U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
Annual Report under Section 13 or 15(d) of the
Securities Exchange Act of 1934
for the fiscal year ended
December 31, 1996
Commission file number 1-13400
STRATASYS, INC.
(Name of Small Business Issuer in its Charter)
Delaware 36-3658792
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
14950 Martin Drive, Eden Prairie, Minnesota 55344
(Address of Principal Executive Offices) (Zip Code)
(612) 937-3000
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Name of Each Exchange on Which
Title of Each Class Each Class is Registered
Common Stock, $.01 par value The Pacific Stock Exchange Incorporated
Securities registered under Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for past 90 days. Yes X No
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will 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-KSB
or any amendment to this Form 10-KSB. [ x ]
Revenues for the issuer's most recent fiscal year were $22,919,818.
The aggregate market value of the voting stock held by non-affiliates
computed by reference to the closing price at which the stock was sold on March
14, 1997 was $116,075,767.
As of March 14, 1997, the Issuer had 5,627,916 shares of Common Stock,
$.01 par value, outstanding.
Transitional Small Business Disclosure Format: Yes _____ No __X__
ITEM 1. DESCRIPTION OF BUSINESS.
BUSINESS DEVELOPMENT
Stratasys, Inc. (the "Company") was incorporated under the laws of
the State of Delaware on August 8, 1989. The Company's executive offices are
located in Eden Prairie, Minnesota.
On October 20, 1994, the Company successfully completed an initial
public offering ("IPO") of 1,380,000 shares of its Common Stock, including
180,000 shares issued upon exercise of the underwriter's over-allotment option.
The shares of Common Stock were sold at $5.00 per share with the Company
receiving net proceeds of approximately $5,700,000. The underwriter was also
granted warrants to purchase up to 120,000 shares of Common Stock, exercisable
at $7.50 per share, until October 1999.
On January 1, 1995, the Company purchased certain rapid prototyping
assets from International Business Machines Corporation ("IBM"), pursuant to an
Assignment and Sale of Rapid Prototyping Technology and Related Assets Agreement
dated as of January 1, 1995.
In March 1996, the Company announced three new products, Genisys(R),
the FDM(R) 1650, and the FDM(R) 8000, each of which is oriented to separate
stages of a customer's product development cycle. Shipments of the FDM(R) 1650
and Genisys(R) began in March and June 1996, respectively, and shipments of the
FDM(R) 8000 are expected to begin in the second quarter of 1997.
In March 1997, the Company announced the FDM(R) 2000, an enhanced
version of the Company's FDM(R) 1650.
BUSINESS OF THE COMPANY
The Company is in the three dimensional ("3D") imaging business,
which is referred to as "rapid prototyping". The Company develops, manufactures
and markets a family of rapid prototyping devices that enable engineers and
designers to create physical models, tooling and prototypes out of plastic and
other materials directly from a computer aided design ("CAD") workstation. In
many industries, the models and prototypes required in product development are
produced laboriously by hand-sculpting or machining, a traditional process that
can take days or weeks. The Company's computerized modeling systems use its
proprietary technology to make models and prototypes more directly from a
designer's three-dimensional CAD in a matter of hours.
The Company believes that its patented fused deposition modeling
("FDM(R)") technology and new Genisys(R) technology are the only rapid
prototyping systems commercially available that can produce parts from plastic
without relying on lasers. This affords the Company a number of significant
advantages over other commercially available three-dimensional rapid prototyping
technologies, which primarily rely on lasers to create models. Such benefits
include the ability to use the device in an office environment due to the
absence of hazardous emissions, the need for relatively little set up of the
system for a particular project, the availability of a variety of modeling
materials and the lack of any need for costly replacement lasers and laser
parts. The systems can also run virtually unattended, producing models while
designers perform other tasks.
The process involved in the development of a three-dimensional model
using the Company's FDM(R) Benchtop systems begins with the creation of a
conceptual geometric model on a CAD workstation. The model is then imported into
the QuickSlice(R) software program, which mathematically slices the conceptual
model into horizontal layers that are downloaded into the system. These rapid
prototyping machines basically draw cross-sections of the model one layer at a
time to create a three-dimensional "blueprint." A spool of thin thermoplastic
modeling material feeds into a moving FDM(R) extruding head, which heats the
material to a semi-liquid state. This semi-liquid material is then extruded and
deposited in ultra-thin flat layers on a base (the "X-Y Stage") in the modeling
chamber. As the material is directed into place by the computer-controlled head,
layer upon layer, the material solidifies, creating a precise and strong
laminated model.
The Genisys(R) modeling process is similar. Genisys(R) uses
AutoGen(R) software to slice the conceptual model created on a CAD workstation
into horizontal layers that are downloaded into Genisys (R). Genisys(R) then
uses wafers of polyester modeling material, rather than spools of filament, to
feed the extrusion head. The extrusion head heats these wafers and, using a
precision hydraulic conical pump, deposits a continuous layer of plastic polymer
beads (much like squeezing toothpaste from a tube) onto the X-Y Stage to create
a three-dimensional model by building up layers. In comparison to the FDM(R)
Benchtop systems, due to its size, Genisys(R) allows the prototype to be created
on a desktop, directly from a workstation, like a 3D printer.
Products
MODELING EQUIPMENT. The Company has been developing and improving
its line of rapid prototyping products since its inception in 1989. Since that
time, the Company has developed and sold systems including the 3D-Modeler, a
smaller benchtop version of the 3D-Modeler called the FDM(R) 1500 Benchtop,
introduced in June 1993; an improved benchtop modeler called the FDM(R) 1600
Benchtop, introduced in November 1994; the Company's Protoslice operating
software package; its successors QuickSlice(R) and Autogen; and in some cases, a
CAD workstation manufactured by SGI. The FDM(R) 1600 Benchtop offered customers
more features than its predecessor, the FDM(R) 1500, including dual heads. As
such, it had increased hardware and software performance. Although the Company
has discontinued sales of the 3D Modeler, the FDM(R) 1500, SGI workstations and,
in early 1996, the FDM(R) 1600 Benchtop system, it continues to support and
manufacture modeling materials for these systems. In addition, the Company no
longer sells ProtoSlice, the predecessor to QuickSlice(R), although some of its
current customers continue to use ProtoSlice.
In March 1996, the Company introduced three new rapid prototyping
machines for commercial sale. Genisys(R) is a 3D desktop printer which uses the
rapid prototyping technology developed by IBM that the Company purchased in
1995. It is useful for the production of conceptual models employed in the early
stages of the design cycle, as it enables a designer to produce concept
iterations at his desk directly from a workstation in a simple push-button
fashion. The FDM(R) 1650 Benchtop can produce functional prototypes at three
times the speed of its precedessor, the FDM(R) 1600 Benchtop, and can
accommodate a variety of engineering modeling materials. The third new product,
the FDM(R) 8000, is a rapid prototyping device, which incorporates QuickSlice(R)
software and the filament extrusion method of the Company's FDM(R) products. It
is capable of building prototypes up to 24 inches in size with throughput
comparable to the recently announced Stratasys FDM(R) 2000. The FDM(R) 8000
builds prototype parts using ABS plastics. Distribution of the FDM(R) 1650
Benchtop and the Genisys(R) machine began in March and June 1996, respectively,
while shipment of the FDM(R) 8000 is expected to begin in the second quarter of
1997.
The Company announced the FDM(R) 2000 in March 1997. It is an
enhanced version of the FDM(R) 1650, but features a 30% to 40% throughput
improvement over the FDM(R) 1650. Upgraded hardware and software accounts for
the improved performance features. The Company expects to begin shipping the
FDM(R) 2000 in the first quarter of 1997.
The three new systems offer product designers and developers the
ability to create prototypes throughout all stages of the development cycle as
well as a wide range of prices from which to choose. The prices of the systems
start at $55,000 for Genisys(R) and reach $200,000 for the FDM(R) 8000. The
current price of the FDM(R) 1650 Benchtop is approximately $100,000, but the
price will increase to approximately $120,000 in the second quarter of 1997. The
price of the FDM(R) 2000 will be approximately $140,000. By comparison, the
Company's original 3D Modeler sold for between $150,000 and $180,000. Customers
have the option to purchase an entire rapid prototyping system from the Company
or to buy individual components.
MODELING MATERIAL. FDM(R) technology allows the use of a greater
variety of modeling materials and colors than other technologies. The Company
continues to develop filament modeling materials which meet the customers' needs
for increased speed, strength, accuracy, surface resolution and color. These
materials are processed into its patented filament form, which is then fed into
the 3D Modeler or the FDM(R) Benchtop systems. The Company's spool-based system
has proven to be a significant advantage for its products over Ultra Violet
("UV") polymer systems, because the Company's system allows the user to quickly
change material by simply mounting the spool and threading the desired material
into the FDM(R) devices. Each spool weighs approximately 2.3 pounds, and the
creation of a model may require from 0.1 pound to more than one pound of
filament. Other advantages of the spool-based system over a UV polymer system
are that the spool-based system allows the user to purchase a single spool as
compared to an entire vat of UV polymer, thereby reducing the user's up-front
costs and allows the customer to use the system in an office environment.
Currently, the Company has five modeling materials commercially
available for model generation using its FDM(R) technology: a tough polyamide
plastic polymer that is similar to nylon, an investment casting wax, the hard
polymer material ABS (named for its three initial monomers, acrylonitrile,
butadiene and styrene), which is used commercially to make products such as
telephones, a medical grade ABS (MABS), used for medical applications, and a
release material. Each material has specific characteristics that make it
appropriate for various applications. The ability to use different materials
allows the user to match the material to the end use application of the
prototype, whether it is a pattern for tooling or a concept model.
Genisys(R) uses only one type of modeling material, a plastic
polymer, which is manufactured in the form of wafers. A total of 50 wafers are
held in a cassette, which allows the wafers to be fed into the machine and
rapidly extruded in layers. Additional cassettes are easily loaded into the
system. Each cassette contains a memory chip that instructs the system as to the
parameters and melt temperature of the material lot, which optimizes the
automatic build process of the Genisys(R) system.
The modeling filament and wafers are consumable products that
provide additional revenue for the Company.
The Company entered into an agreement with 3M in July 1992, which
provides for the development of advanced modeling materials by the two
companies. The agreement has a term of five years, with a renewal for an
additional five-year period, but can be terminated by either party on 30 days'
notice. It provides for joint ownership of joint inventions and grants each
party certain rights to exploit joint developments. Sole intellectual property
rights of each party remain the property of that party. The agreement prohibits
3M from competing with the Company in the manufacture and sale of FDM(R) devices
or specified modeling materials until the later of five years from the
contract's effective date or the end of the term of the agreement.
OPERATING SOFTWARE. The Company offers two software products:
QuickSlice(R) and Autogen(R). The predecessor to QuickSlice(R), called
ProtoSlice, is no longer sold by the Company but is still used by some of the
Company's current customers. It is a variation of Camand(R) Software, which was
developed and copyrighted by Camax, Inc. ("Camax"). The ProtoSlice operating
software contained an array of features and capabilities combined specifically
for use with the Company's 3D-Modeler and the FDM(R) 1500 systems in conjunction
with a sophisticated CAD system software produced by Camax. The Company was a
non-exclusive licensee and a value-added reseller of the ProtoSlice software.
QuickSlice(R) is a simple, easy-to-use software package. The overall
architecture and detailed design were developed by the Company, and copyright
and full ownership of the QuickSlice(R) software is retained by the Company. The
Company sold the QuickSlice(R) software package for $7,000. QuickSlice(R) 2.0, a
modified version of QuickSlice(R), is the operating software for the Company's
FDM(R) 1650 system. The Company also supplies a library of utility software
programs and procedures to simplify the handling of data and to automate common
tasks.
In 1994, the Company developed and released to the public a software
package called SupportWorks(R). SupportWorks(R) is used in conjunction with
QuickSlice(R) enabling the Company's FDM(R) 1600 Benchtop and FDM(R) 1650
Benchtop systems to automatically generate supports for the models, thereby
eliminating another step in the model-making process. The program, originally
sold for approximately $6,000. The Company has now combined QuickSlice(R) and
SupportWorks(R) into a proprietary $12,000 copyrighted package which is sold
under the name QuickSlice(R). The current version is QuickSlice(R) 4.0.
In 1996, the Company introduced AutoGen(R), software specifically
designed for Genisys(R). AutoGen(R) orients and analyzes the user's CAD, then
divides it into "slices." AutoGen(R) then drives the rapid prototyping hardware.
