
during the Term of this Lease, Landlord shall furnish to Tenant a written
statement showing in reasonable detail Landlord's projected Direct Costs
for the succeeding calendar year. If such statement of projected Direct
Costs indicates the Direct Costs will be higher than in the Base Year, then
the Rent due from Tenant hereunder for the next succeeding year shall be
increased by an amount equal to Tenant's Proportionate Share of the
difference between the projected Direct Costs for the calendar year and the
Base Year. If during the course of the calendar year Landlord determines
that actual Direct Costs will vary from its estimate by more than five
percent (5%), Landlord may deliver to Tenant a written statement showing
Landlord's revised estimate of Direct Costs. On the next payment date for
Monthly Installments of Rent following Tenant's receipt of either such
statement, Tenant shall pay to Landlord an additional amount equal to such
monthly Rent increase adjustment (as set forth on Landlord's statement).
Thereafter, the monthly Rent adjustment payments becoming due shall be in
the amount set forth in such projected Rent adjustment statement from
Landlord. Neither Landlord's failure to deliver nor late delivery of such
statement shall constitute a default by Landlord or a waiver of Landlord's
right to any Rent adjustment provided for herein.

6.3.2. Annual Reconciliation. On or before the first day of each
---------------------
April during the Term of this Lease or any extended period thereof,
Landlord shall furnish to Tenant a written statement of reconciliation
(Reconciliation) showing in reasonable detail Landlord's actual Direct
Costs for the preceding calendar year. In the event such Reconciliation
shows that additional sums are due from Tenant, Tenant shall pay such sums
to Landlord within ten (10) days of receipt of such Reconciliation to the
end that Landlord shall receive the entire amount of Tenant's Proportionate
Share of Direct Costs for the preceding year and no more. In the event such
Reconciliation shows that a credit is due Tenant, such credit shall be
credited against the next sums becoming due from Tenant, unless this Lease
has expired or been terminated pursuant to the terms hereof (and all sums
due Landlord have been paid), in which event such sums shall be refunded to
Tenant. Neither Landlord's failure to deliver nor late delivery of such
Reconciliation to Tenant shall constitute a default by Landlord or operate
as a waiver of Landlord's right to collect all Additional Rent or sums due
hereunder, Tenant agrees that no written request of such Reconciliation
shall be made until the Reconciliation for such period shall be due.

6.3.3. Tenant's Inspection of Reconciliation Accounting Records. So
--------------------------------------------------------
long as Tenant is not in default under the terms of the Lease and provided
Notice of Tenant's request is given to Landlord within thirty (30) days
after Tenant's receipt of the Reconciliation, Tenant may inspect Landlord's
Reconciliation accounting records relating to Direct Costs at Landlord's
corporate office, during normal business hours, for the purpose of
verifying the charges contained in such statement. The audit must be
completed within sixty (60) days of Landlord's receipt of Tenant's Notice,
unless such period is extended by Landlord (in Landlord's reasonable
discretion). Before conducting any audit however, Tenant must pay in full
the amount of Direct Costs billed. Tenant may only review those records
that specifically relate to Direct Costs. Tenant may not review any other
leases or Landlord's tax returns or financial statements. In conducting an
audit, Tenant must utilize an independent certified public accountant
experienced in auditing records related to property operations. The
proposed accountant is subject to Landlord's reasonable prior approval. The
audit shall be conducted in accordance with generally accepted rules of
auditing practices. Tenant may not conduct an audit more often than once
each calendar year. Tenant may audit records relating to a calendar year
only one time. No audit shall cover a period of time other than the
calendar year from which Landlord's Reconciliation was generated. Upon
receipt thereof, Tenant shall deliver to Landlord a copy of the audit
report and all accompanying data. Tenant and Tenant's auditor shall keep
any agreements involving the rights provided in this section and the
results of any audit conducted hereunder. As a condition precedent to
Tenant's right to conduct an audit, Tenant's auditor shall sign a
confidentiality agreement in a form reasonably acceptable to Landlord.
However, Tenant shall be permitted to furnish

4
<PAGE>

information to its attorneys, accountants and auditors to the extent
necessary to perform their respective services for Tenant and as otherwise
required by law. In the event that any audit conducted by Tenant reveals an
error in the amount of Direct Costs payable by Tenant which exceeds 5%,
Landlord shall pay the reasonable cost of Tenant's audit, excluding travel
expenses.

6.4. Taxes on Tenant's Use and Occupancy. In addition to Rent and any
-----------------------------------
other charges to be paid by Tenant hereunder, Tenant shall pay Landlord upon
demand for any and all taxes payable by Landlord (other than net income taxes)
which are not otherwise reimbursable under this Lease, whether or not now
customary or within the contemplation of the parties, where such taxes are upon,
measured by or reasonably attributable to (a) the cost or value of Tenant's
equipment, furniture, fixtures and other personal property located in the
Premises, or the cost or value of any leasehold improvements made in or to the
Premises by or for Tenant, other than Building Standard Tenant Improvements made
by Landlord, regardless of whether title to such improvements is held by Tenant
or Landlord; (b) the gross or net Rent payable under this Lease, including,
without limitation, any rental or gross receipts tax levied by any taxing
authority with respect to the receipt of the Rent hereunder; (c) the possession,
leasing, operation, management, maintenance, alteration, repair, use or
occupancy by Tenant of the Premises or any portion thereof; or (d) this
transaction or any document to which Tenant is a party creating or transferring
an interest or an estate in the Premises. If it becomes unlawful for Tenant to
reimburse Landlord for any costs as requested under this Lease, the Base Rent
shall be revised to net Landlord the same net Rent after imposition of any tax
or other charge upon Landlord as would have been payable to Landlord but for the
reimbursement being unlawful.

7. LATE CHARGES.

If Tenant fails to pay when due any Rent or other amounts or charges which
Tenant is obligated to pay under the terms of this Lease, then Tenant shall pay
Landlord a late charge equal to ten percent (10%) of each such installment if
any such installment is not received by Landlord within five (5) days from the
date it is due. Tenant acknowledges that the late payment of any Rent will cause
Landlord to lose the use of that money and incur costs and expenses not
contemplated under this Lease including, without limitation, administrative
costs and processing and accounting expenses, the exact amount of which is
extremely difficult to ascertain. Landlord and Tenant agree that this late
charge represents a reasonable estimate of such costs and expenses and is fair
compensation to Landlord for the loss suffered from such nonpayment by Tenant.
However, the late charge is not intended to cover Landlord's attorneys' fees and
costs relating to delinquent Rent. Acceptance of any late charge shall not
constitute a waiver of Tenant's default with respect to such nonpayment by
Tenant nor prevent Landlord from exercising any other rights or remedies
available to Landlord under this Lease. Late charges are deemed Additional Rent.

In no event shall this provision for the imposition of a late charge be deemed
to grant to Tenant a grace period or an extension of time within which to pay
any Rent due hereunder or prevent Landlord from exercising any right or remedy
available to Landlord upon Tenant's failure to pay such Rent when due.
Notwithstanding anything in this Section 7. to the contrary, Landlord shall not
charge Tenant a late charge for Tenant's first late payment of Rent in any
particular calendar year.

8. SECURITY DEPOSIT.

Upon execution of this Lease, Tenant agrees to deposit with Landlord a Security
Deposit in the amount set forth in Section 2.15. as security for Tenant's
performance of its' obligations under this Lease. Landlord and Tenant agree that
the Security Deposit may be commingled with funds of Landlord and Landlord shall
have no obligation or liability for payment of interest on such deposit. Tenant
shall not mortgage, assign, transfer or encumber the Security Deposit without
the prior written consent of Landlord and any attempt by Tenant to do so shall
be void, without force or effect and shall not be binding upon Landlord.

If Tenant fails to timely pay any Rent or other amount due under this Lease, or
fails to perform any of the terms hereof, Landlord may, at its option and
without prejudice to any other remedy which Landlord may have, appropriate and
apply or use all or any portion of the Security Deposit for Rent payments or any
other amount then due and unpaid, for payment of any amount for which Landlord
has become obligated as a result of Tenant's default or breach, and for any loss
or damage sustained by Landlord as a result of Tenant's default or breach. If
Landlord so uses any of the Security Deposit, Tenant shall, within ten (10) days
after written demand therefor, restore the Security Deposit to the full amount
originally deposited. Tenant's failure to do so shall constitute an act of
default hereunder and Landlord shall have the right to exercise any remedy
provided for in Section 19. hereof.

If Tenant defaults under this Lease more than two (2) times during any calendar
year, irrespective of whether such default is cured, then, without limiting
Landlord's other rights and remedies, Landlord may, in Landlord's sole
discretion, modify the amount of the required Security Deposit (not to exceed an
amount equal to four (4) months current Base Rent). Within ten (10) days after
Notice of such modification, Tenant shall submit , to Landlord the required
additional sums. Tenant's failure to do so shall constitute an act of default,
and Landlord shall have the right to exercise any remedy provided for in Section
19. hereof.

If Tenant complies with all of the terms and conditions of this Lease, and
Tenant is not in default on any of its obligations hereunder, then within the
time period statutorily prescribed after Tenant vacates the Premises, Landlord
shall return to Tenant (or, at Landlord's option, to the last subtenant or
assignee of Tenant's interest hereunder) the Security Deposit less any
expenditures made by Landlord to repair damages to the Premises caused by Tenant
and to clean the Premises upon expiration or earlier termination of this Lease.

In the event of bankruptcy or other debtor-creditor proceedings against Tenant,
such Security Deposit shall be deemed to be applied first to the payment of Rent
and other sums due Landlord for all periods prior to the filing of such
proceedings.

5
<PAGE>

9. TENANT'S USE OF THE PREMISES.

The provisions of this Section are for the benefit of the Landlord and the
Tenant and are not nor shall they be construed to be for the benefit of any
other tenant of the Building or Project.

9.1. Use. Tenant shall use the Premises solely for the purposes set forth in
---
Section 2.19. No change in the Use of the Premises shall be permitted, except as
provided in this Section 9.

9.1.1. If, at any time during the Term hereof, Tenant desires to
change the Use of the Premises, including any change in Use associated with
a proposed assignment, or sublet of the Premises, Tenant shall provide
Notice to Landlord of its request for approval of such proposed change in
Use. Tenant shall promptly supply Landlord with such information concerning
the proposed change in Use as Landlord may reasonably request. Landlord
shall have the right to approve such proposed change in Use, which approval
shall not be unreasonably withheld, delayed or conditioned. Landlord's
consent to any change in Use shall not be construed as a consent to any
subsequent change in Use.

9.2. Observance of Law. Tenant shall not use or occupy the Premises or
-----------------
knowingly permit anything to be done in or about the Premises in violation of
any declarations, covenant, condition or restriction, or law, statute, ordinance
or governmental rules, regulations or requirements now in force or which may
hereafter be enacted or promulgated. Tenant shall, at its sole cost and expense,
upon Notice from Landlord, immediately discontinue any use of the Premises,
which is declared by any governmental authority having jurisdiction to be a
violation of law or of the Certificate of Occupancy. Tenant shall promptly
comply, at its sole cost and expense, with all laws, statutes, ordinances and
governmental rules, regulations or requirements now in force or which may
hereafter be imposed which shall by reason of Tenant's Use or occupancy of the
Premises, impose any duty upon Tenant or Landlord with respect to Tenant's Use
or occupation. Further, Tenant shall, at Tenant's sole cost and expense, bring
the Premises into compliance with all such laws, including the Americans With
Disabilities Act of 1990, as amended (ADA), whether or not the necessity for
compliance is triggered by Tenant's Use, and Tenant shall make, at its sole cost
and expense, any changes to the Premises required to accommodate Tenant's
employees with disabilities (any work performed pursuant to this Section shall
be subject to the terms of Section 12. hereof). The judgment of any court of
competent jurisdiction or the admission by Tenant in any action or proceeding
against Tenant, whether Landlord is a party thereto or not, that Tenant has
violated any such law, statute, ordinance, or governmental regulation, rule or
requirement in the use or occupancy of the Premises, Building or Project shall
be conclusive of that fact as between Landlord and Tenant.

9.3. Insurance. Tenant shall not do or permit to be done anything which
---------
will contravene, invalidate or increase the cost of any insurance policy
covering the Building or Project and/or property located therein, and shall
comply with all rules, orders, regulations, requirements and recommendations of
Landlord's insurance carrier(s) or any board of fire insurance underwriters or
other similar body now or hereafter constituted, relating to or affecting the
condition, use or occupancy of the Premises, excluding structural changes not
related to or affected by Tenant's improvements or acts. Tenant shall promptly
upon demand reimburse Landlord for any additional premium charged for violation
of this Section.

9.4. Nuisance and Waste. Tenant shall not do or permit anything to be
------------------
done in or about the Premises which will in any way obstruct or interfere with
the rights of other tenants or occupants of the Building or Project, or injure,
or use or allow the Premises to be used for any improper or unlawful purpose.
Tenant shall not cause, maintain or permit any nuisance in, on or about the
Premises. Tenant shall not commit or suffer to be committed any waste in or upon
the Premises.

9.5. Load and Equipment Limits. Tenant shall not place a load upon any
-------------------------
floor of the Premises which exceeds the load per square foot which such floor
was designed to carry as determined by Landlord or Landlord's structural
engineer. The reasonable cost of any such determination made Landlord's
structural engineer in connection with Tenant's occupancy shall be paid by
Tenant upon Landlord's demand if Landlord reasonably suspects Tenant has
exceeded such capacity. Tenant shall not install business machines or
mechanical equipment which will in any manner cause noise objectionable to other
tenants or injure, vibrate or shake the Premises or Building.

9.6. Hazardous Material.
------------------

9.6.1. Unless Tenant obtains the prior written consent of Landlord,
Tenant shall not create, generate, use, bring, allow, emit, dispose, or
permit on the Premises, Building or Project any toxic or hazardous gaseous,
liquid or solid material or waste (Hazardous Material), including without
limitation, material or substance (a) having characteristics of
ignitability, corrosivity, reactivity, or extraction procedure toxicity, or
(b) which is listed on any applicable federal, state or local law, rule,
regulation or ordinance, or (c) which has been determined by any state,
federal or local governmental or public authority or agency to be capable
of posing a risk of injury to health, safety or property.

see addendum

9.6.2. Tenant shall indemnify, defend and hold Landlord harmless
from any claims, liabilities, costs or expenses incurred or suffered by
Landlord arising from such bringing, allowing, using, permitting,
generating, creating, emitting or disposing of Hazardous Material whether
or not consent to same has been granted by Landlord. Tenant's
indemnification, duty to defend and hold harmless obligations include,
without limitation (a) claims, liability, costs or expenses resulting from
or based upon administrative, judicial (civil or criminal) or other action,
legal or equitable, brought by any private or public person under common
law or any federal, state, county or municipal law, ordinance or
regulation, including, without limitation, any subsequent tenant or owner
of the Premises or adjacent property, (b) claims liabilities, costs

6
<PAGE>

or expenses pertaining to the cleanup or containment of Hazardous Material,
the identification of the pollutants in the Hazardous Material, the
identification of the scope of any environmental contamination, the removal
of pollutants from soils, riverbeds or aquifers, the provision of an
alternative public drinking water source, (c) all reasonable costs and fees
incurred in defending such claims, and (d) all costs or losses to Landlord
arising from inability or delay in selling or leasing the Premises after
the expiration of the Lease, including, without limitation, reduction in
the market value of the Premises, Building or Project. Tenant shall comply
at its sole cost, with all laws pertaining to such Hazardous Material.
Tenant's indemnification, duty to defend and hold harmless obligations
hereunder shall survive the expiration or sooner termination of this Lease.