Current Applications of Rapid Prototyping
Rapid prototyping systems enable engineers and designers to produce
models of their engineering designs faster and cheaper than with conventional
manual methods. The prototypes themselves are used to test product form,
function and fit to specific tolerances. Casting and foundry companies also use
three-dimensional models as the final pattern for a cast part in investment
casting and lost wax casting processes. In addition, several domestic and
international manufacturers produce one-of-a-kind orthopedic implants for
patients using computed topographic scanning and wax investment casting masters
produced with the Company's FDM(R) 1600 Benchtop and FDM(R) 1650 Benchtop
systems.
Potential Future Applications
The Company has positioned its products to be used as devices that
support CAD systems in a variety of manufacturing industries, including
automotive, aerospace, consumer products, electronics and medical applications.
They are also used in universities and other educational institutions.
Additional future applications may arise in conceptual design, casting,
precision prototypes, consumer packaging, architectural design, rapid
manufacturing of small-volume custom parts and fit, form and function testing,
secondary tooling, and mold-making. NASA is using the FDM(R) 1600 Benchtop
system and plans to build spare parts in space, thereby reducing the inventory
of parts in a space flight payload.
Among potential medical applications, rapid prototyping could be
used to produce accurate models of internal organs, bones or skulls for
pre-operative evaluations or modeling of prostheses. In such uses, the Company's
products could serve as peripheral devices for X-Ray, CAT SCAN and magnetic
resonance imaging ("MRI") devices.
Marketing, Distribution and Customers
The strategic focus of the Company's marketing efforts begins with
identifying the needs of product managers, conceptual designers, draftsmen,
design and manufacturing engineers and production specialists in manufacturing
companies. The Company then seeks to develop a comprehensive offering of
modeling and prototyping products to satisfy those needs, using the Company's
FDM(R) and Genisys(R) technology either in complete systems or components
consisting of rapid prototyping devices, modeling materials and associated
software. The Company has sold systems to, among other customers, General Motors
Corporation, Ford Motor Company, Chrysler Corporation, Square D Company,
Whirlpool Corporation, Snap On Tools, Biomet, Inc., Motorola, Eastman Kodak
Company, Marubeni, Wright Patterson Air Force Base, the Naval Air Warfare
Center, Tatung, Westinghouse Electric Corporation and NASA, as well as service
bureaus, universities and distributors in the United States and abroad. With the
purchase of the rapid prototyping assets from IBM on January 1, 1995, the
Company also received a prospective customer list from IBM. The Company has
promoted its current technology to these prospective customers in an effort to
further expand its customer base. The Company sells both complete rapid
prototyping systems and separate components.
The Company utilizes a variety of tactical marketing methods to
reach potential customers, including press releases, trade magazine articles,
customer studies, brochures, direct mailings, telemarketing programs, trade show
demonstrations, videos and a Web site (www.Stratasys.com). In addition, the
Company has developed domestic and international on-site demonstration
capabilities. The Company also concentrates a portion of its sales and marketing
efforts in support of its service bureau clients, which provide prototyping
services to various manufacturing industries and which provide the Company with
information regarding customer needs.
Domestically, the Company sells directly to its customers. In 1997,
the Company organized its domestic FDM(R) sales force into three regions.
Salespersons and management reside in the regions they service. In addition,
Genisys(R) resellers have been assigned to managers within this regional
framework. The Company markets internationally through a network of distributors
and sales representatives. During the years ended December 31, 1995 and 1996,
export sales amounted to approximately $5,080,000 and $8,865,000, respectively.
No customer accounted for more than 10% of sales in 1995 or 1996.
Warranty and Service
The Company provides a 90-day warranty on its domestic systems and a
one-year warranty on those sold internationally. In addition, the Company offers
annual service and maintenance contracts for its systems. The service contracts
include updates of the Company's software systems. Annual service contracts for
the Company's FDM(R) systems are priced at $10,000, while annual service
contracts for the Genisys(R) system are priced at $5,500.
Manufacturing
The Company's manufacturing process consists of the manual assembly
of purchased components. All parts used in the manufacturing process are
obtained from either distributors of standard electrical or mechanical parts or
from custom fabricators of the Company's proprietary designs. The Company
currently operates on a build-to-inventory basis.
The Company purchases the major component parts for the FDM(R) 1650
Benchtop, FDM(R) 8000 and Genisys(R) systems from various outside vendors,
subcontractors and other sources and assembles them at its Minnesota facility.
The Company performs numerous diagnostic tests and quality control procedures
throughout the assembly process in order to assure reliability of its products.
Prior to shipment, each unit is subjected to a test and burn-in procedure to
check for defects. Precision modeling parameters are also checked.
The Company maintains an inventory of most of its necessary
supplies, which facilitates the assembly of products required for production.
The Company's sole current supplier of the X-Y Stage for the FDM(R) 1650, FDM(R)
2000 and FDM(R) 8000 Benchtop systems is Asymtek; and its sole current supplier
of the FDM(R) head motors is MircoMo Electronics, Inc. The Company considers
each of those suppliers to be reliable. Nevertheless, the Company maintains an
inventory of such components to support continued supply. Furthermore, the
Company believes that the supplier of the X-Y Stage could be replaced by
in-house design and production of the part within a three-month period, if
necessary; and the Company could employ FDM(R) head motors from other suppliers
by modifications to the design of the FDM(R) 1650 Benchtop. In regard to other
parts and materials, the Company uses multiple sources of supply and does not
believe that it is dependent on any single supplier. Although the Company
believes that it maintains adequate inventories of vendor-specific materials,
the loss of a supplier of such vendor-specific materials or compounds could
result in a delay in the manufacture and delivery of those materials and
compounds resulting from the need to retest and recertify products supplied by
one or more new vendors. The Company considers its relationships with its
suppliers to be good.
Research and Development
The Company has devoted significant time and resources to the
development of a universally compatible and user-friendly software system. The
Company believes that ongoing research and development efforts are essential to
its continued success. Accordingly, the Company's engineering development
efforts will continue to focus on improvements to the FDM(R) and Genisys(R)
technology and development of new modeling processes, materials, software and
products. To date, much of the Company's activity has been focused on research
and development. For the years ended December 31, 1995 and 1996, the Company's
research and development expenses were approximately $1,996,000 and $3,374,000,
respectively.
The Company's filament development and production operation is
located at its facility in Eden Prairie, Minnesota. The filament formulation and
manufacturing process is regarded by the Company as a trade secret, and the
Company holds patent claims on filament usage in its products.
Intellectual Property
The Company considers its proprietary technology to be important to
the development and manufacture of its products and seeks to protect its
technology through a combination of patents and confidentiality agreements with
its employees and others. Scott Crump, the Company's President, was granted two
U.S. Patents which cover many claims relating to various aspects of its
products, FDM(R) technology and the associated modeling process. The term of one
patent lasts until June 9, 2009, and the term of the other lasts until August
23, 2011. The patents have been assigned to the Company. In addition, Mr. Crump
and three other employees of the Company have assigned to the Company a patent
application for another rapid prototyping process and apparatus associated with
the FDM(R) process, now called the Bass(TM) Support System. As part of its
purchase of rapid prototyping technology assets from IBM, the Company was also
assigned the rights and title to three patents developed by IBM, which cover the
Genisys(R) system and which the Company believes will further augment its own
product lines. The Company recorded these patents domestically and is in the
process of recording them in certain foreign countries. The terms of these
patents extend until June 7, 2005, April 12, 2011, and May 17, 2011,
respectively. In total, the Company currently owns ten primary U.S. patents.
Corresponding patent applications covering the same claims that are
contained in the Company's issued patents have been initiated in various foreign
countries, including Japan and the European Community. Other patent applications
have also been filed, including the patent applications assigned to the Company
by IBM. The Company has registered several trademarks, including "Stratasys,
Inc.," "3D Modeler," "QuickSlice," "3D Plotter," "3D Visualizer", "FDM",
"Genisys" and "AutoGen". Each of the registered trademarks has a duration of 10
years and may be renewed every 10 years while it is in use. Trademark
applications have been filed in Japan and the European Community.
Competition
The Company competes in a marketplace that is still dominated by
conventional methods of model and prototype development, which are primarily
performed by machinists and engineers working from blueprints or CADs and using
machining or by-hand methods. The Company believes that there is currently no
other commercial producer of three-dimensional modeling devices that uses a
single-step, non-toxic technology similar to the Company's FDM(R) and Genisys(R)
technologies. All other plastic model systems involve an additional
post-processing step, such as curing the part after construction of the model or
prototype. The Company's FDM(R) and Genisys(R) technologies do not rely on the
laser or light technology used by many other commercial manufacturers in the
rapid prototyping industry.
A number of different technologies are employed in rapid prototyping
devices marketed by the Company's competitors. Stereolithography is used in the
products of 3D Systems, Cubital, Ltd., EOS Gmbh, CMET, D-MEC, Mitsui and Teijin
Seiki Co. 3D Systems, in which Ciba-Geigy has a substantial interest, introduced
the first rapid prototyping product. The Company believes that 3D Systems may
account for 40% of sales of rapid prototyping units to date. DTM Corporation
produces machines that use lasers to sinter or harden powdered material. B.F.
Goodrich has a significant financial interest in this company. Helisys, Inc.
utilizes lasers to cut and laminate sheets of materials, such as paper. The
Company believes that its FDM(R) technology has important advantages over the
products of these companies, including the ability to be used in an office
environment, the availability of multiple modeling materials and a one-step
process. Sanders Prototype, Inc. ("Sanders"), 3D Systems, Z-Corp and BPM have
developed a prototyping system which uses ink-jet technology to deposit wax
material layer by layer which can be used in an office environment. A smoothing
or milling process is required between each deposited layer to maintain accuracy
in these processes. The Sanders machine is currently capable of building small
parts.
According to a March 1997 industry report by Wohlers Associates,
Inc., in 1996 the Company shipped more rapid prototyping systems than any other
rapid prototyping vendor. Nevertheless, certain of the Company's competitors
have greater financial and marketing resources than the Company.
Employees
As of March 10, 1997, the Company had 118 full-time employees and 23
part-time employees or subcontractors. While the Company has separate internal
departments, such as manufacturing, marketing, engineering and sales, many
employees perform overlapping functions within the organization. No employee is
represented by a union, and the Company has not experienced a work stoppage. The
Company believes its employee relations are good.
Governmental Regulation
The Company is subject to various local, state and federal laws and
regulations that affect businesses generally, including regulations promulgated
by federal and state environmental and health agencies, the Federal Occupational
Safety and Health Administration and laws pertaining to the hiring, treatment,
safety and discharge of employees. Historically, regulatory compliance has not
had a material adverse effect on the Company's sales or operations. The Company
believes it is in compliance with material applicable laws.
ITEM 2. PROPERTIES.
The Company's executive offices and production facilities presently
occupy approximately 87,156 square feet in two adjacent buildings in Eden
Prairie, Minnesota, near Minneapolis. The Company occupies a 27,756 square foot
facility under a lease that expires on July 31, 1999. In October 1996, the
Company leased an additional 59,400 square feet of office and production space
in a building adjacent to its original Eden Prairie premises under a lease
expiring in October 1999. Approximately 40% of the new premises will be sublet
until needed by the Company. The Minnesota facilities are used for machine
assembly and filament production, as well as sales, administration and
operations. The current monthly rent for the premises occupied by the Company
total approximately $35,797. The Company does not require a large space for
production, because it assembles its devices from sub-assemblies manufactured by
outside vendors.
Additional research and development is performed at the company's
facility in Hawthorne, New York. This facility occupies approximately 5,710
square feet of space. The Company occupies these premises under a lease that
expires on January 25, 1998. The monthly rent is currently $5,353.
The Company is also responsible for real estate taxes, insurance,
utilities, trash removal and maintenance expenses at all of these premises.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any pending legal or administrative
proceeding, and its property is not subject to such proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
No matter was submitted to a vote of security-holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year ended December 31, 1996.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) The Common Stock of the Company is quoted on the National
Association of Securities Dealers, Inc. Automated Quotation System National
Market ("Nasdaq") under the symbol SSYS and is traded on The Pacific Stock
Exchange Incorporated under the symbol SAS.
The following table sets forth the high and low closing bid prices
of the Company's Common Stock for each quarter from January 1, 1995 through the
fiscal year ended December 31, 1996, and from January 1, 1997 through March 7,
1997.