9.6.3. Tenant shall provide to Landlord a copy of any permit
applications and/or permits issued by any governmental agency concerning
Tenant's use or generation of Hazardous Material on or about the Premises.

9.6.4. In the event Landlord grants Tenant permission to so bring,
allow, use, permit, generate, create, emit or dispose Hazardous Material as
set forth in Section 9.6.1. above (a) Tenant shall provide to Landlord on
an annual basis a report from a person who is, to Landlord's satisfaction,
appropriately qualified or licensed as an expert in the field of hazardous
materials laws compliance matters, certifying that Tenant is complying with
all applicable governmental statues and regulations concerning Hazardous
Material, and that there have been no spills or contamination by Tenant at
the Premises that have not been fully corrected and cleaned up and, (b)
prior to any such bringing, allowing, using permitting, generating,
creating, emitting or disposing of Hazardous Materials, Tenant shall
provide proof satisfactory to Landlord that tests prove there was existing
contamination by such Hazardous Material (which was not the result of acts
or omissions of Tenant) or if Tenant fails to provide such proof it shall
be conclusively presumed between the parties that any such contamination
thereafter existing at, on or emitted from the Premises was caused solely
by Tenant.

9.6.5. In the event of contamination by Hazardous Material at, from,
of or around the Premises, the Building or the Project, the cleanup of
which is the responsibility of Tenant, Tenant shall promptly take all
actions necessary, at Tenant's sole cost and expense, to remediate the
contamination and restore the Premises, Building or Project to the
condition that existed before introduction of such Hazardous Material.
Tenant shall first obtain Landlord's approval of the proposed remedial
action and shall keep Landlord informed during the process of remediation.
Landlord may require within fifteen (15) days after written notification
from Landlord, that Tenant post a bond or other adequate security to the
benefit of Landlord, in an amount equal to landlord's estimate of costs for
cleaning up the contamination. The posting of the bond does not relieve
Tenant from fulfilling its responsibility to clean up the contamination.
After the contamination has been cleaned up and certified, as set forth
above, the bond or other adequate security shall be returned to Tenant.

9.7. Use of Common Area. Tenant is hereby granted, for so long as it is
------------------
not in default hereunder, a non-exclusive license to use in common with other
occupants of the Building or Project, if any, such facilities within or without
the Building which are designated from time to time for the general use, benefit
or convenience of Tenant and the other tenants or occupants of the Building or
Project or their employees, customers, authorized representatives or invitees.
Tenant shall use the Common Area in conformity with the reasonable rules and
regulations and changes thereto from time to time promulgated by landlord
governing the use, maintenance, management, and operation of said Common Area.
T he manner and nature of the installation and maintenance of the Common Area
shall be subject to the sole discretion of Landlord so long as it does not
materially restrict or impair Tenant's use- thereof, and no material change to
the parking area will be completed without Tenant's consent unless required by
law or government entity. Landlord reserves the right from time to time to make
changes in the shape, size, location and extent of same provided that any such
change shall be after Notice to Tenant, except as may be required by law or
government agencies, Landlord retains the right to promulgate such aforesaid
reasonable rules, regulations and changes from time to time and also retains the
right to temporarily close the Common Area from time to time in order to prevent
a dedication thereof or for the making of repairs or performance of maintenance.

10. SERVICES AND UTILITIES.

Tenant shall make all arrangements for and pay for all utilities and services
furnished to or used by it, including, without limitation, gas, electricity,
heating, air conditioning and other ventilation, janitorial, water, sewage,
telephone service, and trash collection, including any taxes thereon, and for
all connection charges, except for those utility and services Landlord is to
acquire for the account of the tenants to service the Common Area.

Landlord may choose, in Landlord's reasonable discretion, the company or
companies that will provide all electricity (or any other utility) to the
Project, and, in such event, Tenant shall pay for electric current (or such
other utility) supplied to, or used, in the Premises at the rate, prevailing for
Tenant's class of use as established by such company or companies. Electric
current (or such other utility) shall be measured in the manner set forth above
and shall billed by Landlord as Additional Rent and paid by Tenant on a monthly
basis. If permitted law, Landlord shall have the right, in Landlord's reasonable
discretion, at any time and from time to time during the Term, to switch
providers of any such utility so long as it does not cause any material
interruption in service or increase rates beyond those that are reasonably
competitive in the local market place. Tenant shall cooperate with Landlord and
any such utility provider at all times, and, as reasonably necessary, Tenant
shall allow access to the electric (or other utility) lines, feeders, risers,
wiring and other machinery located within the Premises.

Notwithstanding anything contained herein to the contrary, if Tenant is granted
the right to purchase electricity from a provider other than the company or
companies used by Landlord, Tenant shall indemnify, defend, and hold harmless
Landlord from and against all losses, claims, demands, expenses and judgments
caused by, or directly or indirectly arising from, the acts or omissions of
Tenant's electricity provider (including, but not limited to, expenses

7
<PAGE>

and/or fines incurred by Landlord in the event Tenant's electricity provider
fails to provide sufficient power to the Premises, as well as damages resulting
from the improper or faulty installation or construction of facilities or
equipment in or on the Premises by Tenant or Tenant's electricity provider.

Landlord may provide telecommunications lines and systems as discussed in
Section 35. hereof.

Landlord shall not be in default hereunder or be liable for any damages directly
or indirectly resulting from, nor shall Rent be abated by reason of (a) the
installation, use or interruption of use of any equipment in connection with the
furnishing of any of the foregoing services, (b) failure to furnish or delay in
furnishing any such services where such failure or delay is caused by accident
or any condition or event beyond the reasonable control of Landlord, or by the
making of necessary repairs or improvements to the Premises, Building or
Project, (c) any change, failure, interruption, disruption or defect in the
quantity or character of the electricity (or other utility) supplied to the
Premises or Project, or (d) the limitation, curtailment or rationing of, or
restrictions on, use of water, electricity, gas or any other form of energy
serving the Premises, Building or Project. Landlord shall not be liable under
any circumstances for a loss of or injury to property or business, however
occurring, through, in connection with or incidental to the failure to furnish
any such services.

11. REPAIRS AND MAINTENANCE.

11.1. Landlord's Obligations. Landlord shall timely make all structural
----------------------
repairs except as specified herein and shall maintain in good order, condition
and repair the Building and all other portions of the Premises not the
obligation of Tenant or of any other tenant in the Building. Landlord's
structural repair obligations shall include only the foundations, structural
portions of the exterior walls (excluding all glass and doors), subflooring and
roof replacement.

11.2 Tenant's Obligations.
--------------------

see addendum

11.2.1. Tenant shall, at Tenant's sole expense and except for
services furnished by Landlord pursuant to Section 10. hereof, maintain the
Premises in good order, condition and repair. For the purposes of this
Section 11 2.1., the term Premises shall be deemed to include all items and
equipment installed by or for the benefit of or at the expense of Tenant,
including without limitation the interior surfaces of the ceilings, walls
and floors (except as provided above); all doors; all interior and exterior
windows; dedicated heating and ventilating and air conditioning equipment
(Tenant shall procure and maintain at Tenant's expense a heating and air
conditioning system maintenance contract); all plumbing, pipes and
fixtures; internal wiring as it connects to the ICN (if applicable);
electrical switches and fixtures; and Building Standard Tenant
Improvements, if any.

11.2.2. Tenant shall be responsible for all repairs and alterations
in and to the Premises, Building and Project and the facilities and systems
thereof to the reasonable satisfaction of Landlord, the need for which
arises out of (a) Tenant's use, or occupancy of the Premises, (b) the
installation, removal, use or operation of Tenant's Property (as defined in
Section 13, 13.2.) in the Premises, (c) the moving of Tenant's Property
into or out of the Building, or (d) the act, omission, misuse or negligence
of Tenant, its agents, contractors, employees or invitees.

11.2.3. If Tenant fails to maintain the Premises in good order,
condition and repair, Landlord shall give Notice to Tenant to do such acts
as are reasonably required to so maintain the Premises. If Tenant fails to
promptly commence such work and diligently prosecute it to completion, then
Landlord shall have the right to do such acts and expend such funds at the
expense of Tenant as are reasonably required to perform such work.

11.3. Compliance with Law. Landlord and Tenant shall each do all acts
-------------------
necessary to comply with all applicable laws, statutes, ordinances, and rules of
any public authority relating to their respective maintenance obligations as set
forth herein. The provisions of Section 9.2. are deemed restated here.

11.4. Notice of Defect. If it is Landlord's obligation to repair, Tenant
----------------
shall give Landlord prompt Notice, regardless of the nature or cause, of any
damage to or defective condition in any part or appurtenance of the Building's
mechanical, electrical, plumbing, HVAC or other systems serving, located in, or
passing through the Premises.

11.5. Landlord's Liability. Except as otherwise expressly provided in
--------------------
this Lease, Landlord shall have no liability to Tenant nor shall Tenant's
obligations under this Lease be reduced or abated in any manner by reason of any
inconvenience, annoyance, interruption or injury to business arising from
Landlord's making any repairs or changes which Landlord is required or permitted
by this Lease or by any other tenant's lease or required by law to make in or to
any portion of the Building, Project or Premises. Landlord shall nevertheless
use reasonable efforts to minimize any interference with Tenant's conduct of its
business in the Premises.

12. CONSTRUCTION, ALTERATIONS AND ADDITIONS.

12.1. Landlord's Construction Obligations. Landlord shall perform
-----------------------------------
Landlord's Work applicable to the Premises as described in Exhibit "D"

12.2. Tenant's Construction Obligations. Tenant shall perform Tenant's
---------------------------------
Work to the applicable Premises as described in Exhibit "D" and shall comply
with all of the provisions of this Section 12.

8
<PAGE>

12.3. Tenant's Alterations and Additions. Except as provided in Section
----------------------------------
12.2. above, Tenant shall not make any other additions, alterations or
improvements to the Premises without obtaining the prior written consent of
Landlord. Landlord's consent may be conditioned, without limitation, on Tenant
removing any such additions, alterations or improvements upon the expiration of
the Term and restoring the Premises to the same condition as on the date Tenant
took possession. All work with respect to Tenant's Work described in Exhibit
"D", as well as any addition, alteration or improvement, shall comply with all
applicable laws, ordinances, codes and rules of any public authority (including,
but not limited to the ADA) and shall be done in a good and professional manner
by properly qualified and licensed personnel reasonably approved by Landlord.
All work shall be diligently prosecuted to completion. Upon completion (for
structural alterations and additions only), Tenant shall furnish Landlord "as-
built" plans. Prior to commencing any such work, Tenant shall furnish Landlord
with plans and specifications; names and addresses of contractors; copies of all
contracts, copies of all necessary permits; evidence of contractor's and
subcontractor's insurance coverage for Builder's Risk at least as broad as
Insurance Services Office (ISO) special causes of loss form CP 10 30, Commercial
General Liability at least as broad as ISO CG 00 01, workers' compensation,
employer's liability and auto liability, all in amounts reasonably satisfactory
to Landlord; and indemnification in a form reasonably satisfactory to Landlord.
The work shall be performed in a manner that will not interfere with the quiet
enjoyment of the other tenants in the Building in which the Premises is located.

Landlord may require, in Landlord's sole discretion and at Tenant's sole cost
and expense, that Tenant provide Landlord with a lien and completion bond in an
amount equal to at least one and one-half (1-1/2) times the total estimated cost
of any additions, alterations or improvements to be made in or to the Premises.
Nothing contained in this Section 12.3. shall relieve Tenant of its obligation
under Section 12.4. to keep the Premises, Building and Project free of all
liens.

see addendum

12.4. Payment. Tenant shall pay the costs of any work done on the
-------
Premises pursuant to Sections 12.2. and 12.3., and shall keep the Premises,
Building and Project free and clear of liens of any kind. Tenant hereby
indemnifies, and agrees to defend against and keep Landlord free and harmless
from all liability, loss, damage, costs, attorneys' fees and any other expense
incurred on account of claims by any person performing work or furnishing
materials or supplies for Tenant or any person claiming under Tenant.

Tenant shall give Notice to Landlord at least ten (10) business days prior to
the expected date of commencement of any work relating to alterations, additions
or improvements to the Premises. Landlord retains the right to enter the
Premises and post such notices as Landlord deems proper at any reasonable time.

12.5. Property of Landlord. Except as otherwise set forth herein, all
--------------------
additions, alterations and improvements made to the Premises shall become the
property of Landlord and shall be surrendered with the Premises upon the
expiration of the Term unless their removal is required by Landlord as provided
in Section 12.3.; provided, however, Tenant's equipment, machinery and trade
fixtures shall remain the Property of Tenant and shall be removed, subject to
the provisions of Section 13, 13.2.

13. LEASEHOLD IMPROVEMENTS; TENANT'S PROPERTY.

13.1. Leasehold Improvements. Except as provided above, all fixtures,
----------------------
equipment (including air conditioning or heating systems), improvements and
appurtenances attached to or built into the Premises the commencement of or
during the Term, whether or not by or at the expense of Tenant (Leasehold
Improvements), shall be and remain a part of the Premises, shall be the property
of Landlord and shall not be removed by Tenant, except as expressly provided in
Section 13, 13.1, unless Landlord, by Notice to Tenant not later than thirty
(30) days prior to the expiration of the Term, elects to have Tenant remove any
Leasehold Improvements installed by Tenant. In such case, Tenant, at Tenant's
sole cost and expense and prior to the expiration of the Term, shall remove the
Leasehold Improvements and repair any damage caused by such removal.

13.2. Tenant's Property. All signs, notices, displays, movable partitions,
-----------------
business and trade fixtures, machinery and equipment (excluding air conditioning
or heating systems, whether installed by Tenant or not), personal
telecommunications equipment and office equipment located in the Premises and
acquired by or for the account of Tenant, without expense to Landlord, which can
be removed without structural damage to the Building, and all furniture,
furnishings and other articles of movable personal property owned by Tenant and
located in the Premises (collectively, Tenant's Property) shall be and shall
remain the property of Tenant and may be removed by Tenant at any time during
the Term; provided that if any of Tenant's Property is removed, Tenant shall
promptly repair any damage to the Premises or to the Building resulting from
such removal, including without limitation repairing the flooring and patching
and painting the walls where required by Landlord to Landlord's reasonable
satisfaction, all at Tenant's sole cost and expense. The security systems,
nitrogen tanks and hydrogen tanks located at the Premises are hereby-deemed
Tenant's Property, and Tenant shall remove such items at the expiration or
earlier termination of the lease term.