Bid Prices ($)
High Low
Fiscal Year Ended December 31, 1995
January 1, 1995 - March 31, 1995 7.00 5.25
April 1, 1995 - June 30, 1995 15.375 6.625
July 1, 1995 - September 30, 1995 16.875 12.50
October 1, 1995 - December 31, 1995 20.25 14.75
Fiscal Year Ended December 31, 1996
January 1, 1996 - March 31, 1996 23.375 16.375
April 1, 1996 - June 30, 1996 20.75 15.875
July 1, 1996 - September 30, 1996 24.50 15.375
October 1, 1996 - December 31, 1996 23.00 14.125
(b) There were approximately 185 stockholders of record of the
Company's Common Stock as of March 14, 1997.
(c) The Company has not paid or declared any cash dividends to date
and does not anticipate paying any in the foreseeable future. The Company
intends to retain earnings, if any, to support the growth of the Company's
business.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following discussion and analysis should be read in conjunction
with the Company's Financial Statements and notes thereto appearing elsewhere in
this report.
GENERAL
The Company achieved record revenues for the year ended December 31,
1996. In March 1996, the Company replaced its existing Benchtop system, the
FDM(R) 1600 that was responsible for much of the Company's 1995 growth, with the
FDM(R) 1650 that incorporated significant engineering and software improvements.
In June 1996, the Company began to ship its Genisys(R) System. Efforts initiated
in 1995 that improved the performance and reliability of the Company's Benchtop
system resulted in sharply higher unit and revenue growth over 1995. In 1996,
modeling material revenues continued to grow dramatically as the Company's
customer base of installed machines increased. These developments contributed to
revenue growth in 1996.
The Company expended considerable resources throughout 1995 and 1996
to enhance and manufacture a desktop rapid prototyping machine that incorporated
the technology acquired from IBM in January 1995. This product, introduced in
March 1996, was named the Genisys(R) 3D Printer. Genisys(R) is a push-button
desktop printer marketed as a design tool for quick concept models used early in
the product design cycle. Shipments of the Genisys(R) system began in the second
quarter of 1996 and continued throughout the year. The Company established a
reseller network to sell the Genisys(R) system, and a significant percentage of
the 1996 Genisys(R) revenue was derived from discounted sales of this unit into
the reseller network. The Company believes that significant future revenues will
be derived from this product as non-discounted systems are sold to end-users.
The company also introduced the FDM(R) 8000 in March 1996, and is now targeting
commercial shipments to commence in the second quarter of 1997. Management
believes that the additions to its product lines, coupled with software and
hardware enhancements and new modeling materials, should result in continued
revenue growth. Management also believes that a sizable market exists for rapid
prototyping machines that are appropriate and affordable for office use and that
these products will have the capacity to capture a significant portion of the
market.
Dating back to 1992, the Company has experienced five consecutive
years of record revenues. The Company believes that its technology offers
distinct advantages over its competitors, and that its new products listed above
will contribute to the Company's continued revenue growth into 1997, although it
can give no assurances that the historical revenue growth experience by the
Company will be sustainable into the future.
Management believes that the trend in the market for rapid
prototyping systems is to lower-priced units (below$100,000), of which the
FDM(R) 1600 Benchtop was one of the first such systems introduced. The Company
is aware of several competitors who have announced low-priced rapid prototyping
systems that appear to compete with Company's Benchtop and Genisys(R) systems
for the lower-priced market. The Company can give no assurances that other rapid
prototyping competitors will not compete for this market, to the detriment of
future revenue growth. The Company also believes that a market trend in
prototype media appears to be toward the use of engineering modeling materials
like ABS, which is deliverable by the Company's FDM(R) process. Although the
Company is not aware of other rapid prototyping vendors that offer ABS modeling
capabilities, there can be no assurances that other competitors will not develop
this capability.
The Company was profitable in every quarter in 1996. The fourth
quarter marked the sixth consecutive quarter that the Company reported profits.
The Company has reported full-year profits for the second consecutive year.
However, due to higher infrastructure and personnel expenses and increased R&D
expenses, some of which are related to the FDM(R) 8000, the Company believes
that the first quarter of 1997 will result in a loss, to be followed by
profitable quarters for the remainder of 1997. The first quarter historically
has been the Company's weakest, usually accounting for 15% or less of annual
revenue.
The Company has not experienced any significant inventory shortage,
excess or obsolescence problems, nor has the Company experienced material bad
debt or collection problems. The Company believes that it will also be able to
maintain control over its receivables and inventories, although it can give no
assurances.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996 COMPARED WITH THE YEAR ENDED
DECEMBER 31, 1995.
Net sales for the year ended December 31, 1996 were $22,919,818
compared with sales of $10,275,186 recorded for the year ended December 31,
1995. This represents an increase of $12,644,632, or 123.1%. This increase was
due to the continued unit sales growth of the Company's FDM(R) 1650 Benchtop
system that replaced the FDM(R) 1600 Benchtop system in the first quarter of
1996. Like the 1600, the 1650 features ABS and multiple material modeling
coupled with software and hardware performance enhancements. Revenue was also
impacted by the successful introduction of the Genisys(R) system in the second
quarter of 1996. Unit sales of the Company's rapid prototyping products
increased by approximately 185% for the year ended December 31, 1996, as
compared with the comparable 1995 period. Maintenance and materials revenue were
also up significantly in the 1996 period as compared with the 1995 period. Both
maintenance and materials revenues were enhanced by the larger installed base
that the Company has established, the Genisys(R) introduction, and the customer
satisfaction with the ABS and other materials selection.
Gross margins improved to $15,031,302, or 65.6% of sales, in the
year ended December 31, 1996, compared with $6,368,345, or 62.0% of sales, in
the year ended December 31, 1995, an improvement of $8,662,957, or 136%. Gross
margins benefited from the higher average selling price of the FDM(R) 1650
system in 1996, and by reductions to the FDM(R) 1650 material cost of goods sold
achieved throughout 1996. These material cost savings were achieved through
purchasing efficiencies and engineering design changes. Gross margins were also
favorably impacted by the increase of materials revenues, with considerably
higher margins than either FDM(R) or Genisys(R) unit sales. The direct labor and
manufacturing burden component of cost of goods sold declined as well, but
constitute less than 10% of total cost of goods sold. Gross margins were
negatively impacted by the sales of the Genisys(R) system, many of which were
sold at 40% discounts into the Company's reseller network as demonstration
units. With the majority of the domestic ressellers now possessing demonstration
units, the future average selling price of the Genisys(R) product should
increase significantly, positively affecting gross margins. In addition, the
Company believes that there are opportunities to improve on the Company's gross
margins in the Genisys(R) product line through additional engineering design
changes. These reductions to the cost of sales should occur throughout 1997.
Selling, general and administrative ("SG&A") expenses increased to
$9,485,519 for the year ended December 31, 1996, from $4,231,571 for the year
ended December 31, 1995. This represents an increase of $5,253,948 or 124.2%,
roughly in line with the 123.1% increase in sales in the comparable period. SG&A
amounted to 41.4% of 1996 sales versus 41.2% of 1995 sales. Salaries and wages,
related payroll costs, commissions, travel, and promotional expenses accounted
for a significant amount of SG&A expenses for both periods. SG&A in 1996
reflected significantly higher amortization expense than in 1995, following the
introduction of the Genisys(R) system. The 1996 period also included higher bad
debt and warranty expense, as the Company increased it allowance for bad debt as
well as its warranty reserve, in light of the new product introduction
(Genisys(R)) as well as the additional sales resulting in an $11,077,155 gross
accounts receivable balance at December 31, 1996. The 1996 SG&A expenses also
include infrastructure and expansion expenses not encountered in the 1995
period, including additional rent expense as the Company expanded several times
throughout 1996, computer training and implementation expenses, and general
office expenses. The Company believes that SG&A expenses as a percentage of
sales should decline in 1997, especially after the first quarter of 1997 as
revenues increase. The Company-wide personnel headcount, including
subcontractors, increased by approximately 65% in the year ended December 31,
1996 as compared with the 1995 period, a favorable increase in light of the
123.1% revenue growth. While the Company plans to control its headcount
additions in 1997, some increase to headcount in the first quarter of 1997
appears unavoidable if the Company plans to meet its revenue goals.
Research and Development (R&D") expenses increased to $3,374,039 for
the year ended December 31, 1996, from $1,995,696 incurred in the year ended
December 31, 1995. The increase in the 1996 period over the 1995 period amounted
to $1,378,343, or 69.1%. The increase to R&D expenses compare favorably to the
123.1% increase in sales revenues for the same 1996 period. As a percentage of
sales, R&D expenses amounted to 14.7% of 1996 sales compared with 19.4% of 1995
sales. Salaries, wages, related payroll expenses, contract labor, and hardware
materials accounted for most of the increase to R&D expenses. In 1996, the
Company capitalized $748,268 of software costs in accordance with FASB 86,
versus $1,138,499 in the comparable 1995 period. R&D incurred certain
infrastructure expenses not encountered in 1995, especially additional rent and
facility expansion expenses. On anticipated higher 1997 revenues, the Company
should be able to continue a downward trend in R&D expenses as a percentage of
sales while maintaining a level of R&D consistent with the Company's longer
range plans for new product introductions and enhancements, which include the
FDM(R) 8000, new modeling materials, new software enhancements, and improved
price/performance capabilities from its existing product offerings.
The Company's operating income for the year ended December 31, 1996
increased to $2,171,744 from $141,078 for the year ended December 31, 1995. This
represents and increase of $2,030,666, or 1439.4%. Net interest income also
increased in the 1996 period, amounting to $546,280 for the year ended December
31, 1996, from $252,946 in the comparable 1995 period. The Company benefited
from a net income tax credit of $785,000 in the year ended December 31, 1996 as
compared with income tax expense of $23,000 in the year ended December 31, 1995
as a result of a decrease in the valuation allowance for deferred tax assets.
Net income for the year ended December 31, 1996 amounted to $3,503,024, or 15.3%
of sales, compared with $371,024, or 3.6% of sales for the comparable 1995
period. The improvement in net income for 1996 over 1995 was $3,132,000, or
844.2%. The earnings per common share for the year ended December 31, 1996
amounted to $.62 on a fully diluted basis determined by 5,647,160 weighted
average number of common and common equivalent shares outstanding. For the year
ended December 31, 1995 the Company reported earnings per common share of $.09
on a fully diluted basis determined by 4,046,123 weighted average number of
common and common equivalent shares outstanding.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities during 1996 used cash of $3,409,541, primarily
reflecting increases in accounts receivable of $8,178,145 and inventory of
$1,699,176, resulting from the increased volume of business. This was partially
offset by increases in accounts payable and accrued expenses of $1,979,543 and
cash generated from the increase in unearned maintenance revenues of $710,474.
Net cash of $405,807 was used in 1995 by operating activities, principally as a
result of increased accounts receivable and inventories due to increased
revenues from product sales. The Company used $2,523,450 of cash in its 1996
investing activities, including $1,432,387 used for the acquisition of property
and equipment, and $822,924 for payments for intangible assets, of which
$748,268 was for the capitalization of software costs in accordance with FASB
86. In 1995, the Company used $8,159,643 of cash in its investing activities,
including $683,389 for the acquisition of property and equipment, $1,215,212 for
the payments for intangible assets, of which $1,138,499 was for the
capitalization of software costs, and $12,639,993 for the acquisition of
marketable securities, $6,349,743 of which were sold in the same period. In
1996, the Company's financing activities provided $5,171,903 of cash, $5,350,492
of which was generated through the exercise of 240,353 options at prices ranging
from $1.59 to $6.00, and 661,643 warrants at prices ranging from $3.00 to
$18.00. In 1995, financing activities provided $8,656,297, $8,827,280 of which
was generated from the sale of the Company's common stock in private placements
or through the exercise of options and warrants. The net decrease in cash for
the twelve months ended December 31, 1996 amounted to $761,088 as compared with
a net increase of $90,847 for the comparable 1995 period. The Company's ending
cash and cash equivalents balances of December 31, 1996 and 1995 was $3,964,968
and $4,726,056, respectively.
At December 31, 1996, the Company's cash, cash equivalents and
marketable securities balances totaled $10,537,875. These assets will be used by
the Company for working capital purposes, for expansion of facilities, for new
product introduction and development, for acquisition of production equipment
and computers, and for increased selling and marketing activities. Management
believes that the Company's revenue from operations, its current cash and cash
equivalents balances, and the proceeds from the sale of short term marketable
securities should provide sufficient cash resources to finance its operations
for at least 24 months.
As of December 31, 1996, the Company had gross accounts receivable
of $11,077,155, less an allowance of $470,000 for returns and doubtful accounts.
While the Company has historically never recorded a bad debt, an increase to its
allowance for returns and bad debt was deemed appropriate because approximately
45% of its sales were generated in the fourth quarter, extended payment terms
were granted to select customers and resellers, and certain international
distributors had substantial balances. While the Company can give no assurances,
it believes that most if not all the accounts receivable balances will
ultimately be collected.
The Company's total current assets amounted to $25,083,121 at
December 31, 1996, 84.3% of which comprised cash, cash equivalents, marketable
securities, and accounts receivable. Total current liabilities amounted to
$4,891,014, $1,082,044 of which was for unearned maintenance revenues. The
Company's debt is minimal, primarily consisting of payments due under capital
leases. The Company estimates that it will spend approximately $1,900,000 in
1997 on expansion of its production capacity facilities' expansion, production
and R&D equipment, and computers and integrated software. As of December 31,
1996, material commitments for facility expansion, computer installation and
integration, and R&D development amounted to approximately $200,000, $250,000,
and $200,000, respectively.
Shipments of the FDM(R) 8000 were delayed from the fourth quarter of
1996 to the second quarter of 1997. Ongoing R&D and pre-production expenses
associated with the FDM(R) 8000 were incurred by the Company in the fourth
quarter of 1996, and the Company anticipates above trend-line expenses for this
activity to continue through the second quarter of 1997. The Company believes
that this will have a negative impact on the Company's first quarter 1997
results. In late 1996, the Company entered into an agreement to lease an
additional 59,400 square feet of combined office/warehouse space for annual base
rent of approximately $252,000. The Company plans to sublease approximately 40%
this space until it is needed for production capacity expansion; some of this
space has currently been sublet.
The Company believes that rapid prototyping industry revenue is
growing at approximately 50% per year. It believes that there is a trend toward
lower-priced rapid prototyping systems capable of producing functional
prototypes, and that a sizable market exists for concept or visualization 3D
printers priced around $55,000. This pricing trend should lead to growth in the
more traditional functional prototyping marketplace as companies continue to
address in-house rapid prototyping needs. Certain market segments in the
industry have not demonstrated pricing sensitivity. These segments are more
interested in modeling envelop size, modeling material variety, throughput, and
part quality, which should allow growth to continue for higher-priced rapid
prototyping systems addressing these needs. The Company plans to continue to
manufacture and market a line of products to address both the lower-priced,
traditional rapid prototyping market, and the growing needs of the more
sophisticated higher-priced prototyping market. The Company believes that its
1996 unit growth rate led the rapid prototyping industry, although it can give
no assurance that this growth rate or market acceptance of its products will
continue into the future.
ITEM 7. FINANCIAL STATEMENTS.
This information appears following Item 13 of this report and is
incorporated herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
The Company did not have any changes in or disagreements with its
accountants on accounting and financial disclosure.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT.
The following table sets forth information concerning the Company's
executive officers and directors.
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
S. Scott Crump 44 President, Chief Executive Officer, Treasurer, Chairman of
the Board, and Chief Financial Officer
Lisa H. Crump 44 Vice President and Secretary
Donald W. Moffatt 57 Chief Operating Officer
Lawrence E. Roscoe 48 Vice President, Software Development
Ralph E. Crump 74 Director
Clifford H. Schwieter 49 Director
Arnold J. Wasserman 60 Director
Gregory L. Wilson 50 Director
</TABLE>
BIOGRAPHICAL INFORMATION
S. Scott Crump has served as President, Chief Executive Officer,
Treasurer and a director of the Company since its inception in 1988 and as Chief
Financial Officer since February 1990. During the period 1982 to 1988, Mr. Crump
was a co-founder and Vice President of Sales of IDEA, Inc., which is now called
Structural Instrumentation, Inc., a public company that manufactures on- board
scales for the trucking industry. Mr. Crump remains on the board of directors
and is a significant shareholder of that company. Mr. Crump is a registered
professional engineer. Mr. Crump is the son of Ralph Crump and the husband of
Lisa Crump.
Lisa H. Crump, a co-founder of the Company, has served as its
Corporate Secretary since its inception in 1988 and as Vice President since
1990. From 1983 to 1988 Ms. Crump was marketing manager of IDEA, Inc. She is the
wife of Scott Crump and the daughter-in-law of Ralph Crump.
Donald W. Moffatt, has served as Chief Operating Officer of the
Company since February 1996. Prior to joining the Company, from 1984 to 1995,
Mr. Moffatt served as President of Rosemont Aerospace, Inc., a manufacturer of
aircraft measuring instruments and a subsidiary of B.F. Goodrich. Before he
joined Rosemont Aerospace in 1978, Mr. Moffatt, who is an electrical engineer,
was employed by Control Data Corporation.
Lawrence E. Roscoe has served as Vice President of Software
Development of the Company since 1991. He has over 25 years of software
development experience in engineering and manufacturing applications. Prior to
joining the Company, Mr. Roscoe was Vice President of Software Development at
Camax from 1987 to 1991. Mr. Roscoe has also held similar positions with Zycad,
Inc., Control Data Corporation and Digital Equipment Corporation.
Ralph E. Crump has been a director of the Company since 1990. Mr.
Crump is President of Crump Industrial Group, an investment firm located in
Trumbull, Connecticut. He is also a founder and director of Osmonics, Inc., a
$200,000,000 manufacturer of reverse osmosis water filtration devices; IMTEC,
Inc., which manufactures bar code labeling equipment; and Structural
Instrumentation, Inc. In 1962, Mr. Crump founded Frigitronics, Inc., which
manufactures ophthalmic goods and medical instruments, and was its President and
Chairman of the Board until December 1986. In 1986, Frigitronics, which had
sales of $130,000,000, was sold to Revlon and a major portion of its business
was then acquired by Johnson & Johnson. Mr. Crump is also a director and
co-founder of Mity-Lite, Inc., a public company that manufactures plastic
tables. He is a Trustee of the Alumni Foundation of UCLA and a member of the
Board of Overseers for the Thayer Engineering School at Dartmouth College. Mr.
Crump is the father of Scott Crump and the father-in-law of Lisa Crump.
Clifford H. Schwieter has been a director of the Company since July
1994. Since April 1994, Mr. Schwieter has been the President and Managing
Director of C.H. Schwieter & Associates, a financial consulting firm. From July
1992 to March 1994, he served as President and Chief Executive Officer and a
director of Centric Engineering Systems, Inc., which was engaged in the
development of mechanical design and analysis software for computing systems
ranging from workstations to mainframes and massively parallel networked
computing environments. Mr. Schwieter was Vice President and General Manager of
the Electronic Imaging Systems Division of the DuPont Company from 1986 to 1991.
He was responsible for DuPont's offerings in electronic imaging in markets
ranging from CAD/CAM and industrial automation through printing and publishing
and medical systems. From 1971 to 1986, Mr. Schwieter was with the General
Electric Company, where he served as Vice President of GE's Calma Company from
1985 to 1986 and was responsible for that subsidiary's worldwide business in the
mechanical design and factory automation arena. He was President and
Representative Director of GE Industrial Automation, Ltd., a joint venture
between GE and C. Itoh & Company located in Tokyo, from 1982 to 1985. Mr.
Schwieter is also a director of PCS Technologies, Inc., a software development
company.
Arnold J. Wasserman became a director of the Company on November 21,
1994, as the designee of M.H. Meyerson & Co., Inc., the underwriter of the
Company's IPO. Mr. Wasserman has, for the past 25 years, been a principal of P &
A Associates, a leasing/consulting firm. Prior to that, he held positions with
IBM and Litton Industries. Mr. Wasserman has consulted with major corporations
in the areas of marketing, advertising and sales. He is a director of On-Sight
Sourcing, a publicly traded company.
Gregory L. Wilson became a director of the Company on October 20,
1994. He is the founder of Mity-Lite, Inc. (Nasdaq) and has served as President
and a director of that company since 1987, as well as its Chairman of the Board
since 1988 and its Treasurer since 1993. From 1982 until 1987, Mr. Wilson was
President of Church Furnishings, Inc. in Provo, Utah. In 1988, he transferred
his ownership interest in Church Furnishings, Inc. to a co-founder of Mity-Lite,
Inc. in exchange for that person's interest in Mity-Lite, Inc.
All directors hold office until the next annual meeting of
stockholders and until their successors are elected to the Board of Directors.
COMPLIANCE WITH 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's Officers, Directors and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
(the "Commission"). Officers, Directors and ten percent stockholders are
required by regulation to furnish the Company with copies of all Section 16(a)
forms they file. Based on the Company's copies of such forms received, or
written representations from certain reporting persons that no Form 5's were
required for those persons, the Company believes that, during 1996, Officers,
Directors and greater than ten percent beneficial owners complied with all
applicable filing requirements.
ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth the cash and non-cash compensation
paid by the Company for services rendered (a) during the fiscal years ended
December 31, 1994, December 31, 1995 and December 31, 1996 to Scott Crump, its
Chairman, President, Chief Executive Officer, Treasurer, and Chief Financial
Officer and (b) during the fiscal year ended December 31, 1996 to Donald W.
Moffatt, its Chief Operating Officer.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
OTHER
NAME AND ANNUAL
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
<S> <C> <C> <C> <C>
S. Scott Crump
Chairman, $95,000 $3,923
President, CEO, 1996 (1) (2) 0
Treasurer, and CFO
1995 $86,654 $3,654 0
(1) (3)
1994 $67,721 $2,248 0
(4)
Donald W. Moffatt 1996 $97,385 $2,769 $30,000
Chief Operating (5) (7) (6)
Officer
</TABLE>
(1) Mr. Crump was paid at the rate of $85,000 per year until November 1,
1995. Upon approval by the Board of Directors, commencing on that
date, Mr. Crump was then paid at the rate of $95,000 per year for the
remainder of 1995 and for 1996.
(2) $2,923 of this bonus was earned in 1996 and paid in 1997.
(3) This bonus was earned in 1995 and paid in 1996.
(4) Mr. Crump was paid at the rate of $60,000 per year until October 20,
1994. On that date, an employment agreement between Mr. Crump and the
Company became effective, pursuant to which Mr. Crump was then paid at
the rate of $85,000 per year for the remainder of 1994.
(5) Mr. Moffatt became Chief Operating Officer of the Company on February
19, 1996 and was paid at the rate of $120,000 per year from February
to October 1996. Mr. Moffatt was paid at the rate of $90,000 per year
for the months of November and December 1996.
(6) The Company issued Mr. Moffatt 2,000 shares of its Common Stock on
July 2, 1996, as additional compensation.
(7) This bonus was earned in 1996 and paid in 1997.
OPTION GRANTS IN LAST FISCAL YEAR
The table below includes the number of stock options granted to the
executive officers named in the Summary Compensation Table during the year ended
December 31, 1996 and exercise information.
<TABLE>
<CAPTION>
Individual Grants
Number of Percent of
Securities Total Options
Underlying Granted to
Options Employees in Exercise Expiration
Name Granted(#) Fiscal Year Price($/sh) Date
<S> <C> <C> <C> <C>
S. Scott Crump 2,000 .9% $16.50 3/25/2002
Donald W. Moffat 23,000 10.9% $16.50 3/25/2002
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY END OPTION VALUES
The table below includes information regarding the value realized on
option exercises and the market value of unexercised options held by the
executive officers named in the Summary Compensation Table during the year ended
December 31, 1996.
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised In-The-Money
Shares Options at Options at
Acquired FY-End(#) FY-End($)
on Exer- Value Exercisable/ Exercisable/
Name cise (#) Realized($) Unexercisable Unexercisable
<S> <C> <C> <C> <C>
S. Scott Crump -- -- 0/ 2,000 0/$ 6,750
Donald W. Moffat -- -- 0/23,000 0/$77,625
</TABLE>
DIRECTOR FEES
Directors currently receive no cash compensation for serving on the
Board of Directors other than reimbursement of reasonable expenses incurred in
attending meetings. Three Directors have received a non-qualified stock option
to purchase 30,000 shares of the Company's Common Stock for their service on the
Board of Directors. One of such directors was granted options before the
Company's August 1994 stock split, and his options currently entitle him to
purchase 43,118 shares of Common Stock. See "Item 12. Certain Relationships and
Related Transactions" for a discussion of options granted to certain directors.
EMPLOYMENT AGREEMENTS
The Company entered into an Employment Agreement with S. Scott
Crump, its President, on September 1, 1994, which became effective on October
20, 1994. The Employment Agreement expires in October 1997 and provides that Mr.