14. INDEMNIFICATION.

see addendum

14.1. Tenant Indemnification. Tenant shall indemnify and hold Landlord
----------------------
harmless from and against any and all liability and claims of any kind for loss
or damage to any person or property arising out of: (a) Tenant's use and
occupancy of the Premises, or the Building or Project, or any work, activity or
thing done, allowed or suffered by Tenant in, on or about the Premises, the
Building or the Project; (b) any breach or default by Tenant of any of Tenant's
Obligations under this Lease; or (c) any negligent or otherwise tortuous act or
omission of Tenant, its agents, employees, subtenants, licensees, customers,
guests, invitees or contractors including agents or contractors who perform
services or work outside of the Premises for Tenant). At Landlord's request,
Tenant shall, at Tenant's

9
<PAGE>

expense, and by counsel satisfactory to Landlord, defend Landlord in any action
or proceeding arising from any such claim. Tenant shall indemnify Landlord
against all costs, reasonable attorneys' fees, expert witness fees and any other
expenses or liabilities incurred in such action or proceeding. As a material
part of the consideration for Landlord's execution of this Lease, Tenant hereby
assumes all risk of damage or injury to any person or property in, on or about
the Premises from any cause and Tenant hereby waives all claims in respect
thereof against Landlord, except in connection with damage or injury resulting
solely from the negligence or willful misconduct of Landlord or its authorized
agents.

14.2. Landlord Not Liable. Landlord shall not be liable for injury or
-------------------
damage which may be sustained by the person or property of Tenant, its
employees, invitees or customers, or any other person in or about the Premises,
caused by or resulting from fire, steam, electricity, gas, water or rain which
may leak or flow from or into any part of the Premises, or from the breakage,
leakage, obstruction or other defects of pipes, sprinklers, wires, appliances,
plumbing, air conditioning, lighting fixtures or mechanical or electrical
systems, whether such damage or injury results from conditions arising upon the
Premises or upon other portions of the Building or Project or from other
sources, unless the condition was the result of Landlord's negligence or
willful misconduct. Landlord shall not be liable for any damages arising from
any act or omission of any other tenant of the Building or Project or for the
acts of persons in, on or about the Premises, Building or the Project who are
not the authorized agents of Landlord or for losses due to theft, vandalism or
like causes.

Tenant acknowledges that Landlord's election to provide mechanical surveillance
or to post security personnel in the Building or on the Project is solely within
Landlord's discretion. Landlord shall have no liability in connection with the
decision whether or not to provide such services, and, to the extent permitted
by law, Tenant hereby waives all claims based thereon.

15. TENANT'S INSURANCE.

15.1. Insurance Requirement. Tenant shall procure and maintain insurance
---------------------
coverage in accordance with the terms hereof, either as specific policies or
within blanket policies. Coverage shall begin on the date Tenant is given access
to the Premises for any purpose and shall continue until expiration of the Term,
except as otherwise set forth in the Lease. The cost of such insurance shall be
borne by Tenant.

Insurance shall be with insurers licensed to do business in the State, and
acceptable to Landlord. The insurers must have a current A.M. Best's rating of
not less than A:VII, or equivalent (as reasonably determined by Landlord) if the
Best's rating system is discontinued.

Tenant shall furnish Landlord with original certificates and amendatory
endorsements effecting coverage required by this Section 15. before the date
Tenant is first given access to the Premises. All certificates and endorsements
are to be received and approved by Landlord before any work commences. Landlord
reserves the right to inspect and/or copy any insurance policy required to be
maintained by Tenant hereunder, or to require complete, certified copies of all
required insurance policies, including endorsements effecting the coverage
required herein at any time. Tenant shall comply with such requirement within
thirty (30) days of demand therefor by Landlord. Tenant shall furnish Landlord
with renewal certificates and amendments or a "binder" of any such policy at
least twenty (20) days prior to the expiration thereof. Each insurance policy
required herein shall be endorsed to state that coverage shall not be canceled,
except after thirty (30) days' prior written notice to Landlord and Landlord's
lender (if such lender's address is provided).

The Commercial General Liability policy, as hereinafter required, shall contain,
or be endorsed to contain, the following provisions: (a) Landlord and any
parties designated by Landlord shall be covered as additional insureds as their
respective interests may appear; and (b) Tenant's insurance coverage shall be
primary insurance as to any insurance carried by the parties designated as
additional insureds. Any insurance or self-insurance maintained by Landlord
shall be excess of Tenant's insurance and shall not contribute with it.

15.2. Minimum Scope of Coverage. Coverage shall be at least as broad as
-------------------------
set forth herein. However, if, because of Tenant's Use or occupancy of the
Premises, Landlord determines, in Landlord's reasonable judgment, that
additional insurance coverage or different types of insurance are necessary,
then Tenant shall obtain such insurance at Tenant's expense in accordance with
the terms of this Section 15.

15.2.1. Commercial General Liability (ISO occurrence form CG 00 0 1)
which shall cover liability arising from Tenant's Use and occupancy of the
Premises, its operations therefrom, Tenant's independent contractors,
products-completed operations, personal injury and advertising injury, and
liability assumed under an insured contract.

15.2.2. Workers' Compensation insurance as required by law, and
Employers Liability insurance.

15.2.3. Commercial Property Insurance (ISO special causes of loss
form CP 10 30) against all risk of direct physical loss or damage
(including flood, if applicable), earthquake excepted, for: (a) all
leasehold improvements (including any alterations, additions or
improvements made by Tenant pursuant to the provisions of Section 12.
hereof), in, on or about the Premises; and (b) trade fixtures, merchandise
and Tenant's Property from time to time in, on or about the Premises. The
proceeds of such property insurance shall be used for the repair or
replacement of the property so insured. Upon termination of this Lease
following a casualty as set forth herein, the proceeds under (a) shall be
paid to Landlord, and the proceeds under (b) above shall be paid to Tenant.

15.2.4. Landlord shall, during the term hereof, maintain in effect
similar insurance on the Building and Common Area.

10
<PAGE>

15.2.5. Business Interruption and Extra Expense Insurance.

15.3. Minimum Limits of Insurance. Tenant shall maintain limits not less
---------------------------
than:

15.3.1. Commercial General Liability: $1,000,000 per occurrence. If
the insurance contains a general aggregate limit, either the general
aggregate limit shall apply separately to this location or the general
aggregate limit shall be at least twice the required occurrence limit.

15.3.2. Employer's Liability: $1,000,000 per accident for bodily
injury or disease.

15.3.3. Commercial Property Insurance: 100% replacement cost with no
coinsurance penalty provision.

15.3.4. Business Interruption and Extra Expense Insurance: In a
reasonable amount and comparable to amounts carried by comparable tenants
in comparable projects.

15.4. Deductible and Self-Insured Retention. Any deductible or self -
-------------------------------------
insured retention in excess of $5,000 per occurrence must be declared to and
approved by Landlord. At the option of Landlord, either the insurer shall reduce
or eliminate such deductible or self-insured retention or Tenant shall provide
separate insurance conforming to this requirement.

15.5. Increases in Insurance Policy Limits. If the coverage limits set
------------------------------------
forth in this Section 15 are reasonably deemed inadequate by Landlord or
Landlord's lender, then Tenant shall increase the coverage limits to the amounts
reasonably recommended by either Landlord or Landlord's lender. Landlord agrees
that any such required increases in coverage limits shall not occur more
frequently than once every three-(3) years.

15.6. Waiver of Subrogation. Landlord and Tenant each hereby waive all
---------------------
rights of recovery against the other and against the officers, employees, agents
and representatives, contractors and invitees of the other, on account of loss
by or damage to the waiving party or its property or the property of others
under its control, to the extent that such loss or damage is insured against
under any insurance policy which may have been in force at the time of such loss
or damage.

15.7. Landlord's Right to Obtain Insurance for Tenant. If Tenant fails to
-----------------------------------------------
obtain the insurance coverage or fails to provide certificates and endorsements
as required by this Lease, Landlord may, at its option, obtain such insurance
for Tenant. Tenant shall pay, as Additional Rent, the reasonable cost thereof
together with a twenty-five percent (25%) service charge.

16. DAMAGE OR DESTRUCTION.

16.1. Damage. If, during the term of this Lease, the Premises or the
------
portion of the Building necessary for Tenant's occupancy is damaged by fire or
other casualty covered by fire and extended coverage insurance carried by
Landlord, Landlord shall promptly repair the damage provided (a) such repairs
can, in Landlords reasonable opinion, be completed, under applicable laws and
regulations, within one hundred eighty (180) days of the date of the casualty,
(b) insurance proceeds are available to pay eighty percent (80%) or more of the
cost of restoration, and (c) Tenant performs its obligations pursuant to Section
16.4. hereof. In such event, this Lease shall continue in full force and effect,
except that if such damage is not the result of the negligence or willful
misconduct of Tenant. its agents or employees, Tenant shall be entitled to a
proportionate reduction of Rent to the extent Tenant's use of the Premises is
impaired, commencing with the date of damage and continuing until completion of
the repairs required of Landlord under Section 16.4. If the damage is due to the
fault or neglect of Tenant, its agents or employees and loss of rental income
insurance is denied as a result, there shall be no abatement of Rent.

Notwithstanding anything contained in the Lease to the contrary, in the event of
partial or total damage or destruction of the Premises during the last twelve
(12) months of the Term, either party shall have the option to terminate this
Lease upon thirty (30) days prior Notice to the other party provided such Notice
is served within thirty (30) days after the damage or destruction. For purposes
of this Section 16.1., "partial damage or destruction'' shall mean the damage or
destruction of at least thirty-three and one-third percent (33 and I/3%), of the
Premises, as reasonably determined by Landlord in Landlord's reasonable
discretion.

16.2 Repair of Premises in Excess of One Hundred Eighty Days. If in
-------------------------------------------------------
Landlord's reasonable opinion, such repairs to the Premises or portion of the
Building necessary for Tenant's occupancy cannot be completed under applicable
laws and regulations within one hundred eighty (180) of the date of the
casualty, Landlord may elect, upon Notice to Tenant given within thirty (30)
days after the date of such fire or other casualty, to repair such damage, in
which event this Lease shall continue in full force and effect, but the Base
Rent shall be partially abated as provided in Section 16. 1. If Landlord does
not so elect to make such repairs, this Lease shall terminate as of the date of
such fire or other casualty.

16.3. Repair Outside Premises. If any other portion of the Building or
-----------------------
Project is totally destroyed or damaged to the extent that in Landlord's
reasonable opinion, repair thereof cannot be completed under applicable laws and
regulations within one hundred eighty (180) days of permit for such construction
is issued by the governing authority, Landlord may elect upon Notice to Tenant
given within thirty (30) days after the date of such fire or other casualty, to
repair such damage, in which event this Lease shall continue in full force and
effect, but the Base Rent shall be partially abated as provided in Section 16.1.
If Landlord does not elect to make such repairs, this Lease shall terminate as
of the date of such fire or other casualty.

16.4. Tenant Repair. If the Premises are to be repaired under this Section
-------------
16., Landlord shall repair at its cost any injury or damage to the Building and
Building Standard Tenant Improvements as detailed in Exhibit C, if any.
Notwithstanding anything contained herein to the contrary, Landlord shall not be
obligated to perform work

11
<PAGE>

other than Landlord's Work performed previously pursuant to Section 12.1.
hereof. Tenant shall be responsible at its sole cost and expense for the repair,
restoration and replacement of any other Leasehold Improvements and Tenant's
Property (as well as reconstructing and reconnecting Tenant's internal
telecommunication wiring and related equipment). Landlord shall not be liable
for any loss of business, inconvenience or annoyance arising from any repair or
restoration of any portion of the Premises, Building or Project as a result of
any damage from fire or other casualty.

16.5. Election Not to Perform Landlord's Work. Notwithstanding anything to
---------------------------------------
the contrary contained herein, Landlord shall provide Notice to Tenant of its
intent to repair or replace the Premises (if Landlord elects to perform such
work), and, within ten (10) days of its receipt of such Notice, Tenant shall
Provide Notice to Landlord of its intent to reoccupy the Premises. Should
Tenant fail to provide such Notice to Landlord, then such failure shall be
deemed an election by Tenant not to re-occupy the Premises and Landlord may
elect not to perform the repair or replacement of the Premises. Such election
shall not result in a termination of this Lease and all obligations of Tenant
hereunder shall remain in full force and effect, including the obligation to pay
Rent.

16.6. Express Agreement. This Lease shall be considered an express
-----------------
agreement governing any case of damage to or destruction of the Premises,
Building or Project by fire or future law which purports to govern the rights of
or other casualty, and any present of Landlord and Tenant in such circumstances
in the absence of express agreement shall have no application.

17. EMINENT DOMAIN.

17.1 Whole Taking. If the whole of the Building or Premises is lawfully
------------
taken by condemnation or in any other manner for any public or quasi-public
purpose, this Lease shall terminate as of the date of such taking, and Rent
shall be prorated to such date.

17.2 Partial Taking. If less than the whole of the Building or Premises
--------------
is so taken, this Lease shall be unaffected by such taking, provided that (a)
Tenant shall have the right to terminate this Lease by Notice to Landlord given
within ninety (90) days after the date of taking if twenty percent (20%) or more
of the Premises or thirty three percent (33%) of parking area is taken and the
remaining area of the Premises is not reasonably sufficient for Tenant to
continue operation of its business, and (b) Landlord shall have the right to
terminate this Lease by Notice to Tenant given within ninety (90) days after the
date of such taking. If either Landlord or Tenant so elects to terminate this
Lease, the Lease shall terminate on the thirtieth (30th) calendar day after
either such Notice. Rent shall be prorated to the date of termination. If this
Lease continues in force upon such partial taking, Base Rent and Tenant's
Proportionate Share shall be equitably adjusted according to the remaining
Usable Area of the Premises and Building.

17.3. Proceeds. In the event of any taking, partial or whole, all of the
--------
proceeds of any award, judgment or settlement payable by the condemning
authority shall be the exclusive property of Landlord, and Tenant hereby assigns
to Landlord all of its right, title and interest in any award, judgment or
settlement from the condemning authority; however, Tenant shall have the right,
to the extent that Landlord's award is not reduced or prejudiced, to claim from
the condemning authority (but not from Landlord) such compensation as may be
recoverable by Tenant in its own right for relocation expenses and damage to
Tenant's Property and damage to Leasehold Improvements installed at the sole
expense of Tenant.