Crump shall devote all of his business time to the Company in consideration for
an annual salary of $85,000. Increased or additional compensation must be
approved by the Board of Directors, including the right to participate in
incentive compensation plans, if any, established by the Company. Mr. Crump's
annual salary under the Employment Agreement was increased by the Board of
Directors to $95,000, effective November 1, 1995. The Employment Agreement
restricts Mr. Crump's right to work for any competitor of the Company for a
period of one year after termination of his employment by the Company. In
addition, if the Company terminates Mr. Crump's employment for "Cause," as such
term is defined in the Employment Agreement, the Company must pay Mr. Crump only
one monthly installment of his salary. If Mr. Crump is terminated for "Good
Reason," as such term is defined in the Employment Agreement, Mr. Crump will
receive one such monthly installment of salary plus twelve additional monthly
installments.
EMPLOYEE STOCK OPTION PLANS
The Company has established three employee stock option plans. The
three plans provide for the grant of options to qualified employees (including
officers and directors) of the Company, independent contractors, consultants and
other persons to purchase an aggregate of 1,300,000 shares of Common Stock. The
plans are administered by the Compensation Committee of the Board of Directors.
Options to purchase 100,608 shares, which constitute the total number
of shares authorized under the Stratasys, Inc. Employee Stock Option Plan #1,
adopted in October 1990 ("Plan 1"), have all been granted. As of March 15, 1997,
Options to purchase 65,970 shares under Plan 1 have been exercised, and Plan 1
expires on April 19, 2001. Options to purchase 199,392 shares of Common Stock,
which constitute the total number of shares authorized under the Amended and
Restated Stratasys, Inc. 1994 Stock Plan ("Plan 2"), adopted in August 1994,
have been granted, 10,800 of which have terminated or expired and are again
available for grant. As of March 5, 1997, options to purchase 127,684 shares
under Plan 2 have been exercised. The Stratasys, Inc. 1994-2 Stock Plan, as
amended ("Plan 3"), adopted by the Board of Directors on December 13, 1994,
originally authorized the purchase of 500,000 shares of Common Stock. On March
1, 1996, the Board of Directors authorized, and on May 23, 1996, the
stockholders approved, amending Plan 3 to increase the number of shares
authorized to 1,000,000 shares. Since its adoption, through March 5, 1997,
options to purchase an aggregate of 734,952 shares have been granted under Plan
3, options to purchase 174,921 shares have been exercised, and 82,064 options
have terminated, expired, or been cancelled and are again available for grant.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of March 14, 1997, certain
information concerning the beneficial ownership of Common Stock by (i) each
person known by the Company to be the owner of more than 5% of the outstanding
Common Stock, (ii) each Director, (iii) each executive officer named in the
Summary Compensation Table above, and (iv) all Directors and executive officers
as a group. The number of shares beneficially owned by each director or
executive officer is determined by the rules of the Securities and Exchange
Commission, and the information is not necessarily indicative of beneficial
ownership for any other purpose.
<TABLE>
<CAPTION>
Name and Address Amount and Nature
of Beneficial of Beneficial Percentage of Outstanding
Owners Ownership(1) Owned(2)
<S> <C> <C>
International Business 500,000 8.88%
Machines Corporation
Old Orchard Road
Armonk, NY 10504
S. Scott and 760,435(4) 13.51%
Lisa H. Crump (3)(4)
Ralph E. Crump 309,330(5) 5.49%
28 Twisted Oak Circle
Trumbull, CT 06611
Arnold J. Wasserman 58,330(6) 1.03%
1 Brookwood Drive
West Caldwell, NJ 07006
Clifford H. Schwieter 5,318(7) *
102 E. Crest Drive
Cincinnati, OH 45215
Donald W. Moffat 6,600(8) *
6595 Harbor Beach
Prior Lake, MN 55372
Gregory L. Wilson 25,000(9) *
1301 W. 400 North
Orem, UT 84057
All directors and executive 1,172,062(10) 20.82%
officers as a group
(8 persons)
</TABLE>
- ----------------------------
* Represents less than 1%.
(1) Under Securities and Exchange Commission rules, beneficial ownership
includes any shares as to which an individual has sole or shared voting
power or investment power. Unless otherwise indicated, the Company believes
that all persons named in the table have sole voting and investment power
with respect to all shares of Common Stock beneficially owned by them. A
person is also deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date hereof upon the
exercise of warrants or options. Each beneficial owner's percentage
ownership is determined by assuming that options or warrants that are held
by such person (but not those held by any other person) and which are
exercisable within 60 days from the date hereof have been exercised.
(2) Based on a total of 5,627,916 shares of Common Stock issued and outstanding
as of March 14, 1997.
(3) The address of this person is in care of the Company, 14950 Martin Drive,
Eden Prairie, Minnesota 55344.
(4) S. Scott Crump owns 380,014 shares individually and Lisa H. Crump owns
379,621 shares individually. Lisa and Scott Crump are husband and wife, but
disclaim beneficial ownership of each other's shares. They also disclaim
beneficial ownership of the 154,665 shares held by Ralph Crump, Scott
Crump's father and Lisa Crump's father-in-law, and the 154,665 shares held
by Marjorie Crump, Scott Crump's mother and Lisa Crump's mother-in-law. By
virtue of their ownership of shares of Common Stock and position with the
Company, S. Scott Crump and Lisa Crump may be deemed "parents" and
"founders" of the Company as such terms are defined under the federal
securities laws. Includes 800 shares of Common Stock issuable upon the
exercise of options currently exercisable by S. Scott Crump and Lisa Crump.
(5) Includes 154,665 shares owned by Marjorie Crump, Mr. Crump's wife, of which
Mr. Crump disclaims beneficial ownership. Excludes the following shares of
which Mr. Crump disclaims beneficial ownership; 380,014 shares held by Mr.
Crump's son, S. Scott Crump, and 379,621 shares held by Mr. Crump's
daughter-in-law, Lisa H. Crump.
(6) Includes 58,330 shares of Common Stock issuable upon the exercise of
options currently exercisable by Mr. Wasserman. Excludes 11,670 shares of
Common Stock issuable pursuant to options granted to him, which become
exercisable through September 30, 1997. See "Item 12. Certain Relationships
and Related Transactions - Consulting Agreements" and "- Directors'
Options."
(7) Includes 3,593 shares of Common Stock issuable upon the exercise of options
currently exercisable by Mr. Schwieter. Excludes 3,593 shares issuable
pursuant to options granted to him, which become exercisable through June
30, 1997. See "Item 12. Certain Relationships and Related Transactions -
Consulting Agreements" and "- Directors' Options."
(8) Includes 4,600 shares of Common Stock issuable upon the exercise of options
currently exercisable by Donald W. Moffat.
(9) Includes 25,000 shares of Common Stock issuable upon the exercise of
options currently exercisable by Mr. Wilson. Excludes 5,000 shares issuable
pursuant to options granted to him, which become exercisable through
September 30, 1997. See "Item 12. Certain Relationships and Related
Transactions - Directors' Options."
(10) Includes 1,100 shares of Common Stock issuable upon the exercise of options
currently exercisable by Lawrence F. Roscoe.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
IBM ASSET PURCHASE
The Company purchased certain rapid prototyping assets (the
"Assets") from IBM, on January 1, 1995, pursuant to an Assignment and Sale of
Rapid Prototyping Technology and Related Assets Agreement.
The Assets acquired by the Company from IBM comprised both tangible
and intangible assets. All of the intangible assets related to rapid prototyping
technology developed by IBM and consisted of three patents, eight patent
applications, documentation (technical reference handbooks, technical
disclosures, publications and other written material used in connection with
such rapid prototyping technology), know-how (including trade secrets, technical
information and data, test reports and data, engineering, scientific and
practical information and formula, equipment designs and drawings, and
commercial sources of information and material), computer software (including
programming codes), and certain licensing agreements. The tangible personal
property acquired comprised machinery, equipment, furniture, supplies, spare
parts, tools, prototypes and components of rapid prototyping devices and other
related assets (the "Non-Technology Assets").
In consideration for the Assets, the Company issued 500,000 shares
of its Common Stock to IBM and agreed to pay IBM an aggregate of $500,000. Of
the $500,000 to be paid, $285,284.64 was paid at closing in cash for the
patents, and the balance of $214,715.36 is being paid in installments through
September 1999 as lease payments for certain of the Non-Technology Assets which
support the development of the rapid prototyping technology. The lease terms for
the Non-Technology Assets are set forth in an Equipment Lease Agreement between
the parties dated as of January 1, 1995. In addition, the Company and IBM
entered into a Representations and Registration Rights Agreement wherein the
Company granted IBM "piggyback" registration rights with respect to the 500,000
shares of Common Stock acquired by it, commencing at any time after January 1,
1997, and two "demand" registration rights, commencing at any time after January
1, 1998.
CONSULTING AGREEMENTS
On December 15, 1994, the Company entered into a three-year
consulting agreement with Arnold J. Wasserman, a director of the Company,
pursuant to which Mr. Wasserman would provide services to develop the Company's
OEM leasing program and the sales and marketing to CT scanner manufacturers and
would perform such other services as are required by the Company. In
consideration for these services, Mr. Wasserman received a non-qualified option
to purchase 40,000 shares of Common Stock at an exercise price of $5.375.
Options to purchase 3,333 shares became exercisable as of December 31, 1994,
with an additional 3,333 vesting on the last day of each calendar quarter
through September 30, 1997. The options expire on December 14, 1999, and are
covered by the S-8 Registration Statement. No such options have been exercised.
On April 1, 1995, the Company entered into a two-year consulting
agreement with Clifford Schwieter, a director of the Company, pursuant to which
Mr. Schwieter provides marketing and technical consulting services to the
Company. In consideration for these services, Mr. Schwieter would receive on a
per project basis, between $0 and $5,000 per month depending on the project. In
addition, Mr. Schwieter received non-qualified stock options, pursuant to Plan
3, to purchase 15,000 shares of Common Stock at an exercise price of $6.81 per
share.
DIRECTORS' OPTIONS
In August 1994, the Company entered into a stock option agreement
with Clifford Schwieter. In consideration for his services as a director of the
Company, Mr. Schwieter received a non-qualified option to purchase 43,118 shares
of Common Stock at an exercise price of $3.83 per share. Options to purchase
3,593 shares became exercisable as of September 30, 1994, with an additional
3,593 shares vesting on the last day of each calendar quarter through June 30,
1997. The options expire on September 29, 1999 and all but 7,187 options have
been exercised.
On December 15, 1994, the Company entered into a stock option
agreement with Arnold J. Wasserman. In consideration for his services as a
director of the Company, Mr. Wasserman received a non-qualified option to
purchase 30,000 shares of Common Stock at an exercise price of $5.375. Options
to purchase 2,500 shares became exercisable as of December 31, 1994, with an
additional 2,500 vesting on the last day of each calendar quarter through
September 30, 1997. The options expire on December 14, 1999, and no options have
been exercised.
On December 15, 1994, the Company entered into a stock option
agreement with Gregory L. Wilson. In consideration for his services as a
director of the Company, Mr. Wilson received a non-qualified option to purchase
30,000 shares of Common Stock at an exercise price of $5.375. Options to
purchase 2,500 shares became exercisable as of December 31, 1994, with an
additional 2,500 vesting on the last day of each calendar quarter through
September 30, 1997. The options expire on December 14, 1999 and no options have
been exercised.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit No. Description
3.1 Restated Certificate of Incorporation of the Company. (3)
3.2 Amendment to Certificate of Incorporation of the Company. (6)
3.3 By-Laws of the Company. (1)
4.1 Common Stock Purchase Warrant with Battery Ventures II, L.P. dated
October 15, 1990. (1)
4.2 Agent's Warrant issued to R.J. Steichen & Company dated
November 12, 1993. (1)
4.3 Agent's Warrant issued to R.J. Steichen & Company dated
December 13, 1993. (1)
4.4 Form of Common Stock purchase warrants issued by the Company dated as
of November 12, 1993 and December 13, 1993. (1)
4.5 Form of Underwriter's Warrant. (1)
4.6 Form of Common Stock purchase warrant issued by the Company in its
August 1995 private placement (2).