17.4. Landlord's Restoration. In the event of a partial taking of the
----------------------
Premises which does not result in a termination of this Lease, Landlord shall
restore the remaining portion of the Premises as nearly as practicable to its
condition prior to the condemnation or taking, provided however, Landlord shall
not be obligated to perform work other than Landlord's Work performed previously
pursuant to Section 12.1. hereof. Tenant shall be responsible at its sole cost
and expense for the repair, restoration and replacement of Tenant's Property and
any other Leasehold Improvements.

18. ASSIGNMENT AND SUBLETTING.

see addendum

No assignment of this Lease or sublease of all or any part of the Premises shall
be permitted, except as provided in this Section 18.

18.1. No Assignment or Subletting. Tenant shall not, without the prior
---------------------------
written consent of Landlord, assign or hypothecate this Lease or any interest
herein or sublet the Premises or any part thereof, or permit the use of the
Premises or any part thereof by any party other than Tenant. Any of the
foregoing acts without such consent shall be voidable and shall, at the option
of Landlord, constitute a default hereunder. This Lease shall not, nor shall any
interest of Tenant herein, be assignable by operation of law without the prior
written consent of Landlord.

18.1.1. For purposes of this Section 18., the following shall be
deemed an assignment:

18.1.1.1. If Tenant is a partnership, any withdrawal or
substitution (whether voluntary, involuntary, or by operation of law, and
whether occurring at one time or over a period of time) of any partner(s)
owning twenty-five (25%) or more (cumulatively) of any interest in the
capital or profits of the partnership, or the dissolution of the
partnership;

18.1.1.2. If Tenant is a corporation, any dissolution,
merger, consolidation, or other reorganization of Tenant, any sale or
transfer (or cumulative sales or transfers) of the capital stock of Tenant
in excess of twenty-five percent (25%), or any sale (or cumulative sales)
or transfer of fifty-one

12
<PAGE>

(51%) or more of the value of the assets of Tenant provided, however, the
foregoing shall not apply to corporations the capital stock of which is
publicly traded.

18.2. Landlord's Consent. If, at anytime or from time to time during the
------------------
Term hereof, Tenant desires to assign this Lease or sublet all or any part of
the Premises, and if Tenant is not then in default under the terms of the Lease,
Tenant shall submit to Landlord a written request for approval setting forth the
terms and provisions of the proposed assignment or sublease, the identity of the
proposed assignee or subtenant, and a copy of tile proposed form of assignment
or sublease. Tenant's request for consent shall be submitted to Landlord at
least thirty (30) days prior to the intended date of such transfer. Tenant shall
promptly supply Landlord with such information concerning the business
background and financial condition of such proposed assignee or subtenant as
Landlord may reasonably request. Landlord shall have the right to approve such
proposed assignee or subtenant, which approval shall not be unreasonably
withheld delayed or conditioned. Landlord's consent to any assignment shall not
be construed as a consent to any subsequent assignment, subletting, transfer of
partnership interest or stock, occupancy or use.

18.2.1. Landlord's approval shall be conditioned, among other
things, on Landlord's receiving adequate assurances of future performance
under this Lease and any sublease or assignment. In determining the
adequacy of such assurances, Landlord may base its decision on such
factors, as it deems appropriate, including but not limited to:

18.2.1.1. that the source of rent and other consideration
due under this Lease, and, in the case of assignment, that the
financial condition and operating performance and business
experience of the proposed assignee and its guarantors, if any,
shall be equal to or greater than the financial condition and
operating performance and experience of Tenant and its
guarantors, if any, as of the time Tenant became the lessee
under this Lease;

18.2.1.2. that any assumption or assignment of this Lease
will not result in increased cost or expense, wear and tear,
greater traffic or demand for services and utilities provided by
Landlord pursuant to Section 6.3. hereof and will not disturb or
be detrimental to other tenants of Landlord;

18.2.1.3. whether the proposed assignee's use of the
Premises will include the use of Hazardous Material, or will in
any way increase any risk to Landlord relating to Hazardous
Material; and

18.2.1.4. that assumption or assignment of such lease will
not disrupt any tenant mix or balance in the Project.

18.2.2. The assignment or sublease shall be on the same terms and
conditions set forth in the written request for approval given to Landlord,
or, if different, upon terms and conditions consented to by Landlord;

18.2.3. No assignment or sublease shall be valid and no assignee
or sublessee shall take possession of the Premises or any part thereof
until an executed counterpart of such assignment or sublease has been
delivered to Landlord;

18.2.4. No assignee or sublessee shall have a further right to
assign or sublet except on the terms herein contained;

18.2.5. Any sums or other economic considerations received by
Tenant as a result of such assignment or subletting, however denominated
under the assignment or sublease, which exceed, in the aggregate (a) the
total sums which Tenant is obligated to pay Landlord under this Lease
(prorated to reflect obligations allocable to any portion of the Premises
subleased), plus (b) any real estate brokerage commissions or fees payable
to third parties in connection with such assignment or subletting, shall be
shared equally by Tenant and Landlord as Additional Rent under this Lease
without effecting or reducing any other obligations of Tenant hereunder.

If Landlord consents to the proposed transfer, Tenant shall deliver
to Landlord three (3) fully executed original documents (in the form
previously approved by Landlord) and Landlord shall attach its consent
thereto. Landlord shall retain one (1) fully executed original document. No
transfer of Tenant's interest in this Lease shall be deemed effective until
the terms and conditions of this Section 18. have been fulfilled.

18.3. Tenant Remains Responsible No subletting or assignment shall release
--------------------------
Tenant of Tenant's obligations under this Lease or alter the primary liability
of Tenant to pay the Rent and to perform all other obligations to be performed
by Tenant hereunder. The acceptance of Rent by Landlord from any other person
shall not be deemed to be a waiver by Landlord of any provision hereof. Consent
to one assignment or subletting shall not be deemed consent to any subsequent
assignment or subletting. In the event of default by an assignee or subtenant of
Tenant or any successor of Tenant in the performance of any of the terms hereof,
Landlord may proceed directly against Tenant without the necessity of exhausting
remedies against such assignee, subtenant or successor. Landlord may consent to
subsequent assignments or sublets of the Lease or amendments or modifications to
the Lease with assignees of Tenant, without notifying Tenant, or any successor
of Tenant, and without obtaining its or their consent thereto and any such
actions shall not relieve Tenant of liability under this Lease.

18.4. Conversion to a Limited Liability Entity. Notwithstanding anything
----------------------------------------
contained herein to the contrary, if Tenant is a limited or general partnership
(or is comprised of two (2) or more persons, individually or as co-partners, or
entities), the change or conversion of Tenant to (a) a limited liability
company, (b) a limited liability partnership, or (c) any other entity which
possesses the characteristics of limited liability (any such limited liability

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<PAGE>

entity is collectively referred to herein as a "Successor Entity") shall be
prohibited unless the prior written consent of Landlord is obtained, which
consent may be withheld in Landlord's sole discretion.

18.4.1. Notwithstanding Section 18.4., Landlord agrees not to
unreasonably withhold or delay such consent provided that:

18.4.1.1. The Successor Entity succeeds to all or
substantially all of Tenant's business and assets;

18.4.1.2. The Successor Entity shall have a tangible net
worth (Tangible Net Worth), determined in accordance with generally
accepted accounting principles, consistently applied, of not less than the
greater of the Tangible Net Worth of Tenant on (a) the date of execution of
the Lease, or (b) the day immediately preceding the proposed effective date
of such conversion; and

18.4.1.3. Tenant is not in default of any of the terms,
covenants, or conditions of this Lease on the propose effective date of
such conversion.

18.5. Payment of Fees. If Tenant assigns the Lease or sublets the Premises
---------------
or requests the consent of Landlord to any assignment, subletting or conversion
to a limited liability, entity, then Tenant shall, upon demand, pay Landlord,
whether or not consent ultimately given, an administrative fee of Three Hundred
and 00/100 Dollars ($300.00) plus costs and other reasonable expenses incurred
by Landlord in connection with each such act or request. Notwithstanding
anything in this Section 18.5 to the contrary Landlord shall not charge Tenant
an administrative fee on the first assignment or subletting of the Lease by
Tenant.

19. DEFAULT.

19.1. Tenant's Default. The occurrence of any one or more of the following
----------------
events shall constitute a default and breach of this Lease by Tenant:

19.1.1. If Tenant abandons or vacates the Premises and or fails to
pay Rent, therefore,

19.1.2. If Tenant fails to pay any Rent or Additional Rent or any
other charges required to be paid by Tenant under this Lease and such
failure continues for three (3) business days after receipt of Notice
thereof from Landlord to Tenant.

19.1.3. If Tenant fails to promptly and fully perform any other
covenant, condition or agreement contained in this Lease and such failure
continues for thirty (30 ) days after Notice thereof from Landlord to
Tenant, or, if such default cannot reasonably be cured within thirty (30)
days, if Tenant fails to commence to cure within that thirty (30) day
period and diligently prosecute to completion.

19.1.5. Tenant's failure to provide any document, instrument or
assurance as required by Sections 12., 15., 18. and/or 35. if the failure
continues for ten (10) business days after receipt of Notice from Landlord
to Tenant.

19.1.6. To the extent provided by law:

19.1.6.1. If a writ of attachment or execution is levied on
this Lease or on substantially all of Tenant's Property; or

19.1.6.2. If Tenant or Tenant's Guarantor makes a general
assignment for the benefit of creditors; or

19.1.6.3. If Tenant files a voluntary petition for relief
or if a petition against Tenant in a proceeding under the federal
bankruptcy laws or other insolvency laws is filed and not withdrawn or
dismissed within sixty (60) days thereafter, or if under the provisions of
any law providing for reorganization Or winding up of corporations, any
court of competent jurisdiction assumes jurisdiction, custody or control of
Tenant or any substantial part of its property and such jurisdiction,
custody or control remains in force unrelinquished, unstayed or
unterminated for a period of sixty (60) days; or

19.1.6.4. If in any proceeding or action in which Tenant is
a party, a trustee, receiver, agent or custodian is appointed to take
charge of the Premises or Tenant's Property (or has the authority to do
so); or

19.2. Landlord Remedies. In the event of Tenant's default hereunder, then,
-----------------
in addition to any other rights or remedies Landlord may have under any law or
at equity, Landlord shall have the right to collect interest on all past due
sums (at the maximum rate permitted b\ la", to be charged by an individual),
and, at Landlord's option and without further notice or demand of any kind, to
do the following:

19.2. 1. Terminate this Lease and Tenant's right to possession of the
Premises and reenter the Premises and take possession thereof, and Tenant
shall have no further claim to the Premises or under this Lease; or

19.2.2. Continue this Lease in effect, reenter and occupy the
Premises for the account of Tenant, and collect any unpaid Rent or other
charges which have or thereafter become due and payable; or

19.2.3. Reenter the Premises under the provisions of Section
19.2.2., and thereafter elect to terminate this Lease and Tenant's right to
possession of the Premises.

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If Landlord reenters the Premises under the provisions of Sections 19.2.2. or
19.2.3. above, Landlord shall not be deemed to have terminated this Lease or the
obligation of Tenant to pay any Rent or other charges thereafter accruing unless
Landlord notifies Tenant in writing of Landlord's election to terminate this
Lease. Acts of maintenance, efforts to relet the Premises or the appointment of
a receiver on Landlord's initiative to protect Landlord's interest under this
Lease shall not constitute a termination of Tenant's obligations under the
Lease. In the event of any reentry or retaking of possession by Landlord,
Landlord shall have the right, but not the obligation, to remove all or any part
of Tenant's Property in the Premises and to place such property in storage at a
public warehouse at the expense and risk of Tenant. If Landlord elects to relet
the Premises for the account of Tenant, the rent received by Landlord from such
reletting shall be applied as follows: first, to the payment of any indebtedness
other than Rent due hereunder from Tenant to Landlord; second, to the payment of
any costs of such reletting; third, to the payment of the cost of any
alterations or repairs to the Premises; fourth to the payment of Rent due and
unpaid hereunder; and the balance, if any, shall be held by Landlord and applied
in payment of future Rent as it becomes due. If that portion of Rent received
from the reletting which is applied against the Rent due hereunder is less than
the amount of the Rent due, Tenant shall pay the deficiency to Landlord promptly
upon demand by Landlord. Such deficiency shall be calculated and paid monthly.
Tenant shall also pay to Landlord, as soon as determined, any costs and expenses
incurred by Landlord in connection with such reletting or in making alterations
and repairs to the Premises which are not covered by the rent received from the
reletting.

19.3. Damages Recoverable. Should Landlord elect to terminate this Lease
-------------------
under the provisions of Section 19.2., Landlord may recover as damages from
Tenant the following:

19.3.1. Past Rent. The worth at the time of the award of any unpaid
---------
Rent that had been earned at the time of termination including the value of
any Rent that was abated during the Term of the Lease (except Rent that was
abated as a result of damage or destruction or condemnation); plus

19.3.2. Rent Prior to Award. The worth at the time of the award of
-------------------
the amount by which the unpaid Rent that would have been earned between the
time of the termination and the time of the award exceeds the amount of
unpaid Rent that Tenant proves could reasonably have been avoided; plus

19.3.3. Rent After Award. The worth at the time of the award of the
----------------
amount by which the unpaid Rent for the balance of the Term after the time
of award exceeds the amount of the unpaid Rent that Tenant proves could be
reasonably avoided; plus

19.3.4. Proximately Caused Damages. Any other amount necessary to
--------------------------
compensate Landlord for all detriment proximately caused by Tenant's
failure to perform its obligations under this Lease or which in the
ordinary course of things would be likely to result therefrom, including,
but not limited to, any costs or expenses (including reasonable attorneys'
fees), incurred by Landlord in (a) retaking possession of the Premises, (b)
maintaining the Premises after Tenant's default, (c) preparing the Premises
for reletting to a new tenant, including any reasonable cost for repairs or
alterations, and (d) reletting the Premises, including brokers'
commissions.

"The worth at the time of the award" as used in Sections 19.3.1. and 19.3.2.
above, is to be computed by allowing interest at the maximum rate permitted by
law to be charged by an individual. ''The worth at the time of the award" as
used in Section 19.3.3. above, is to be computed by discounting the amount at
the discount rate of the Federal Reserve Bank situated nearest to the Premises
at the time of the award plus one percent (1%).

19.4. Landlords Right to Cure Tenant's Default. If Tenant defaults in the
----------------------------------------
performance of any of its obligations under this Lease and Tenant has not timely
cured the default after Notice, Landlord may (but shall not be obligated to),
without waiving such default, perform the same for the account and at the
expense of Tenant after expiration of applicable notice period. Tenant shall
pay Landlord all costs of such performance immediately upon written demand
therefor, and if paid at a later date these costs shall bear interest at the
maximum rate permitted by law to be charged by an individual.