4.7 Form of 3-year Common Stock purchase warrants issued by the Company in
its November 1995 offering under Regulation D and Regulation S. (5)
4.8 Form of 3-month Common Stock purchase warrants issued by the Company in
its November 1995 offering under Regulation D and Regulation S. (5)
4.9 Form of Placement Agent's warrant issued by the Company in its November
1995 offering under Regulation D and Regulation S. (5)
4.10 Form of warrant issued to Sunrise Securities Corp. by the Company in
connection with its November 1995 offering under Regulation D and
Regulation S. (5)
10.1 Non-Competition Agreement between the Company and S. Scott Crump, dated
October 15, 1990. (1)
10.2 Non-Competition Agreement between the Company and S. Lisa Crump, dated
October 15, 1990. (1)
10.3 Employee Confidentiality Agreement between the Company and S. Scott
Crump, dated October 15, 1990. (1)
10.4 Employee Confidentiality Agreement between the Company and Lisa Crump,
dated October 15, 1990. (1)
10.5 Stockholders' Agreement dated October 15, 1990 among the Company, S.
Scott Crump, Lisa Crump, Ralph Crump and Marjorie Crump. (1)
10.6 Stratasys, Inc. Employee Stock Option Plan #1. (1)
10.7 Joint Development Agreement between the Company and 3M Corporation,
dated July 2, 1993. (1)
10.8 Amended and Restated Stratasys, Inc. 1994 Stock Plan. (3)
10.9 Stratasys, Inc. 1994-2 Stock Plan. (3)
10.10 Employment Agreement Between the Company and S. Scott Crump, dated
September 1, 1994. (2)
10.11 Consulting Agreement with Arnold Wasserman dated December 15, 1994. (3)
10.12 Asset Purchase Agreement between the Company and IBM dated January 1,
1995. (4)
10.13 Registration Rights Agreement between the Company and IBM dated January
1, 1995. (4)
10.14 Equipment Lease Agreement between the Company and IBM dated January 1,
1995. (4)
10.15 Assignment, dated October 23, 1989, from S. Scott Crump to the Company
with respect to a patent application for an apparatus and method for
creating three-dimensional objects. (7)
10.16 Assignment, dated June 5, 1992, from S. Scott Crump to the Company with
respect to a patent application for a modeling apparatus for three
dimensional objects. (7)
10.17 Assignment, dated June 1, 1994, from S. Scott Crump, James W. Comb,
William R. Priedemann, Jr., and Robert Zinniel to the Company with
respect to a patent application for a process and apparatus of support
removal for three-dimensional modeling. (7)
10.18 Lease between the Company and Richard A. Burke, dated October 14, 1996.
21.1 Subsidiaries of the Company. (5)
23.1 Consent of Rothstein, Kass & Company, P.C.
27.1 Financial Data Schedule.
- -------------------------
(1) Incorporated by reference from the Company's Registration Statement on
Form SB-2 (File No. 33-83638-C) filed September 2, 1994.
(2) Incorporated by reference from the Company's Form 8-K, dated August 24,
1995.
(3) Incorporated by reference from the Company's Form 10-KSB for the year
ended December 31, 1994.
(4) Incorporated by reference from the Company's Form 8-K, Amendment No.2,
dated January 1, 1995.
(5) Incorporated by reference from the Company's Registration Statement on
Form SB-2 (File No. 33-99108) filed November 8, 1995.
(6) Incorporated by reference from the Company's Form 10-QSB for the nine
months ended September 30, 1995.
(7) Incorporated by reference from Amendment No. 1 to the Company's
Registration Statement on Form SB-2 (File No. 33-99108) filed December
20, 1995.
(b) Reports on Form 8-K
No Reports on Form 8-K were filed by the Company during the quarter
ended December 31, 1996.
STRATASYS, INC.
CONTENTS
- ------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT F - 2
FINANCIAL STATEMENTS
Balance Sheets F - 3
Statements of Income F - 4
Statements of Stockholders' Equity F - 5
Statements of Cash Flows F - 6 - 7
Notes to Financial Statements F- 8 - 21
INDEPENDENT AUDITORS' REPORT
Board of Directors
Stratasys, Inc.
We have audited the accompanying balance sheets of Stratasys, Inc. as of
December 31, 1996 and 1995 and the related statements of income, stockholders'
equity, and cash flows for the years then ended. 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 financial position of Stratasys, Inc. as of December
31, 1996 and 1995, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
/s/ ROTHSTEIN, KASS & COMPANY, P.C.
ROTHSTEIN, KASS & COMPANY, P.C.
Roseland, New Jersey
February 14, 1997
<TABLE>
<CAPTION>
STRATASYS, INC.
BALANCE SHEETS
DECEMBER 31, 1996 1995
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,964,968 $ 4,726,056
Marketable securities 6,572,907 6,309,048
Accounts receivable, less allowance for returns and
doubtful accounts of $470,000 in 1996 and $130,000
in 1995 10,607,155 2,769,010
Inventories 2,648,990 907,319
Prepaid expenses 344,101 119,423
Deferred taxes 945,000
------------ ------------
Total current assets 25,083,121 14,830,856
------------ ------------
PROPERTY AND EQUIPMENT, less accumulated
depreciation and amortization 2,184,165 1,112,328
------------ ------------
OTHER ASSETS
Intangible assets, less accumulated amortization 4,119,857 3,910,960
Sundry 75,576 41,124
------------ ------------
4,195,433 3,952,084
------------ ------------
$ 31,462,719 $ 19,895,268
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Obligations under capital leases, current portion $ 186,415 $ 157,449
Accounts payable and other current liabilities 3,622,555 1,661,517
Unearned maintenance revenues 1,082,044 371,570
------------ ------------
Total current liabilities 4,891,014 2,190,536
------------ ------------
DEFERRED TAXES 71,000
OBLIGATIONS UNDER CAPITAL LEASES, less current portion 94,977 182,520
------------ ------------
165,977 182,520
------------ ------------
COMMITMENTS
STOCKHOLDERS' EQUITY
Preferred stock, Series A, $.01 par value, authorized
264,000 shares, issued and outstanding 264,000 shares in 1995 -- 2,640
Common stock, $.01 par value, authorized 15,000,000 shares,
issued and outstanding 5,517,309 shares in 1996 and
4,233,876 shares in 1995 55,173 42,339
Capital in excess of par value 27,394,902 22,024,604
Accumulated deficit (1,044,347) (4,547,371)
------------ ------------
Total stockholders' equity 26,405,728 17,522,212
------------ ------------
$ 31,462,719 $ 19,895,268
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
STRATASYS, INC.
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996 1995
------------ ------------
<S> <C> <C>
SALES $ 22,919,818 $ 10,275,186
COST OF SALES 7,888,516 3,906,841
------------ ------------
GROSS PROFIT 15,031,302 6,368,345
------------ ------------
COSTS AND EXPENSES
Research and development 3,374,039 1,995,696
Selling, general and administrative 9,485,519 4,231,571
------------ ------------
12,859,558 6,227,267
------------ ------------
OPERATING INCOME 2,171,744 141,078
OTHER INCOME (EXPENSE)
Interest and other income 585,516 303,350
Interest expense (39,236) (50,404)
------------ ------------
546,280 252,946
------------ ------------
INCOME BEFORE INCOME TAXES 2,718,024 394,024
INCOME TAXES (CREDIT) (785,000) 23,000
------------ ------------
NET INCOME $ 3,503,024 $ 371,024
============ ============
INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Primary $ .63 $ .09
============ ============
Fully diluted $ .62 $ .09
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING
Primary 5,583,868 4,022,731
============ ============
Fully diluted 5,647,160 4,046,123
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
STRATASYS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1995
CAPITAL IN
PREFERRED STOCK COMMON STOCK EXCESS OF
SHARES AMOUNT SHARES AMOUNT PAR VALUE
<S> <C> <C> <C> <C> <C>
BALANCES, January 1, 1995 264,000 $ 2,640 2,871,210 $ 28,712 $ 10,710,951
COMMON STOCK ISSUED IN EXCHANGE FOR
INTANGIBLE ASSETS -- -- 500,000 5,000 2,495,000
SALE OF COMMON STOCK, less related expenses -- -- 862,666 8,627 8,818,653
NET INCOME -- -- -- -- --
------------ ------------ ------------ ------------ ------------
BALANCES, December 31, 1995 264,000 2,640 4,233,876 42,339 22,024,604
COMMON STOCK ISSUED UPON CONVERSION
OF PREFERRED STOCK (264,000) (2,640) 379,437 3,794 (1,154)
SALE OF COMMON STOCK, less related expenses -- -- 901,996 9,020 5,341,472
COMMON STOCK ISSUED AS COMPENSATION -- -- 2,000 20 29,980
NET INCOME -- -- -- -- --
------------ ------------ ------------ ------------ ------------
BALANCES, December 31, 1996 -- $ -- 5,517,309 $ 55,173 $ 27,394,902
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED
DEFICIT TOTAL
<S> <C> <C>
BALANCES, January 1, 1995 $ (4,918,395) $ 5,823,908
COMMON STOCK ISSUED IN EXCHANGE FOR
INTANGIBLE ASSETS -- 2,500,000
SALE OF COMMON STOCK, less related expenses -- 8,827,280
NET INCOME 371,024 371,024
------------ ------------
BALANCES, December 31, 1995 (4,547,371) 17,522,212
COMMON STOCK ISSUED UPON CONVERSION
OF PREFERRED STOCK -- --
SALE OF COMMON STOCK, less related expenses -- 5,350,492
COMMON STOCK ISSUED AS COMPENSATION -- 30,000
NET INCOME 3,503,024 3,503,024
------------ ------------
BALANCES, December 31, 1996 $ (1,044,347) $ 26,405,728
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
<PAGE>
<TABLE>
<CAPTION>
STRATASYS, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,503,024 $ 371,024
Adjustments to reconcile net income to
net cash used in operating activities:
Deferred taxes (874,000)
Depreciation and amortization 474,902 226,734
Amortization of intangibles 614,027 213,362
Allowance for sales returns 55,588
Bad debts 220,000 111,154
Amortization of discounts on marketable securities (30,172) (18,798)
Common stock issued for services 30,000
Other 5,660 40,768
Increase (decrease) in cash attributable to changes in assets and
liabilities:
Accounts receivable (8,178,145) (2,001,074)
Inventories (1,699,176) (460,447)
Prepaid expenses (221,266) (85,735)
Accounts payable and other current liabilities 1,979,543 940,957
Unearned maintenance revenues 710,474 256,248
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (3,409,541) (405,807)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of marketable securities 1,307,198 6,349,743
Acquisition of marketable securities (1,540,885) (12,639,993)
Proceeds from sale of machinery and equipment 58,264
Acquisition of property and equipment (1,432,387) (683,389)
Payments for intangible assets (822,924) (1,215,212)
Payments for sundry assets, net (34,452) (29,056)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (2,523,450) (8,159,643)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of obligations under capital leases (178,589) (170,983)
Proceeds from sale of common stock 5,350,492 8,827,280
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 5,171,903 8,656,297
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (761,088) 90,847
CASH AND CASH EQUIVALENTS, beginning of year 4,726,056 4,635,209
------------ ------------
CASH AND CASH EQUIVALENTS, end of year $ 3,964,968 $ 4,726,056
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
STRATASYS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1996 1995
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION, cash paid during the year for interest $ 39,236 $ 50,404
========== ==========
SUPPLEMENTAL SCHEDULES OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Machinery and equipment acquired under capital
lease obligations $ 120,012 $ 361,912
========== ==========
Issuance of common stock in exchange for
intangible assets $ -- $2,500,000
========== ==========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
STRATASYS, INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES OPERATIONS
Stratasys, Inc. (the "Company")
develops, manufactures and markets a
family of rapid prototyping systems
(RPS) and devices that permit
engineers and designers to create
physical models and prototypes, made
of various materials, utilizing
three dimensional Computer Aided
Design ("3D CAD") files at a CAD
workstation. The Company sells these
devices worldwide.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's
assets and liabilities, which
qualify as financial instruments
under Statement of Financial
Accounting Standards (SFAS) No. 107,
"Disclosures about Fair Value of
Financial Instruments," approximates
the carrying amounts presented in
the balance sheet.
CASH EQUIVALENTS
Cash equivalents include all highly
liquid instruments having a maturity
of less than three months from the
purchase date. Cash equivalents
includes a U.S. Treasury note and
money market account.
MARKETABLE SECURITIES
The Company records its marketable
securities in accordance with SFAS
No. 115, "Accounting for Certain
Investments in Debt and Equity
Securities." Marketable securities
have been categorized as available
for sale and, as a result, are
stated at fair value. Realized gains
or losses are determined on the
specific identification method and
are reflected in income.
INVENTORIES
Inventories are stated at the lower
of cost, on the first in, first out
method, or market.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company periodically assesses
the recoverability of the carrying
amounts of long-lived assets,
including intangible assets. A loss
is recognized when expected
undiscounted future cash flows are
less than the carrying amount of the
asset. The impairment loss is the
difference by which the carrying
amount of the asset exceeds its fair
value.
PROPERTY AND EQUIPMENT
Property and equipment is stated at
cost.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization is
computed using the straight line
method over the estimated useful
lives of the assets ranging from 3-
5 years.
INTANGIBLE ASSETS
Intangible assets are being
amortized over their estimated
useful lives by the straight line
method as follows:
<TABLE>
<S> <C>
RPS Technology 11 years
Capitalized software development costs 3 years
Patents 17 years
Copyrights and licensed internal code 5 years
</TABLE>
The costs of software development,
including significant product
enhancements, incurred subsequent to
establishing technological
feasibility have been capitalized in
accordance with SFAS No. 86,
"Accounting for the Costs of
Computer Software to be Sold, Leased
or Otherwise Marketed." Costs
incurred prior to establishment of
technological feasibility are
charged to research and development
expense.
UNEARNED MAINTENANCE REVENUES
Maintenance revenues are amortized
over the term of the related
maintenance contracts, principally
one year.
REVENUE RECOGNITION
The Company recognizes revenues from
the sale of RPS machines when
shipped. The Company has established
warranty programs which enable
customers to return a RPS machine.
The Company establishes valuation
allowances for estimated returns at
the time of shipment. In additions,
accruals for customer discounts are
recorded when revenues are
recognized.
Software revenues are recorded based
on Statement of Position 91-1 (SOP
91-1), "Software Revenue
Recognition," which provides for
recognizing revenues from software
product sales when a non-cancelable
license agreement has been signed,
the product has been delivered, all
significant obligations have been
satisfied and collectibility of the
receivable is certain. The Company
sells its software as an integral
part of the RPS machines.
Service revenues, excluding
maintenance contracts, are
recognized at the time the services
are performed.
RESEARCH AND DEVELOPMENT COSTS
In accordance with SFAS No. 2,
"Accounting for Research and
Development Costs," expenditures for
research, development and
engineering of products and
manufacturing processes are expensed
as incurred.
INCOME TAXES
The Company complies with SFAS No.
109, "Accounting for Income Taxes,"
which requires an asset and
liability approach to financial
reporting of income taxes. Deferred
income tax assets and liabilities
are computed annually for
differences between financial
statement and tax bases of assets
and liabilities that will result in
taxable or deductible amounts in the
future, based on enacted tax laws
and rates applicable to the periods
in which the differences are
expected to effect taxable income.
Valuation allowances are
established, when necessary, to
reduce the deferred income tax
assets to the amount expected to be
realized.
INCOME PER COMMON AND COMMON
EQUIVALENT SHARE
Income per common and common
equivalent share is based upon the
net income divided by the weighted
average number of common and common
equivalent shares outstanding.
Common equivalent shares include
convertible preferred stock, stock
options and warrants, if dilutive.
The fully diluted weighted average
number of common and common
equivalent shares outstanding
assumes shares issued from the
exercise of stock options and
warrants to have been outstanding
for the full year.
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 reported amounts of
assets and liabilities and
disclosure of contingent assets and
liabilities at the date of the
financial statements and the
reported amounts of revenues and
expenses during the reporting
period. Actual results could differ
from those estimates.
2. ACQUISITION OF ASSETS On January 1, 1995, the Company
purchased from IBM intangible and
other assets relating to a RPS. At
the acquisition date, the RPS was
both technologically and
economically feasible. The Company
paid $342,813 in cash, including
related acquisition costs of $57,528
and issued 500,000 shares of
restricted common stock with an
ascribed value of $2,500,000 ($5 per
share). Additionally, the Company
entered into a capital lease for the
acquisition of office furniture and
equipment. The lease provides for
quarterly payments in varying
amounts through September 1999,
totaling $214,715. The Company has
recorded office furniture and
equipment, and the related capital
lease obligation, at $184,714,
reflecting a discount of the
payments at an interest rate of 10%.
The purchase price of the intangible
assets has been allocated as
follows:
<TABLE>
<S> <C>
RPS Technology $ 2,558 532
Patents 213,211
Patents Applications 14,214
Copyrights and licensed internal code 56,856
------------------
$ 2,842,813
------------------
</TABLE>
In accordance with Accounting
Principles Board Opinion (APB) 16
and APB 17, the RPS technology will
be amortized over a period of eleven
(11) years, which the Company
believes to be the economic life of
the technology. Patents will be
amortized over their remaining
economic lives, and applications, if
denied, will be expensed at that
time. Copyrights and internal code
will be amortized over a five-year
period.
3. ACCOUNTS RECEIVABLES At December 31, 1996 and 1995,
accounts receivable included
balances due from foreign entities
of approximately $3,711,000 and
$981,000, respectively.
4. MARKETABLE SECURITIES Marketable securities contain U.S.
debt securities and have been
categorized as available for sale.
Marketable securities are recorded
in accordance with SFAS No. 115.
During 1996 and 1995, the Company
had no significant realized or
unrealized gains or losses.
5. INVENTORIES Inventories consist of the following
at December 31,:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Finished goods $1,295,803 $ 329,040
Work in process 264,259 104,787
Raw materials 1,088,928 473,492
--------- ----------
$2,648,990 $ 907,319
========== ==========
</TABLE>
6. PROPERTY AND EQUIPMENT Property and equipment consists of
the following at December 31,:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Machinery and equipment $ 706,411 $ 338,911
Computer equipment and
software 1,061,312 336,096
Office equipment 235,572 110,194
Leasehold improvements 383,430 137,331
Equipment under capital leases 635,155 586,549
---------- ----------
3,021,880 1,509,081
Accumulated depreciation
and amortization (including
$218,597 in 1996 and
$150,953 in 1995 under
capital leases) 837,715 396,753
---------- ----------
$2,184,165 $1,112,328
========== ==========
</TABLE>
7. INTANGIBLE ASSETS Intangible assets consist of the
following at December 31,:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
RPS Technology $2,558,532 $2,558,532
Capitalized software
development costs 1,886,768 1,138,499
Patents 445,868 376,609
Copyrights and licensed
internal code 56,856 56,856
Other 16,837 11,441
---------- ----------
4,964,861 4,141,937
Accumulated amortization 845,004 230,977
---------- ----------
$4,119,857 $3,910,960
========== ==========
</TABLE>
For the year ended December 31,
1996, amortization for computer
software development costs charged
to operations was $339,960. For the
year ended December 31, 1995, there
was no amortization for capitalized
computer software development costs
charged to operations since the
products were not available for
general release to customers.
Included in research and development
costs for the years ended December
31, 1996 and 1995 are computer
software development expenditures of
$414,026 and $89,168, respectively.
8. ACCOUNTS PAYABLE AND
OTHER CURRENT
LIABILITIES Accounts payable and other current
liabilities consist of the following
at December 31,:
<TABLE>
1996 1995
<S> <C> <C>
Trade $1,753,643 $ 905,707
Compensation and related
benefits 1,056,552 466,968
Reserve for warranty expenses 362,912 149,803
State income taxes 90,720 23,000
Other 358,728 116,039
---------- ----------
$3,622,555 $1,661,517
========== ==========
</TABLE>
9. OBLIGATIONS UNDER
CAPITAL LEASES Aggregate minimum lease
payments for obligations under
capital leases in the years
subsequent to December 31, 1996 are
as follows:
<TABLE>
<S> <C>
YEAR ENDING DECEMBER 31,
1997 $218,143
1998 82,923
1999 28,367
--------
Total minimum lease payments 329,433
Less amounts representing interest 48,041
--------
Present value of minimum lease payments 281,392
Less current portion 186,415
--------
$ 94,977
========
</TABLE>
10. INCOME TAXES The tax effects of principal
temporary differences are shown in
the following table at December 31,:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Net operating loss
carryforwards $ 142,000 $ 1,475,000
Depreciation (139,000) (92,000)
Amortization 68,000 12,000
Allowance for doubtful accounts 142,000 53,000
Reserve for warranty expenses 147,000 60,000
Reserve for sales returns, net 24,000
Federal minimum tax credit
carryforwards 14,000 7,000
Research and development tax
credit carryforwards 476,000 295,000
----------- -----------
874,000 1,810,000
Valuation allowance for
deferred tax asset (1,810,000)
----------- -----------
$ 874,000 $ --
----------- -----------
</TABLE>
The net deferred tax asset included
the following amounts of deferred
tax assets and liabilities at
December 31,:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Deferred tax assets $ 1,013,000 $ 1,902,000
Deferred tax liabilities (139,000) (92,000)
Valuation allowances for
deferred tax asset -- (1,810,000)
----------- -----------
Net deferred tax asset $ 874,000 $ --
=========== ===========
</TABLE>
At December 31, 1996, the Company
had federal and state net operating
loss carryforwards of approximately
$247,000 and $1,195,000,
respectively, which can be utilized
against future taxable income and
expire in various years through the
year 2009.
At December 31, 1996, the Company
had research and development tax
credit carryforwards of
approximately $476,000, which can be
utilized against future federal
income tax and expire in various
years through 2016.
The components of income taxes
(credit) for the year ended December
31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
FEDERAL, deferred $(699,000) $ --
--------- ---------
STATE AND OTHER
Current 82,000 23,000
Deferred (168,000)
--------- ---------
(86,000) 23,000
--------- ---------
$(785,000) $ 23,000
========= =========
</TABLE>
A reconciliation of income tax
expense to the federal statutory
rate is as follows for the years
ended December 31,:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Federal statutory rate 34.0 % 34.0%
State income tax 2.0 5.8
Change in valuation (66.7)
Net operating loss
carryforwards (utilized) (34.0)
Other 1.8
---- ----
Effective income tax rate (28.9) % 5.8%
==== ====
</TABLE>
11. RELATED PARTY
TRANSACTION In April 1995, the Company entered
into a two-year consulting agreement
with a director of the Company,
pursuant to which the director is to
provide marketing and technical
consulting services. In
consideration for these services,
the director receives on a per
project basis, up to $5,000 per
month. During 1996 and 1995, the
Company incurred consulting fees
relating to this agreement of
approximately $17,000 and $55,000,
respectively. In addition, the
director received non-qualified
stock options, pursuant to Plan 3
(SEE NOTE 15), to purchase 15,000
shares of the Company's common stock
at an exercise price of $6.81 per
share. The options expire on April
1, 2000.
12. COMMITMENTS The Company leases its facilities
under leases which expire between
February 1998 and July 1999.
Aggregate future minimum annual
rental payments are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, 1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Minimum rentals $ 241,358 $ 182,473 $ 103,319
Less: sublease payments (120,000) (84,000) (84,000)
--------- --------- ---------
Net rental payments $ 121,358 $ 98,473 $ 19,319
========= ========= =========
</TABLE>
Rent expense for the years ended
December 31, 1996 and 1995 was
approximately $364,000 and $222,000,
respectively.
The Company entered into a
three-year employment agreement,
effective October 20, 1994. In 1995,
the Board of Directors approved an
increase of the minimum annual
salary to $95,000.
13. PREFERRED STOCK The preferred stock is convertible
into the Company's common stock at
$3.17 per share (equivalent to a
conversion rate of 1.43726 shares of
common stock for each share of
preferred stock).
On January 1, 1996, the holder of
the preferred stock converted all
264,000 shares of the Company's
preferred stock into 379,437 shares
of the Company's common stock.
14. COMMON STOCK In 1995, the Company's Certificate
of Incorporation was amended to
increase the number of authorized
shares of common stock to 8,000,000.
During 1995, the Company sold
815,550 shares of its common stock,
privately, for aggregate proceeds
(net commissions and expenses) of
approximately $8,748,000. In
connection with some of the sales of
its common stock the Company issued
warrants to purchase 249,487 shares
of the Company's common stock.
During 1995, stock options to
purchase 42,324 shares of the
Company's common stock were
exercised with proceeds to the
Company of approximately $51,000. In
addition, warrants to purchase 4,792
shares of the Company's common stock
were exercised with proceeds to the
Company of approximately $28,000.
In 1996, the Company's Certificate
of Incorporation was amended to
increase the number of authorized
shares of common stock to
15,000,000.
On January 1, 1996, the Company
issued 379,437 shares of common
stock upon the exercise of
conversion rights by the
shareholders of all 264,000 shares
of preferred stock outstanding.