19.5. Landlord's Default. If Landlord fails to perform any covenant,
------------------
condition or agreement contained in this Lease within thirty (30) days after
receipt of Notice from Tenant specifying such default, or, if such default
cannot reasonably be cured within thirty (30) days if Landlord falls to commence
to cure within that thirty (30) day period, then Landlord shall be liable to
Tenant for any damages sustained by Tenant as a result of Landlord's breach;
provided, however, it is expressly understood and agreed that if Tenant obtains
a money judgment against Landlord resulting from any default or other claim
arising under this Lease, that judgment shall be satisfied only out of the
rents, issues, profits, and other income actually received on account of
Landlord's right, title and interest in the Premises, Building or Project, and
no other real, personal or mixed property of Landlord (or of any of the partners
which comprise Landlord, if any), wherever situated, shall be subject to levy to
satisfy such judgment.

19.6. Mortgagee Protection. Tenant agrees to send by certified or
--------------------
registered mail to any first mortgagee or first deed of trust beneficiary of
Landlord whose address has been furnished to Tenant, a copy of any notice of
default served by Tenant on Landlord. If Landlord fails to cure such default
within the time provided for in this Lease, then such mortgagee or beneficiary
shall have such additional time (not to exceed sixty (60) additional days) to
cure the default as is reasonably necessary under the circumstances.

19.7. Tenant's Right to Cure Landlord's Default. If, after Notice to
-----------------------------------------
Landlord of default, Landlord (or any first mortgagee or first deed of trust
beneficiary of Landlord) fails to cure the default as provided herein, then
Tenant shall have the right to cure that default at Landlord's expense. Tenant
shall not have the right to terminate this Lease or to withhold, reduce or
offset any amount against any payments of Rent or any other charges due and
payable under this Lease except as otherwise specifically provided herein.
Tenant expressly waives the benefits of any statute now or hereafter in effect
which would otherwise afford Tenant the right to make repairs at Landlord's

15
<PAGE>

expense or to terminate this Lease because of Landlord's failure to keep the
Premises in good order, condition and repair.

20. WAIVER.

No delay or omission in the exercise of any right or remedy of Landlord upon any
default by Tenant shall impair such right or remedy or be construed as a waiver
of such default. The receipt and acceptance by Landlord of delinquent Rent shall
not constitute a waiver of any other default; it shall constitute only a waiver
of timely payment for the particular Rent payment involved (excluding the
collection of a late charge or interest).

No act or conduct of Landlord, including, without limitation, the acceptance of
keys to the Premises, shall constitute an acceptance of the surrender of the
Premises by Tenant before the expiration of the Term. Only written
acknowledgement from Landlord to Tenant shall constitute acceptance of the
surrender of the Premises and accomplish a termination of this Lease.

Landlord's consent to or approval of any act by Tenant requiring Landlord's
consent or approval shall not be deemed to waive or render unnecessary
Landlord's consent to or approval of any subsequent act by Tenant.

Any waiver by Landlord of any default must be in writing and shall not be a
waiver of any other default concerning the same or any other provision of this
Lease.

21. SUBORDINATION AND ATTORNMENT.

This Lease is and shall be subject and subordinate to all ground or underlying
leases (including renewals, extensions, modifications, consolidations and
replacements thereof) which now exist or may hereafter be executed affecting the
Building or the land upon which the Building is situated, or both, and to the
lien of any mortgages or deeds of trust in any amount or amounts whatsoever
(including renewals, extensions, modifications, consolidations and replacements
thereof) now or hereafter placed on or against the Building or on or against
Landlord's interest or estate therein, or on or against any ground or underlying
lease, without the necessity of the execution and delivery of any further
instruments on the part of Tenant to effectuate such subordination.
Nevertheless, Tenant covenants and agrees to execute and deliver upon demand,
without charge therefor, such further instruments evidencing such subordination
of this Lease to such ground or underlying leases, and to the lien of any such
mortgages or deeds of trust as may be required by Landlord.

Notwithstanding anything contained herein to the contrary, if any mortgagee,
trustee or ground lessor shall elect that this Lease is senior to the lien of
its mortgage, deed of trust or ground lease, and shall give written notice
thereof to Tenant, this Lease shall be deemed prior to such mortgage, deed of
trust or ground lease, whether this Lease is dated prior or subsequent to the
date of said mortgage, deed of trust, or ground lease, or the date of the
recording thereof.

In the event of any foreclosure sale, transfer in lieu of foreclosure or
termination of the lease in which Landlord is lessee, Tenant shall attorn to the
purchaser, transferee or lessor as the case may be, and recognize that party as
Landlord under this Lease, provided such party acquires and accepts the Premises
subject to this Lease. Landlord hereby agrees to use reasonable efforts, at no
cost to Landlord, to help Tenant obtain a Subordination and Non-Disturbance
Agreement from any further lender on the Project.

22. TENANT ESTOPPEL CERTIFICATES.

22.1. Landlord Request for Estoppel Certificate. Within ten (10) days
-----------------------------------------
after written request from Landlord, Tenant shall execute and deliver to
Landlord or Landlord's designee, in the form requested by Landlord, a written
statement certifying, among other things, (a) that this Lease is unmodified and
in full force and effect, or that it is in full force and effect as modified and
stating the modifications; (b) the amount of Base Rent and the date to which
Base Rent and Additional Rent have been paid in advance; (c) the amount of any
security, deposited with Landlord; and (d) that Landlord is not in default
hereunder or, if Landlord is claimed to be in default, stating the nature of any
claimed default. Any such statement may be conclusively relied upon by a
prospective purchaser, assignee or encumbrancer of the Premises. Landlord hereby
agrees upon written request from Tenant to provide a written statement to any
lender of Tenant stating (a.) whether or not, Tenant is current in payment of
its Rent, and (b.) whether or not, to the best of Landlord's knowledge, Tenant
is in default under the Lease.

22.2. Failure to Execute. Tenant's failure to execute and deliver such
------------------
statement within the time required shall at Landlord's election be a default
under this Lease and shall also be conclusive upon Tenant that: (a) this Lease
is in full force and effect and has not been modified except as represented by
Landlord; (b) there are no uncured defaults in Landlord's performance and that
Tenant has no right of offset, counter-claim or deduction against Rent and (c)
not more than one month's Rent has been paid in advance.

23. NOTICE.

Notice shall be in writing and shall be deemed duly served or given if
personally delivered, sent by certified or registered U.S. Mail, postage prepaid
with a return receipt requested, or sent by overnight courier service, fee
prepaid with a return receipt requested, as follows: (a) if to Landlord, to
Landlord's Address for Notice with a copy to the Building manager, and (b) if to
Tenant, to Tenant's Mailing Address; provided, however, Notices to Tenant shall
be deemed duly served or given if delivered or sent to Tenant at the Premises.
Landlord and Tenant may from time to time by Notice to the other designate
another place for receipt of future Notice. Notwithstanding anything contained
herein to the contrary, when an applicable State statute requires service of
Notice in a particular manner, service of that Notice in accordance with those
particular requirements shall replace rather than supplement any Notice
requirement set forth in the Lease.

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<PAGE>

24. TRANSFER OF LANDLORD'S INTEREST.

In the event of any sale or transfer by Landlord of the Premises, Building or
Project, and assignment of this Lease by Landlord, Landlord shall be and is
hereby entirely freed and relieved of any and all liability and obligations
contained in or derived from this Lease arising out of any act, occurrence or
omission relating to the Premises, Building. Project or Lease occurring after
the consummation of such sale or transfer, provided the purchaser shall
expressly assume all of the covenants and obligations of Landlord under this
Lease. This Lease shall not be affected by any such sale and Tenant agrees to
attorn to the purchaser or assignee provided all Landlord's obligation hereunder
are assumed by such transferee. If any security deposit or prepaid Rent has been
paid by Tenant, Landlord shall transfer the security deposit or prepaid Rent to
Landlord's successor and upon such transfer, Landlord shall be relieved of any
and all further liability with respect thereto.

25. SURRENDER OF PREMISES.

25. 1. Clean and Same Condition. Upon the Expiration Date or earlier
------------------------
termination of this Lease, Tenant shall peaceably surrender the Premises to
Landlord clean and in the same condition as when received, except for (a)
reasonable wear and tear, (b) loss by fire or other casualty, and (c) loss by
condemnation. Tenant shall remove Tenant's Property no later than the Expiration
Date. If Tenant is required by Landlord to remove any additions, alterations, or
improvements under Section 12.3., Tenant shall complete such removal no later
than the Expiration Date. Any damage to the Premises, including any structural
damage, resulting from, removal of any addition, alteration, or improvement made
pursuant to Section 12.3. and/or from Tenant's use or from the removal of
Tenant's Property pursuant to Section 13, 13.2. shall be repaired (in accordance
with Landlord's reasonable direction) no later than the Expiration Date by
Tenant at Tenant's sole cost and expense. On the Expiration Date Tenant shall
surrender all keys to the Premises.

25.2. Failure to Deliver Possession. If Tenant fails to vacate and deliver
-----------------------------
possession of the Premises to Landlord on the expiration or sooner termination
of this Lease as required of the Premises to Landlord on the expiration or
sooner by Section 25.1., Tenant shall indemnify, defend and hold Landlord
harmless from all claims, liabilities and damages resulting from Tenant's
failure to vacate and deliver possession of the Premises, including, without
limitation, claims made by a succeeding tenant resulting from Tenant's failure
to vacate and deliver possession of the Premises and rental loss which Landlord
suffers.

25.3. Property Abandoned. If Tenant abandons or surrenders the Premises, or
------------------
is dispossessed by process of law or otherwise, any of Tenant's Property left on
the Premises shall be deemed to be abandoned, and, at Landlord's option, title
shall pass to Landlord under this Lease as by a bill of sale. If Landlord elects
to remove all or any part of such Tenant's Property, the cost of removal,
including repairing any damage to the Premises or Building caused by such
removal, shall be paid by Tenant.

26. HOLDING OVER.

Tenant shall not occupy the Premises after the Expiration Date without
Landlord's consent. If after expiration of the Term, Tenant remains in
possession of the Premises with Landlord's permission (express or implied),
Tenant shall become a tenant from month to month only upon all the provisions of
this Lease (except as to the term and Base Rent). Monthly Installments of Base
Rent payable by Tenant during this period shall be increased to one hundred
fifty percent (150%) of the fair market rental value of the Premises (as
reasonably determined by Landlord) of the Monthly Installments of Base Rent
payable by Tenant in the final month of the Term. Such monthly rent shall be
payable in advance on or before the first day of each month. The tenancy may be
terminated by either party delivering a thirty (30) day Notice to the other
party. Nothing contained in this Section 26. shall be construed to limit or
constitute a waiver of any other rights or remedies available to Landlord
pursuant to this Lease or at law.

27. RULES AND REGULATIONS.

Tenant agrees to comply with (and cause its agents, contractors, employees and
invitees to comply with) the rules and regulations attached hereto as Exhibit
"E" and with such reasonable modifications thereof and additions thereto as
Landlord may from time to time make. Landlord agrees to enforce the rules and
regulations uniformly against all tenants of the Project. Landlord shall not be
liable, however, for any violation of said rules and regulations by other
tenants or occupants of the Building or Project.

28. CERTAIN RIGHTS RESERVED BY LANDLORD.

Landlord reserves the following rights, exercisable without (a) liability to
Tenant for damage or injury to property, person or business; (b) being found to
have caused an actual or constructive eviction from the Premises; or (c) being
found to have disturbed Tenant's use or possession of the Premises.

28.1. To name the Building and Project and to change the name or street
address of the Building or Project.

28.2. To install and maintain all signs on the exterior and interior of the
Building and Project.

28.3. To have pass keys to the Premises and all doors within the Premises,
excluding Tenant's files, vaults and safes.

28.4. To stripe or re-stripe, re-surface, enlarge, change the grade or
drainage of and control access to the parking lot; to assign and reassign spaces
for the exclusive or nonexclusive use of tenants (including Tenant); and to
locate or relocate parking spaces assigned to Tenant provided that such space
remain a reasonable distance from Premises.

17
<PAGE>

28.5. At any time during the Term, and on prior telephonic notice to Tenant,
to inspect the Premises, and to show the Premises to any person having an
existing or prospective interest in the Project or Landlord, and during the last
six months of the Term, to show the Premises to prospective tenants thereof.

28.6. To enter the Premises for the purpose of making inspections, repairs,
alterations, additions or improvements to the Premises or the Building
(including, without limitation, checking, calibrating, adjusting or balancing
controls and other parts of the HVAC system), and to take all steps as may be
necessary or desirable for the safety, protection, maintenance or preservation
of the Premises or the Building or Landlord's interest therein, or as may be
necessary or desirable for the operation or improvement of the Building or in
order to comply with laws, orders or requirements of governmental or other
authority. Landlord agrees to use its best efforts (except in an emergency) to
minimize interference with Tenant's business in the Premises in the course of
any such entry.

28.7. To exclusively regulate and control use of the Common Area.

29. ADVERTISEMENTS AND SIGNS.

Tenant shall not affix, paint, erect or inscribe any sign, projection, awning,
signal or advertisement of any kind to any part of the Premises, Building or
Project, including without limitation the inside or outside of windows or doors,
without the prior written consent of Landlord. Landlord shall have the right to
remove any signs or other matter installed without Landlord's permission,
without being liable to Tenant by reason of such removal, and to charge the cost
of removal to Tenant as Additional Rent hereunder, payable within ten (10) days
of written demand by Landlord.

see addendum

30. RELOCATION OF PREMISES.

31. GOVERNMENT ENERGY OR UTILITY CONTROLS.

In the event of imposition of federal, state or local government controls,
rules, regulations, or restrictions on the use or consumption of energy or other
utilities (including telecommunications) during the Term, both Landlord and
Tenant shall be bound thereby. In the event of a difference in interpretation by
Landlord and Tenant of any such controls, the interpretation of Landlord shall
prevail and Landlord shall have the right to enforce compliance therewith,
including the right of entry into the Premises to effect compliance.

32. FORCE MAJEURE.

Any prevention, delay or stoppage of work to be performed by Landlord or Tenant
which is due to strikes, labor disputes, inability to obtain labor, materials,
equipment or reasonable substitutes therefor, acts of God, governmental
restrictions or regulations or controls, judicial orders, enemy or hostile
government actions, civil commotion, fire or other casualty, or other causes
beyond the reasonable control of the party obligated to perform hereunder, shall
excuse performance of the work by that party for a period equal to the duration
of that prevention, delay or stoppage. Nothing in this Section 32. shall excuse
or delay Tenant's obligation to pay Rent or other charges under this Lease.

33. BROKERAGE FEES.

Tenant warrants and represents that it has not dealt with any real estate broker
or agent in connection with this Lease or its negotiation except the Listing and
Leasing Agent(s) set forth in Section 2.9. of this Lease. Tenant shall
indemnify, defend and hold Landlord harmless from any cost, expense or liability
(including costs of suit and reasonable attorneys' fees) for any compensation,
commission or fees claimed by any other real estate broker or agent in
connection with this Lease or its negotiation by reason of any act of Tenant.

34. QUIET ENJOYMENT.

Tenant, upon payment of Rent and performance of all of its obligations under
this Lease, shall peaceably, quietly and exclusively enjoy possession of the
Premises without unwarranted interference by Landlord or anyone acting or
claiming through Landlord, subject to the terms of this Lease and to any
mortgage, lease, or other agreement to which this Lease may be subordinate.

35. TELECOMMUNICATIONS.

35.1. Telecommunications Companies. Tenant and Tenant's telecommunications
----------------------------
companies, including but not limited to local exchange telecommunications
companies and alternative access vendor services companies ("Telecommunications
Companies"), shall have no right of access to and within the lands or Buildings
comprising the Project for the installation and operation of telecommunications
lines and systems including but not limited to voice, video, data, and any other
telecommunications services provided over wire, fiber optic, microwave, wireless
and any other transmission systems, for part or all of Tenant's
telecommunications within the Building and from the Building to any other
location (hereinafter collectively referred to as "Telecommunications Lines"),
without Landlord's prior written consent, which will not be unreasonably
withheld or delayed. Notwithstanding the foregoing, Tenant may perform any
installation, repair and maintenance to its Telecommunications Lines without
Landlord's consent where the equipment being installed, repaired or maintained
is not located in an area in which the Telecommunications Lines or any part
thereof of any other tenant or of Landlord are located.

35.2. Tenant's Obligations. If at any time, Tenant's Telecommunications
--------------------
Companies or appropriate governmental authorities relocate the point of
demarcation from the location of Tenant's telecommunications equipment in
Tenant's telephone equipment room or other location, to some other point, or in
any other manner transfer any obligations or liabilities for telecommunications
to Landlord or Tenant, whether by operation of law or

18
<PAGE>

otherwise, upon Landlord's election, Tenant shall, at Tenant's sole expense and
cost: (1) within thirty (30) days after notice is first given to Tenant of
Landlord's election, cause to be completed by an appropriate telecommunications
engineering entity approved in advance in writing by Landlord, all details of
the Telecommunications Lines serving Tenant in the Building which details shall
include all appropriate plans, schematics, and specifications; and (2) if
Landlord so elects, immediately undertake the operation, repair and maintenance
of the Telecommunications Lines serving Tenant in the Building; and (3) upon the
termination of the Lease for any reason, or upon expiration of the Lease,
immediately effect the complete removal of all or any portion or portions of the
Telecommunications Lines serving Tenant in the Building and repair any damage
caused thereby (to Landlord's reasonable satisfaction).

Prior to the commencement of any alterations, additions, or modifications
to the Telecommunications Lines serving Tenant in the Building, except for minor
changes, Tenant shall first obtain Landlord's prior written consent by written
request accompanied by detailed plans, schematics, and specifications showing
all alterations, additions and modifications to be performed, with the time
schedule for completion of the work, and the identity of the entity which will
perform the work, for which, except as otherwise provided in Section 35.3.
below, Landlord may withhold consent in its sole and absolute discretion.

35.3. Landlord's Consent. Without in any way limiting Landlord's right to
------------------
withhold its consent to a proposed request for access, or for alterations,
additions or modifications of the Telecommunications Lines serving Tenant in the
Building, Landlord shall consider the following factors in making its
determination:

35.3.1. If the proposed actions of Tenant and its Telecommunications
Companies will impose new obligations on Landlord, or expose Landlord to
liability of any nature or description, or increase Landlord's insurance
costs for the Building, or create liabilities for which Landlord is unable
to obtain insurance protection, or imperil Landlord's insurance coverage;

35.3.2. If Tenant's Telecommunications Companies are unwilling to
pay reasonable monetary compensation for the use and occupation of the
Building for the Telecommunications Lines;

35.3.3. If Tenant and its Telecommunications Companies would cause
any work to be performed that would adversely affect the land and Building
or any space in the Building in any manner;

35.3.4. If Tenant encumbers or mortgages its interest in any
telecommunications wiring or cabling; or

35.3.5. If Tenant is in default under this Lease.

35.4. Indemnification. Tenant shall indemnify, defend and hold harmless
---------------
Landlord and its employees, agents, officers, and directors from and against any
claims, demands, penalties, fines, liabilities, settlements, damages, costs, or
expenses of any kind or nature, known or unknown, contingent or otherwise,
arising out of or in any way related to the acts and omissions of Tenant,
Tenant's officers, directors, employees, agents, contractors, subcontractors,
subtenants, and invitees with respect to (1) any Telecommunications Lines
serving Tenant in the Building which are on, from, or affecting the Building and
Project; (2) any bodily injury (including wrongful death) or property damage
(real or personal) arising out of or related to any Telecommunications Lines
serving Tenant in the Building which are on, from, or affecting the Building;
(3) any lawsuit brought or threatened, settlement reached, or governmental order
relating to such Telecommunications Lines; (4) any violations of laws, orders,
regulations, requirements, or demands, of governmental authorities, or any
reasonable policies or requirements of Landlord, which are based upon or in any
way related to such Telecommunications Lines, including, without limitation,
attorney and consultant fees, court costs, and litigation expenses. This
indemnification and hold harmless agreement will survive this Lease. Under no
circumstances shall Landlord be required to maintain, repair or replace any
Building systems or any portions thereof, when such maintenance, repair or
replacement is caused in whole or in part by the failure of any such system or
any portions thereof, and/or the requirements of any governmental authorities.
Under no circumstances shall Landlord be liable for interruption in
telecommunications services to Tenant or any other entity affected, for
electrical spikes or surges, or for any other cause whatsoever, whether by Act
of God or otherwise, even if the same is caused by the ordinary negligence of
Landlord, Landlord's contractors, subcontractors, or agents or other tenants,
subtenants, or their contractors, subcontractors, or agents.

35.5. Landlord's Operation of Building Telecommunications Lines and Systems.
---------------------------------------------------------------------
Notwithstanding anything contained herein to the contrary, if the point of
demarcation is relocated, Landlord may, but shall not be obligated to, undertake
the operation, repair and maintenance of telecommunications lines and systems in
the Building. If Landlord so elects, Landlord shall give Notice of its intent to
do so, and Landlord shall, based on Landlord's sole business discretion, make
such lines and systems available to tenants of the Building (including Tenant)
in the manner it deems most prudent. Landlord may include in Operating Expenses
all or a portion of the expenses related to the operation, repair and
maintenance of the telecommunications lines and systems.

36. MISCELLANEOUS.

36.1. Accord and Satisfaction, Allocation of Payments. No payment by Tenant
-----------------------------------------------
or receipt by Landlord of a lesser amount than the Rent provided for in this
Lease shall be deemed to be other than on account of the earliest due Rent, nor
shall any endorsement or statement on any check or letter accompanying any check
or payment as Rent be deemed an accord and satisfaction, and Landlord may accept
such check or payment without prejudice to Landlord's right to recover the
balance of the Rent or pursue any other remedy provided for in this Lease. In
connection with the foregoing, Landlord shall have the absolute right in its
sole discretion to apply any payment received from Tenant to any account or
other payment of Tenant then not current and due or delinquent.

36.2. Addenda. If any provision contained in an addendum to this Lease is
-------
inconsistent with any other provision herein, the provision contained in the
addendum shall control, unless otherwise provided in the addendum.

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36.3. Attorneys' Fees. If any action or proceeding is brought by either
---------------
party against the other pertaining to or arising out of this Lease, the finally
prevailing party (i.e. , the party that recovers the greater relief as a result
of the action or proceeding) shall be entitled to recover all costs and
expenses, including reasonable attorneys' fees, incurred on account of such
action or proceeding.

36.4. Captions and Section Numbers. The captions appearing in the body of
----------------------------
this Lease have been inserted as a matter of convenience and for reference only
and in no way define, limit or enlarge the scope or meaning of this Lease. All
references to Section numbers refer to Sections in this Lease.

36.5. Changes Requested by Lender. Neither Landlord or Tenant shall
---------------------------
unreasonably withhold its consent to changes or amendments to this Lease
requested by the lender on Landlord's interest, so long as such changes do not
alter the basic business terms of this Lease or otherwise materially diminish
any rights or materially increase any obligations of the party from whom consent
to such change or amendment is requested.

36.6. Choice of Law. This Lease shall be construed and enforced in
-------------
accordance with the Laws of the State.

36.7 Consent. Notwithstanding anything contained in this Lease to the
-------
contrary, Tenant shall have no claim, and hereby waives the right to any claim
against Landlord for money damages, by reason of any refusal, withholding or
delaying by Landlord of any consent, approval or statement of satisfaction, and,
in such event, Tenant's only remedies therefor shall be an action for specific
performance, injunction or declaratory judgment to enforce any right to such
consent, approval or statement of satisfaction.

36.8. Authority. If either party is not an individual signing on his or her
---------
own behalf, then each individual signing this Lease on behalf of the business
entity that constitutes such party represents and warrants that the individual
is duly authorized to execute and deliver this Lease on behalf of the business
entity, and that this Lease binding on such party in accordance with its terms.
Tenant shall, at Landlord's request, deliver a certified copy of a resolution of
its board of directors, if Tenant is a corporation, or other memorandum of
resolution if Tenant is a limited partnership, general partnership or limited
liability entity, authorizing such execution.

36.9. Waiver of Right to Jury Trial. Landlord and Tenant hereby waive their
-----------------------------
respective rights to a trial by jury of any claim, action, proceeding or
counterclaim by either party against the other on any matters arising out of or
in any way connected with this Lease, the relationship of Landlord and Tenant,
and/or Tenant's Use or occupancy of the Premises, Building or Project (including
any claim of injury or damage or the enforcement of any remedy under any current
or future laws, statutes, regulations, codes or ordinances).

36.10. Counterparts. This Lease may be executed in multiple counterparts,
------------
all of which shall constitute one and the same Lease.

36.11. Execution of Lease, No Option. The submission of this Lease to Tenant
-----------------------------
shall be for examination purposes only and does not and shall not constitute a
reservation of or option for Tenant to Lease, or otherwise create any interest
of Tenant in the Premises or any other premises within the Building or Project.
Execution of this Lease by Tenant and its return to Landlord shall not be
binding on Landlord, notwithstanding any time interval, until Landlord has in
fact signed and delivered this Lease to Tenant.

36.12. Furnishing of Financial Statements, Tenant's Representations. In
------------------------------------------------------------
order to induce Landlord to enter into this Lease, Tenant agrees that it shall
promptly furnish Landlord, from time to time, upon Landlord's written request,
financial statements reflecting Tenant's current financial condition which are
generally available to the public. Tenant represents and warrants that all
financial statements, records and information furnished by Tenant to Landlord in
connection with this Lease are true, correct and complete in all respects.

36.13. Further Assurances. The parties agree to promptly sign all documents
------------------
reasonably requested to give effect to the provisions of this Lease.

36.14. Prior Agreements, Amendments. This Lease and the schedules and
----------------------------
addenda attached, if any, form a part of this Lease together with the rules and
regulations set forth on Exhibit "E" attached hereto, and set forth all the
covenants, promises, assurances, agreements, representations, conditions,
warranties, statements, and understandings (Representations) between Landlord
and Tenant concerning the Premises and the Building and Project, and there are
no Representations, either oral or written, between them other than those in
this Lease.

This Lease supersedes and revokes all previous negotiations, arrangements,
letters of intent offers to lease, lease proposals, brochures, representations,
and information conveyed, whether oral or in writing, between the parties hereto
or their respective representatives or any other person purporting to represent
Landlord or Tenant. Tenant acknowledges that it has not been induced to enter
into this Lease by any Representations not set forth in this Lease, and that it
has not relied on any such Representations. Tenant further acknowledges that no
such Representations shall be used in the interpretation or construction of this
Lease, and that Landlord shall have no liability for any consequences arising as
a result of any such Representations.

Except as otherwise provided herein, no subsequent alteration, amendment,
change, or addition to this Lease shall be binding upon Landlord or Tenant
unless it is In writing and signed by each party.

36.15. Recording. Either party shall not record this Lease without the
---------
prior written consent of the other party. Either party, upon the request of the
other party, shall execute and acknowledge a short form memorandum of this Least
for recording purposes.

20
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36.16. Severability. A final determination by a court of competent
------------
jurisdiction that any provision of this Lease is invalid shall not affect the
validity of any other provision, and any provision so determined to be invalid
shall, to the extent possible, be construed to accomplish its intended effect.

36.1 7. Successors and Assigns. This Lease shall apply to and bind the
----------------------
heirs, personal representatives, and successors and assigns of the parties.

36.18. Time of the Essence. Time is of the essence of this Lease.
-------------------

21
<PAGE>

IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the date
first set forth on Page 1.

LANDLORD:

GLENBOROUGH PROPERTIES, L.P.,
a California limited partnership

By: Glenborough Realty Trust Incorporated
a Maryland corporation
Its General Partner

By:__________________________________
Its_____________________________

TENANT:

DTM CORPORATION,
a Texas corporation

By: ________________________________
Its ___________________________

By:__________________________________
Its_____________________________

22
<PAGE>

ADDENDUM TO LEASE BETWEEN
GLENBOROUGH PROPERTIES, L.P. ("LANDLORD") AND
DTM CORPORATION ("TENANT")

DATED March 26, 1998

37. TENANT'S EXPANSION

Section 37. adds to and amends Sections 2.2. and 2.10. of the Lease as follows:

Effective as of the date that Leviton Manufacturing Company, Inc. vacates its
premises in Building I of the Project (the "Effective Date"), as such space is
shown on Exhibit F attached hereto ("Leviton Manufacturing Company, Inc.
Premises"), Tenant shall expand into, lease and occupy an additional
approximately 20,000 square feet of rentable space as set forth as the Leviton
Manufacturing Company, Inc. Premises on Exhibit F, attached hereto and
incorporated by reference herein. The Leviton Manufacturing Company, Inc.
Premises shall then be added to the definition of the Premises for all purposes
under the Lease. The "Premises" shall then consist of a total of approximately
50,000 rentable square feet of space. Upon the Effective Date, Tenant shall pay
Base Rent for the entire Premises as follows (and Sections 2.2. and 2.10. of the
Lease, respectively, shall be modified and amended as follows):

Section 2.2.

$250,000.00 beginning on the Effective Date and ending 12/31/00
$275,000.00 beginning on 1/1/01 and ending 12/31/03
$312,500.00 beginning on 1/1/04 and ending 12/31/06

Section 2.10.

$20,833.33 beginning on the Effective Date and ending 12/31/00
$22,916.67 beginning on 1/1/01 and ending 12/31/03
$26,041.67 beginning on 1/1/04 and ending 12/31/06

Not withstanding anything herein to the contrary, beginning on the Effective
Date, Tenant's Base Rent for the Leviton Manufacturing Company, Inc. Premises
shall be abated for a period of one (1) month. However, nothing herein shall be
construed as abating any Additional Rent of other charges payable by Tenant
under the Lease.

Further notwithstanding anything herein to the contrary, if Landlord has not
delivered the Leviton Manufacturing Company, Inc. Premises to Tenant by December
31, 1998, subject to Force Majeure and damage and destruction, then Tenant may
terminate this Lease upon thirty (30) days notice given within not later than
January 5, 1999.

38. BUILDING II TENANT IMPROVEMENTS

Section 38. adds to and amends the Lease as follows:

Tenant shall construct tenant improvements in Building II of the Premises in
accordance with the Building II Work Letter, as approved by Landlord and Tenant,
to be attached to the Lease as Exhibit D. Construction of tenant improvements
shall be subject to the following terms and conditions:

a. Tenant, at Tenant's sole cost and expense, shall obtain all space
plans, if any, for Building II of the Premises as well as all
necessary permits for construction of tenant improvements from
municipal authorities and provide Landlord with satisfactory evidence
of such permits.

b. Prior to commencement of construction, Tenant shall submit to Landlord
a copy of all contracts entered into relating to the performance of
the tenant improvement work in Building II. Tenant shall also provide
Landlord with evidence that Tenant's general contractor is licensed
and qualified to do business in the State of Texas.

c. Tenant's general contractor shall provide Landlord with a Certificate
of Insurance: i) naming Landlord, and any parties designated by
Landlord, as additional insureds, as their respective interests may
appear; ii) evidencing general liability, owners and contractors
protective ("OCP") liability, and property damage insurance with
respect to construction of improvements in Building II of the Premises
of not less than One Million Dollars ($1,000,000.00) combined single
limit for bodily injury, death and property damage liability; and iii)
evidencing Workers' Compensation insurance in compliance with Texas
law.

d. Landlord reserves the right to enter Building II of the Premises to
post such notices as Landlord deems necessary.

e. During construction, Landlord shall have the right of reasonable
inspection. The Building II Work Letter may not be changed or altered
without Landlord's prior written consent if such change would result
in changes to the structural aspects of the construction.

23
<PAGE>

reasonably imposed by Landlord. Tenant shall be responsible for all
clean-up of the work area and surrounding exterior areas, if
necessary. All refuse shall be removed from the Project and shall be
disposed of in an approved sanitation site. Project trash containers
may not be used for construction-related activities or disposal.

g. Tenant shall diligently commence and pursue construction of the tenant
improvements to completion. Upon completion, Tenant shall obtain, and
provide Landlord with the Certificate of Occupancy, other final
approvals from appropriate municipal authorities, if applicable, and
lien releases.

h. Landlord shall contribute a maximum of $120,000.00 (the "Building II
Allowance") toward the cost of construction of the tenant improvements
in Building II of the Premises. Landlord shall distribute the
Allowance to Tenant within twenty (20) days after Landlord's receipt
of invoices and lien releases for such work.

39. BUILDING I TENANT IMPROVEMENTS

Section 39. adds to and amends the Lease as follows:

Tenant shall construct tenant improvements in Building I of the Premises (also
referred to herein as Leviton Manufacturing Company, Inc. Premises) in
accordance with the Building I Work Letter, as approved by Landlord and Tenant,
to be attached to the Lease as Exhibit D-1. Construction of tenant improvements
shall be subject to the following terms and conditions:

a. Tenant, at Tenant's sole cost and expense, shall obtain all space
plans, if any, for Building I of the Premises as well as all necessary
permits for construction of tenant improvements from municipal
authorities and provide Landlord with satisfactory evidence of such
permits.

b. Prior to commencement of construction, Tenant shall submit to Landlord
a copy of all contracts entered into relating to the performance of
the tenant improvement work. Tenant shall also provide Landlord with
evidence that Tenant's general contractor is licensed and qualified to
do business in the State of Texas.

c. Tenant's general contractor shall provide Landlord with a certificate
of Insurance: i) naming Landlord, and any parties designated by
Landlord, as additional insureds, as their respective interests may
appear; ii) evidencing general liability, owners and contractors
protective ("OCP") liability, and property damage insurance with
respect to construction of improvements in Building I of the Premises
of not less than One Million Dollars ($1,000,000.00) combined single
limit for bodily injury, death and property damage liability; and iii)
evidencing Workers' Compensation insurance in compliance with Texas
law.

d. Landlord reserves the right to enter Building I of the Premises to
post such notices as Landlord deems necessary.

e. During construction, Landlord shall have the right of reasonable
inspection. The Building I Work Letter may not be changed or altered
without Landlord's prior written consent if such change would result
in changes to the structural aspects of the construction.

f. Tenant shall take all reasonable steps necessary to ensure that the
work shall be performed in a manner that will not interfere with the
quiet enjoyment of the other tenants in the Project. Tenant shall
ensure that the work area is kept clean and that construction material
does not block any corridor, hallway or other passageway commonly used
by other tenants. Tenant shall bring construction material to the
Project and Premises in the manner, and during the time periods,
reasonably imposed by Landlord. Tenant shall be responsible for all
clean-up of the work area and surrounding exterior areas, if
necessary. All refuse shall be removed from the Project and shall be
disposed of in an approved sanitation site. Project trash containers
may not be used for construction-related activities or disposal.

h. Landlord shall contribute a maximum of $80,000.00 (the "Building I
Allowance") toward the cost of construction of the tenant improvements
in Building I of the Premises. Landlord shall distribute the Allowance
to Tenant within twenty (20) days after Landlord's receipt of invoices
and lien releases for such work.

40. OPTIONS TO EXTEND TERM

Section 40. adds to and amends the Lease as follows:

a. Tenant shall have the option to extend the Term of this Lease beyond
December 31, 2006 for a five (5) year period (the "First Extended Term") by
giving Notice of its exercise on or before May 1, 2006. If Tenant fails to
timely exercise its option, or if at the time of exercise Tenant has previously
received a Notice of default from Landlord but has not timely cured the default,
then this Option to Extend Term shall, at Landlord's option, terminate.

24
<PAGE>

b. Base Rent for the First Extended Term shall be the then prevailing
market rate for comparable space in the local area, but in no event shall Base
Rent be less than the Base Rent existing on December 31, 2006.

c. The parties shall have sixty (60) days after Landlord receives
Tenant's option notice in which to agree on Base Rent for the First Extended
Term. If the parties agree on Base Rent for the First Extended Term during that
period, they shall immediately execute an amendment to this Lease stating the
Base Rent.

d. If Tenant exercises its first Option to Extend Term and is in
compliance with all the provisions of the Lease, Tenant shall have the option to
extend the Term of this Lease beyond December 31, 2011 for an additional five
(5) year period ("Second Extended Term") by giving notice of its exercise on or
before May 1, 2011.

e. Base Rent for the Second Extended Term shall be the then prevailing
market rate for comparable space in the local area, but in no event shall Base
Rent be less than the Base Rent existing on December 31, 2011.

f. The parties shall have sixty (60) days after Landlord receives
Tenant's option notice in which to agree on Base Rent for the Second Extended
Term. If the parties agree on Base Rent for the Second Extended Term during that
period, they shall immediately execute an amendment to this Lease stating the
Base Rent.

g. If the parties are unable to agree on Base Rent for either Extended
Term during the time periods identified in Subsections (c) or (f), then within
ten (10) days after the expiration of either such period, each party, at its
cost and by giving written notice to the other party, shall appoint a real
estate broker with at least 5 years full-time commercial brokerage experience in
the area in which the Premises is located to estimate and set Base Rent for
either Extended Term. If a party does not appoint a broker within ten (10) days
after the other party has given notice of the name of its broker, the single
broker appointed shall be the sole broker and shall set Base Rent for such
Extended Term . If the two brokers are appointed by the parties as stated in
this Section, they shall meet promptly and attempt to set Base Rent for such
Extended Term. If they are unable to agree within thirty (30) days after the
second broker has been appointed, they shall attempt to elect a third broker
meeting the qualifications stated in this Section within ten (10) days after the
last day the two brokers are given to set Base Rent. If they are unable to agree
on the third broker, either of the parties to this Lease by giving ten (10) days
written notice to the other party can apply to the then president of the county
real estate board of the county in which the Premises are located, or to the
presiding judge of the superior court of that county, for the selection of a
third broker who meets the qualifications stated in this Section. Each of the
parties shall bear one half of the cost of appointing the third broker and of
paying the third broker's fee. The third broker, however selected, shall be a
person who has not previously acted in any capacity for either party.

Within thirty (30) days after the selection of the third broker, a majority
of the brokers shall set Base Rent for such Extended Term .

In setting Base Rent, the broker or brokers shall consider the highest and
best use for the Premises without regard to the restriction on use of the
Premises contained in this Lease.

If, however, the low estimate and/or the high estimate are/is more than
five percent (5%) lower and/or higher than the middle estimate, the low estimate
and/or the high estimate shall be disregarded. If only one estimate is
disregarded, the average of the remaining two estimates shall be the Base Rent
for the Premises during such Extended Term. If both the low estimate and the
high estimate are disregarded as stated in this Section, the middle estimate
shall be the Base Rent for the Premises during such Extended Term. After Base
Rent for such Extended Term has been set, the broker shall immediately notify
the parties.

Within ten (10) days after Base Rent has been set in accordance with the
terms of this Subsection, Tenant may withdrawal its exercise of the Option upon
written notice to Landlord and payment of Landlord's costs incurred in
determining Base Rent. In such event, the option shall be of no force or effect.

If Tenant does not exercise its right to withdraw the Option, then Landlord
and Tenant shall immediately execute an Amendment to the Lease setting forth
Base Rent for such Extended Term.

h. These Options to Extend Term are granted by Landlord to DTM
Corporation, and to any subsidiary, parent company, or entity with which Tenant
has merged, and are personal as to DTM Corporation and such other affiliated
entities, and shall not be exercised by or assigned to any person or entity
other than DTM Corporation and such other affiliated entities, unless such
exercise or assignment is approved in writing by Landlord. Any assignment of
these Options to Extend Term in violation of the terms hereof shall be void and,
at Landlord's option, shall constitute an event of default hereunder.

41. ONE-TIME RIGHT OF FIRST OFFER

Section 41. adds to and amends the Lease as follows:

a. Provided that Tenant is not in default under the Lease, during the Term
of the Lease, or either Extended Term, as the case may be, Landlord hereby
grants to Tenant the one-time right to receive Landlord's first offer to lease
any available space in Buildings I and/or III of the Project. The term
"available space" means any such space in which the existing tenant (Applied
Materials) shall have fully and finally vacated and surrendered at the
expiration of its lease or any extension(s) thereof. As to any such available
space, Landlord shall promptly deliver to Tenant Notice of availability and an
offer to Tenant to lease the space as part of the Premises coterminously with
the Term of this Lease at the then current market rental rate (subject to
adjustment in accordance with the terms of the Lease). Other significant terms
and conditions shall be included in the notice. Within ten (10) business days
after receipt of Landlord's Notice, Tenant shall provide Landlord Notice of its
acceptance or rejection of the offer.

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<PAGE>

b. If Tenant indicates by Notice to Landlord of its agreement to lease
the available space, the parties shall immediately execute an amendment to this
Lease stating the addition of the space to the Premises. If Tenant does not
accept the offer within ten (10) business days, Landlord thereafter shall have
the right to lease such space to a third party, and this Right of First Offer
shall be of no force and effect.

c. This Right of First Offer is granted by Landlord to DTM Corporation
and to any subsidiary, parent company, or entity with which Tenant has merged,
and is personal as to it and any such affiliated entities, and shall not be
exercised or assigned, voluntarily or involuntarily by or to any one other than
DTM Corporation and any such affiliated entities. Any assignment of such Right
of First Offer without Landlord's prior written consent shall be void and, at
Landlord's election, shall be a default on the Lease.

42. TENANT'S RIGHT TO CONTEST REAL PROPERTY TAXES

Section 42. adds to and amends Section 6.3.2. of the Lease as follows:

Notwithstanding anything in Section 6.3.2. of the Lease to the contrary, in the
event that Landlord elects not to contest Real Property Taxes for the tax parcel
upon which the Premises are located for a particular tax year, then Tenant, at
its sole cost and expense, shall have the right to contest such real Property
Taxes on its own behalf. In the event that Tenant receives a reduction in the
payment of such Real Property Taxes, Tenant shall be entitled to its
Proportionate Share of such reduction, in addition to reimbursement of the
reasonable expenses incurred by Tenant in contesting such Real Property Taxes.
The remaining amount of the reduction in Real Property Taxes shall belong to
Landlord.

43. HAZARDOUS MATERIALS

Section 43. adds to and amends Section 9.6. of the Lease as follows:

Notwithstanding anything in the Lease to the contrary, Landlord represents to
the best of its knowledge and without the requirement of further investigation
that, as of the Commencement Date, "Hazardous Material," as currently defined by
applicable federal or Texas laws, rules or regulations, is present in the
Premises. Landlord shall indemnify and hold Tenant harmless from any claim,
liability, cost or expense incurred or suffered by Tenant as a result of any
Hazardous Materials present in the Premises which are introduced onto the
Premises after the

Commencement Date by Landlord, its agents, employees or contractors.

44. USE OF HAZARDOUS MATERIALS BY TENANT

Section 44. adds to and amends Section 9.6.1. of the Lease as follows:

Notwithstanding anything in Section 9.6.1. of the Lease to the contrary,
Landlord acknowledges that Tenant's Use of the Premises may from time to time
include the usage of ordinary office products in connection with the operations
of Tenant. Landlord hereby consents to the presence of de minimis amounts of
Hazardous Materials which may be contained within products, provided that such
presence is in compliance with all laws, and further provided that Tenant hereby
agrees to defend, indemnify and hold harmless Landlord from and against any and
all claims, damages, costs, liabilities, etc. arising from the presence or usage
of any such Hazardous Materials.

45. LANDLORD INDEMNIFICATION

Section 45. adds to and amends Section 14.1. of the Lease as follows:

Landlord shall indemnify and hold Tenant harmless from and against any and all
liability and claims of any kind for loss or damage to any person or property
arising out of any negligent or willful tortuous act or omission of Landlord,
its agents, employees or contractors.

46. ASSIGNMENT AND SUBLETTING

Section 46. adds to and amends Section 18. of the Lease as follows:

Notwithstanding the provisions of Section 18. of the Lease, so long as Tenant's
Use does not change, Tenant shall have the night to assign the Lease without
Landlord's consent to: i) Tenant's wholly-owned subsidiary; ii) Tenant's parent
corporation; or iii) the surviving entity if Tenant merges, reorganizes, or
consolidates, provided that the surviving entity has a net worth at least equal
to that of Tenant prior to such merger, reorganization, or consolidation. In the
event of such an assignment, Tenant shall provide Landlord prior written notice
of the assignment, which notice shall include the identity of the assignee, the
anticipated date of the assignment and the forwarding address of the assignor,
if applicable. Nothing contained herein shall relieve Tenant (or the assignor,
as the case may be) of its obligations under the Lease.

47. TENANT'S ALTERATIONS AND ADDITIONS

Section 47. adds to and amends Section 12.3. of the Lease as follows:

Notwithstanding anything contained in the Lease to the contrary, Tenant may make
alterations, additions or improvements to the Premises from time to time,
without Landlord's prior written consent, provided that (i) such work does not
affect the structural, mechanical, electrical, plumbing, or HVAC systems, (ii)
the cost of such work does not exceed $10,000.00 for any individual alteration,
addition or improvement and that the cost of such alterations, additions or
improvements do not exceed $25,000.00 in any particular calendar year. For any
alterations,

26
<PAGE>

additions or improvements requiring Landlord's consent, Landlord agrees that
such consent shall not be unreasonably withheld.

48. TENANT'S SIGNAGE

Section 48. adds to and amends Section 29. of the Lease as follows:

Tenant shall have the right, at its sole cost and expense, to utilize one-half
(1/2) of the existing monument sign for the Project. The color, location, size
and overall design of Tenant's monument signage shall be subject to the prior
review and approval of Landlord, which Landlord agrees shall not be unreasonably
withheld, and of any governmental and/or quasi-governmental entity(ies) having
jurisdiction thereover.

49. PREMISES HVAC

Section 49. adds to and amends Section 11.2. of the Lease as follows:

Notwithstanding anything in Section 11.2. of the Lease to the contrary, Tenant
shall not be required to pay in excess of $750.00/per unit in any calendar year
for the repair of the HVAC unit(s) serving the Premises. Further, in the event
that the cost to repair such HVAC unit(s) serving the Premises exceeds $1,500.00
for any twenty four (24) month period during the Lease Term, then Landlord, at
its sole cost and expense, shall replace the unit(s) which have been the subject
of such repairs. Landlord shall use its best efforts to timely replace the
unit(s).

50. INTENDED USE OF THE PREMISES

Section 50. adds to and amends Section 5. of the Lease as follows:

Landlord hereby represents, to the best of its knowledge and without the
requirement of further investigation by Landlord, that Tenant's Intended Use of
the Premises as set forth in Section 2.19. of the Lease is not in violation of
any zoning laws in existence as of the date of execution hereof.

Landlord and Tenant each hereby agree that, if either party hereto shall receive
notice of a proposed change in the zoning of the Premises, then such party shall
duly notify the other party of such proposed change in zoning.

IN WITNESS WHEREOF, Landlord and Tenant have executed this Addendum to Lease as
of the date first above written.

LANDLORD:

GLENBOROUGH PROPERTIES, L.P.,
a California limited partnership

By: Glenborough Realty Trust Incorporated
a Maryland corporation
Its General Partner

By: ____________________________________________
Its ________________________________________

TENANT:

DTM CORPORATION,
a Texas corporation

By: ________________________________________________
Its ________________________________________

27
<PAGE>

STANDARD SPECIFICATIONS FOR OFFICE/WAREHOUSE BUILDINGS

EXHIBIT C

I. Office Area

A. The layout is as per attached exhibit.

B. Signs may be mounted at the tenant's office entry only upon landlord's
written approval and depending upon the program developed by the individual
building and/or park.

C. Interior Partitions - all interior partitions to be constructed with 3 5/8"
metal studs and 1/2" sheetrock, on both sides. Partitions separating
office from warehouse to be insulated. All block walls exposed to office
area to be furred and sheetrock added. All sheetrock in office area to
receive two coats flat latex paint. Office area to be painted one color.
Color selection by tenant. (Landlord reserves the right to final approval)
brick wall to be exposed. The standard ceiling height shall be 9' -".

D. Rubber Base - Roppe4" rubber base to be used in all office areas.

E. Doors - All interior doors shall be 3' x 7' solid core birch with hollow
metal frames. Doors to receive stain. Color selection by tenant.

F. Hardware - All hardware to be Schlage "A" series ball design or equivalent
brushed chrome. All door to have three 4.5" hinges to match. All office
doors to not have keyed locks unless specifically noted. All doors from
air conditioned area to non-air conditioned area to have closers and ball
bearing hinges.

G. Ceiling - Ceiling to be 2 x 4 suspended lay in acoustical 9' above finished
floor. Four-inch batt insulation will be installed above all suspended
ceilings.

H. Lighting - Lighting in office area to be provided by 2' x 4' recessed
fixtures with acrylic lens. Finished rooms other than restrooms and storage
rooms up to size 8' x 8' will be lighted with one 2 x 4 fixture. Rooms up
to 12' x 12' to be lighted with two 2' x 4' fixtures. Rooms up to 12' x 14'
to be lighted with three 2' x 4' fixtures. Larger rooms to receive enough
2' x 4' fixtures to provide seventy-five foot candles of light at desk
height.

I. Floor Covering - Carpeting to be Cypress Point 30-ounce cut pile or equal.
Vinyl composite tile to be Armstrong Standard Excelon (Baths).

J. Air Conditioning and Heating - Office areas shall be equipped with a
complete roof mounted air conditioning and heating system based upon the
following performance specifications.

To be provided by gas fired heating (when available) and electric air
conditioning system sufficient to maintain 68 degrees Fahrenheit inside
when 15 degrees Fahrenheit outside. Air conditioning returns are to be
ducted with an individual return air duct in each private office. Tenant is
responsible for applying directly to local gas company to initiate service.

When Outside Conditions Are: Offices Shall Be:
---------------------------- -----------------
Summer 94 Degrees 78 Degrees
Winter 15 Degrees 68 Degrees

K. Electric- Standard electrical service provided to the building is 120/208
volts, three phase, four wire (or as limited by local utility's supplies).
No additional service will be provided for tenant's equipment or machines
unless specifically noted. Each tenant shall have an individual meter. The
entire electrical system shall be designed and installed in accordance with
the national electric code and all applicable codes. Tenant must apply
directly to the power company to initiate electrical service. All switch
plates and receptacle covers to be brushed chrome to match hardware.

Rooms up to size 14' x 14' (other than warehouse, storage, and restrooms)
to have one electrical outlet on each wall and one telephone outlet for the
room. Restrooms to have one electrical outlet. Rooms which have a wall
longer than 14'. The spacing for such outlets to be approximately 12'.
Telephone outlets are not provided in rooms designed as shop or shop
working areas. Warehouse and storage rooms receive no electrical outlets.

L. Plumbing - All plumbing shall be installed in accordance with applicable
buildings codes. For water coolers where shown on drawings, plumbing and
electrical connections only are provided. Two restrooms will be provided
for facilities having office areas, each with one wall mounted sink and one
toilet fixture (unless specifically noted).

M. Telephone - Each tenant is responsible for acquiring telephone service
and wiring of telephones from the appropriate telephone company. One
4 x 4-plywood board will be mounted on wall (location selected by tenant)
to accommodate telephone system.

28
<PAGE>

II Restrooms

A. Walls - standard interior partitions are to be insulated in all restroom
walls. Walls to receive two coats of semi gloss wall paint.

B. Doors - Same as in office areas and equipped with convenience locks.

C. Ceiling - Same as in office areas with ventilation to meet local codes.

D. Floor Covering - Floor to be 1/8" Armstrong Standard Excelon vinyl
composite floor tile complete with rubber base.

E. Lighting - Restroom lighting to be provided by one two foot fluorescent
fixture mounted above mirror.

F. Electric - One electric outlet to be placed in each restroom.

G. Plumbing Fixtures - Provide standard white restroom fixtures (wall mounted
white sink and standard while toilet).

H. Restroom Accessories - Mirror above each lavatory, toilet paper dispenser
within restrooms.

I. General - Specifications other than those specifically mentioned above will
be in accordance with that of the office area.

29
<PAGE>

EXHIBIT D

Upon presentation and approval of drawings Landlord at Landlord's expense will
provide a Tenant Improvement Allowance as detailed in Article 38.h. in the
amount of One Hundred Twenty Thousand ($120,000.00) Dollars for Building II and
as detailed in Article 39 h. in the amount of Eighty Thousand ($80,000,00)
Dollars for the expansion space in Building I.

Other than the work disclosed herein, the Tenant accepts the premises "As-Is".

LANDLORD:

GLENBOROUGH PROPERTIES, L.P.,
a California limited partnership

By: Glenborough Realty Trust Incorporated
a Maryland corporation
Its General Partner

By: __________________________________
Its _____________________________

TENANT:

DTM CORPORATION,
a Texas corporation

By: __________________________
Its ______________________

30
<PAGE>

EXHIBIT E

Rules & Regulations

1. The sidewalks, entrances, passages, courts, elevators, vestibules,
stairways, corridors or halls shall not be obstructed or used for any purpose
other than ingress and egress. The halls, passages, entrances, elevators,
stairways, balconies and roof are not for the use of the general public, and
Landlord shall in all cases retain the right to control or prevent access
thereto by all persons whose presence in the judgment of Landlord shall be
prejudicial to the safety, character, reputation or interests of the Project and
its Tenants, provided that nothing herein contained shall be construed to
prevent such access by persons with whom the Tenant normally deals in the
ordinary course of its business unless such persons are engaged in illegal
activities. If the responsibility for the HVAC system is not the Tenant's
responsibility, no Tenant and no employees of any Tenant shall go upon the roof
of the Project without the prior written consent of Landlord.

2. No awnings or other projections shall be attached to the outside walls of
the Project without the prior written consent of Landlord. Except as otherwise
specifically approved by Landlord, all electrical ceiling fixtures hung in
offices or spaces along the perimeter of the Project must be fluorescent, or of
a quality, type, design and bulb color approved by Landlord.

3. No sign, advertisement or notice shall be exhibited, painted or affixed by
any Tenant on any part of, or so as to be seen from the outside of, the Premises
or the Project without the prior written consent of Landlord. In the event of
the violation of the foregoing by any Tenant, Landlord may remove same without
any liability, and may charge the expense incurred in such removal to the Tenant
violating this rule. Exterior signs on doors and directory tablet shall be
inscribed, painted or affixed for each tenant by Landlord at the expense of such
tenant, and shall be of a size, color and style acceptable to Landlord.

4. The toilets and wash basins and other plumbing fixtures shall not be used
for any purpose other than for which they were constructed, and no sweepings,
rubbish, rags or other substances shall be thrown therein. All damage resulting
from any misuse of the fixtures shall be borne by the Tenant who, or whose
servants, employees, agents, visitors or licensees shall have caused the same.

5. No Tenant shall engage or pay any employees on the Premises except those
actually working for such Tenant on the Premises nor advertise for laborers
giving an address at the Premises. The Premises shall not be used for lodging or
sleeping or for any immoral or illegal purposes.

6. No Tenant shall make, or permit to be made any unseemly or disturbing
noises, sounds or vibrations or disturb or interfere with occupants of this or
neighboring buildings or premises or those having business with them whether by
the use of any musical instruments, radio, phonograph, unusual noise, or in any
other way.

7. No Tenant shall throw anything out of doors.

8. Except as otherwise specifically set forth in the Lease, no Tenant shall at
any time bring or keep upon the Premises any hazardous inflammable, combustible
or explosive fluid, chemical or substance, except as approved in writing by
Landlord. The Tenant shall not do or permit anything to be done in the leased
premises, or bring or keep anything therein, which shall in any way increase the
rate of fire or other insurance on the Project, or on the property kept therein,
or obstruct or interfere with the rights of other Tenants, or in any way injure
or annoy them, or conflict with the regulations of the Fire Department or the
fire laws, or with any insurance policy upon the Project, or any part thereof,
or with any rules and ordinances established by the Board of Health or other
governmental authority.

9. No additional locks or bolts of any kind shall be placed on any of the doors
or windows by any Tenant, nor shall any changes be made in existing locks or the
mechanism thereof. Each Tenant must, upon the termination of its tenancy, return
to Landlord all keys of offices and toilet rooms, either furnished to, or
otherwise procured by, such Tenant, and in the event of the loss of any keys so
furnished, such Tenant shall pay to Landlord the cost of replacing the same or
of changing the lock or locks opened by such lost key if Landlord shall deem it
necessary to make such change. Should Tenant install a locking system that
requires a code, such code shall be provided to the Landlord in writing, and all
subsequent changes to the code will be provided in writing 24 hours prior to
such change taking place.

10.

11. Any persons employed by any Tenant to do janitorial work shall, while in
the Project and outside of the Premises, be subject to and under the control and
direction of the manager of the Project (but not as an agent or servant of said
manager or of Landlord, and Tenant shall be responsible for all acts of such
persons),

13. All request for services of Tenants will be directed to only the Office of
the Building, or the Landlord's designated offices.

14. Canvassing, soliciting and peddling in the Project are prohibited and each
Tenant shall cooperate to prevent the same.

15. All office equipment of any electrical or mechanical nature shall be placed
by Tenants in the Premises in settings approved by Landlord, to absorb or
prevent any vibration, noise or annoyance.

16. No air conditioning unit or other similar apparatus shall be installed or
used by any Tenant without the written consent of Landlord.

31
<PAGE>

17. Landlord will direct electricians as to where and how telephone and
telegraph wires are to be introduced. No boring or cutting for wires or
stringing of wires will be allowed without written consent of Landlord. The
location of telephones, call boxes and other office equipment affixed to the
premises shall be subject to the approval of Landlord.

18. Tenant shall not obstruct, alter, or in any way impair the efficient
operation of Landlord's heating, ventilating and air conditioning system, and
shall not place bottles, machines, parcels or any other articles on the
induction unit enclosure so as to interfere with air flow.

19. All parking drives and areas, pedestrian walkways and other public areas
forming a part of the Project shall be under the sole and absolute control of
Landlord with the exclusive right to regulate and control these areas. Tenant
agrees to conform to the rules and regulations that may be established by
Landlord for these areas from time to time.

<PAGE>

Exhibit 21.1

SUBSIDIARIES OF THE REGISTRANT

DTM GmbH
Incorporated under the laws of Germany
Corporate office at Otto-Hahn-Strasse 6, Hilden, Germany
100% owned by DTM Corporation

DTM (UK) Ltd.
Incorporated under the laws of the United Kindom
Corporate office at 1301 Stratford Rd., Holgreen, Birmingham, United
Kingdom
100% owned by DTM Corporation

<PAGE>

Exhibit 23.1

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in the Registration Statements
(Form S-8) pertaining to the Equity Appreciation Plan, 1996 Stock Option Plan
and 1998 Stock Option Plan of DTM Corporation of our report dated February
5,1999, except for Note 14 as to which the date is February 19, 1999, with
respect to the consolidated financial statements of DTM Corporation included in
the Annual Report (Form 10-K) for the year ended December 31, 1998.

/S/ Ernst & Young LLP
Austin, Texas
March 26, 1999

<PAGE>
<ARTICLE> 5
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QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
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<ALLOWANCES> 416
<INVENTORY> 3,456
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