During 1996, the Company issued 2000
shares of common stock as
compensation to the Chief Operating
Officer of the Company and charged
operations for $30,000.
During 1996, stock options to
purchase 240,353 shares of the
Company's common stock were
exercised with proceeds to the
Company of approximately $1,197,952.
In addition, warrants to purchase
661,643 shares of the Company's
common stock were exercised with net
proceeds to the Company of
approximately $4,152,540.
15. STOCK OPTIONS AND
WARRANTS The Company has established three
employee stock option plans, the
Stratasys, Inc. Employee Stock
Option Plan #1 (Plan 1), Stratasys,
Inc. 1994 Stock Plan (Plan 2) and
Stratasys, Inc. 1994 -2 Stock Plan
(Plan 3). The three plans provide
for the granting of options to
qualified employees of the Company,
independent contractors, consultants
and other persons to purchase
1,300,000 shares of common stock,
100,608 under Plan 1, 199,392 under
Plan 2 and 1,000,000 under Plan 3.
All the options under Plan 1 have
been granted and the plan expires
April 19, 2001. Under Plan 2,
196,992 options have been granted.
Since the adoption of Plan 3,
options to purchase an aggregate of
715,452 shares of common stock have
been granted. All options under the
above plans are granted at a price
not less than the fair market value
of the Company's common stock at
dates of grant and are exercisable
over five years.
During 1995, the Company entered
into a consulting agreement which
granted the consultant non-qualified
stock options to purchase 50,000
shares of common stock at an
exercise price of $7.00 per share
and 35,000 shares of common stock,
at an exercise price of $12.00 per
share. These options were
immediately exercisable and expire
two years from the date of issue.
The option price per share for all
grants were not less than the market
price of the Company's common stock
at the date of grant.
The following summarizes the
information relating to outstanding
stock options and the activity
during 1996 and 1995:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE
OF PER SHARE EXERCISE
SHARES OPTION PRICE PRICE
-------- ------------------ -------
<S> <C> <C> <C> <C>
Shares under option
at January 1, 1995 413,789 $ .01 - $ 6.00 $ 4.36
Granted in 1995 362,437 5.25 - 20.69 18.23
Exercised in 1995 (42,324) .01 - 3.48 1.21
-------- ------------------ -------
Shares under option
at December 31, 1995 733,902 1.59 - 20.69 11.39
Granted in 1996 314,414 15.56 - 23.13 17.53
Exercised in 1996 (240,353) 1.59 - 6.00 5.27
Forfeited in 1996 (75,064) 5.25 - 23.13 18.25
-------- ------------------ -------
Shares under option
at December 31, 1996 732,899 $ 1.59 - $21.44 $ 10.15
======== ================== =======
Shares exercisable at
December 31, 1996 279,709 $ 1.59 - $16.94 $ 6.49
======== ================== =======
</TABLE>
The Company, as part of sales of
common stock and other agreements,
has issued warrants to purchase the
Company's common stock. The
following summarizes the information
relating to outstanding warrants and
the activity during 1996 and 1995:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE
OF PER SHARE EXERCISE
SHARES WARRANT PRICE PRICE
-------- ------------------ -------
<S> <C> <C> <C> <C>
Shares under warrants
at January 1, 1995 649,353 $ 3.00 - $ 8.00 $ 5.54
Granted in 1995 254,487 14.00 - 21.00 17.25
Exercised in 1995 (4,792) 5.80 - 5.80 5.80
-------- ------------------ -------
Shares under warrants
at December 31, 1995 899,048 3.00 - 21.00 8.86
Granted in 1996 13,000 18.50 - 18.50 18.50
Exercised in 1996 (661,643) 3.00 - 18.00 6.36
-------- ------------------ -------
Shares under warrants
at December 31, 1996 250,405 $ 5.80 - $21.00$ $ 15.95
-------- ------------------ -------
Shares exercisable at
December 31, 1996 250,405 $ 5.80 - $21.00 $ 15.83
-------- ------------------ -------
</TABLE>
The warrants outstanding at December
31, 1996 expire between July 1998
and March 2001.
The Company has adopted the
disclosure-only provisions of SFAS
No. 123, " Accounting for
Stock-Based Compensation."
Accordingly, no compensation cost
has been recognized for the
Company's three stock option plans
and stock purchase warrants.
Had compensation cost for the
Company's three stock option plans
and stock purchase warrants been
determined based on the fair value
at the grant date of awards in 1995
and 1996 consistent with the
provisions of SFAS 123, the
Company's net income and earnings
per share would have been reduced to
the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Net Income - as reported $ 3,503,024 $ 371,024
Net income (loss) - pro forma 2,865,041 (370,098)
Earnings per share - as reported .62 .09
Earnings (loss) per share - pro forma .51 (.09)
</TABLE>
16. FOREIGN SALES Export sales were as follows for the
years ended December 31,:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Europe $5,916,000 $3,098,000
Asia 2,180,000 1,302,000
Others 769,000 680,000
---------- ----------
$8,865,000 $5,080,000
========== ==========
</TABLE>
17. CONCENTRATION OF
CREDIT RISK The Company's cash, including a U.S.
Treasury note and money market
account of approximately $3,419,000,
is maintained in a financial
institution, and at times exceeds
the Federal Deposit Insurance
Corporation coverage of $100,000.
Management regularly monitors the
financial condition of the financial
institution in order to keep the
potential risk to a minimum.
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: March 26, 1997
STRATASYS, INC.
By: /s/ S. Scott Crump
----------------------------------
S. Scott Crump, President
In accordance with the Securities 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.
<TABLE>
<S> <C> <C>
/s/ S. Scott Crump Chairman of the Board of Directors, March 26, 1997
- --------------------------- President, Chief Executive Officer,
S. Scott Crump Chief Financial Officer (Principal
Executive Officer and Principal Financial
Officer)
/s/ Thomas W. Stenoien Director of Finance March 26, 1997
- ---------------------------
Thomas W. Stenoien
/s/ Ralph E. Crump Director March 26, 1997
- ---------------------------
Ralph E. Crump
/s/ Clifford H. Schwieter Director March 26, 1997
- ---------------------------
Clifford H. Schwieter
/s/ Arnold J. Wasserman Director March 26, 1997
- ---------------------------
Arnold J. Wasserman
/s/ Gregory L. Wilson Director March 26, 1997
- ---------------------------
Gregory L. Wilson
</TABLE>
EXHIBIT INDEX
Exhibit Number Description
- -------------- -----------
10.18 Lease between the Company and Richard A. Burke, dated October
14, 1996.
23.1 Consent of Rothstein, Kass & Company, P.C.
27.1 Financial Data Schedule
EXHIBIT 10.18
LEASE
ARTICLE 1. LEASE TERMS
1.1 LANDLORD AND TENANT. This Lease ("Lease") is entered into this 14th day
of October, 1996 by and between RICHARD A. BURKE, a single person
("Landlord") and STRATASYS INCORPORATED ("Tenant").
1.2 PREMISES. Landlord hereby rents, leases, lets and demises to Tenant the
following described property ("Premises") as illustrated on the site
plan attached hereto as Exhibit A: approximately 48,600 square feet of
warehouse space and 10,800 square feet of office space (59,400 total
square feet) in the former Roth Company headquarters located at 7640
Commerce Way, Eden Prairie, Minnesota and consists of approximately
59,400 square feet ("Building"). A description of improvements to be
constructed by Landlord ("Landlord's Work") is attached hereto as
Exhibit B, all of which (with the exception of painting the exterior
with elastomer paint) Landlord agrees to use his best efforts to
complete prior to the Commencement Date.
1.3 LEASE TERM. The term of this Lease shall commence on December 15, 1996
('Commencement Date") and shall terminate thirty-six (36) months
thereafter on December 14, 1999, unless sooner terminated as
hereinafter provided. In the event that Tenant does not vacate the
Premises upon the expiration or termination of this Lease, Tenant shall
be a tenant at will for the holdover period and all of the terms and
provisions of this Lease shall be applicable during that period, except
that Tenant shall pay Landlord as base rental for the period of such
holdover an amount equal to one and one-half (1.5) times the base rent
which would have been payable by Tenant had the holdover period been a
part of the original term of this Lease, together with all additional
rent as provided in this Lease. Tenant agrees to vacate and deliver the
Premises to Landlord upon Tenant's receipt of notice from Landlord to
vacate. The rental payable during the holdover period shall be payable
to Landlord on demand. No holding over by Tenant, whether with or
without the consent of Landlord, shall operate to extend the term of
this Lease.
1.4 BASE RENT. Base Rent is:
Months Monthly Base Rent Annual Base Rent
1-36 $21,037.50 $252,450.00
1.5 PERMITTED USE. Office, manufacturing and warehousing.
1.6 SECURITY DEPOSIT. $21,037.50.
1.7 PRO RATA SHARE 100%.
1.8 ADDRESSES.
Landlord's Address: Tenant's Address:
Richard A. Burke Donald Moffatt
President Chief Operating Officer
c/o Intrepid Corporation Stratasys Incorporated
N14 W23 833 Stone Ridge Drive 14950 Martin Drive
Waukesha, WI 53188 Eden Prairie, MN 55344-2020
(414) 523-3000 (612) 937-3000
ARTICLE 2. RENT, OPERATING EXPENSES AND SECURITY DEPOSIT,
LATE CHARGES AND REPAYMENT OF FREE RENT
2.1 BASE RENT. Tenant agrees to pay monthly as Base Rent during the term of
this Lease the sum of money set forth in Section 1.4 of this Lease,
which amount shall be payable to Landlord at the address shown above.
One monthly installment shall be due and payable on or before the first
day of each calendar month succeeding the Commencement Date during the
term of this Lease; provided, if the Commencement Date should be a date
other than the first day of a calendar month, the monthly rental set
forth above shall be pro rated to the end of that calendar month, and
all succeeding installments of rent shall be payable on or before the
first day of each succeeding calendar month during the term of this
Lease. Tenant shall pay, as additional rent, all other sums due under
this Lease. Notwithstanding anything in this Lease to the contrary, if
Landlord, for any reason whatsoever (other than Tenant's default),
cannot deliver possession of the Premises to the Tenant on the
Commencement Date with all of Landlord's Work (except elastomer
painting) completed, this Lease shall not be void or voidable, nor
shall Landlord be liable for any loss or damage resulting therefrom,
but the Commencement Date and the expiration of the Lease term shall be
extended by the time of any such delay and all rent shall be abated
until Landlord delivers possession. Elastomer painting shall be
completed by Landlord on or before June 15, 1997.
2.2 OPERATING EXPENSES. Tenant will, during the term of this lease or
extension thereof, manage the property in a professional and
responsible manner. All operating expenses will be paid directly by
Tenant to the respective service providers in a timely fashion. If
Tenant shall fail to keep and preserve the Premises in satisfactory
condition, the Landlord may repair and at its option, put or cause the
same to be put into condition and state of repair necessary, and in
such case the Tenant, on demand, shall pay the costs thereof.
2.3 DEFINITION OF OPERATING EXPENSES. The term "operating expenses"
includes all expenses incurred by Tenant with respect to the
maintenance and operation of the Building, including, but not limited
to, the following: maintenance, repair and replacement costs;
electricity, fuel, water, sewer, gas and other common Building utility
charges; equipment used for maintenance and operation of the Building;
operational expenses; exterior window washing and janitorial services;
trash and snow removal; landscaping and pest control; all services,
supplies, repairs, replacements or other expenses for maintaining and
operating the Building including parking and common areas; and
improvements made to the Building which are required under any
governmental law or regulation that was not applicable to the Building
at the time it was constructed; provided, however, that if, in the
opinion of a licensed service provider retained by landlord any
currently existing HVAC units on the Premises need to be replaced, then
Tenant shall pay $2,500.00 replacement cost for each HVAC unit
replaced, and Landlord shall pay the balance.
2.4 UTILITIES. It is further agreed that Tenant will pay for all charges
for water, electricity, light, heat, gas, power, sewer, steam or other
utilities furnished to said Premises during the term of this lease.
2.5
2.6 SECURITY DEPOSIT. The security deposit set forth in Section 1.6 shall
be held by Landlord for the performance of Tenant's covenants and
obligations under this Lease, it being expressly understood that the
security deposit shall not be considered an advance payment of rental
or a measure of Landlord's damage in case of default by Tenant. Upon
the occurrence of any event of default by Tenant or breach by Tenant of
Tenant's covenants under this Lease, Landlord may, from time to time,
without prejudice to any other remedy, use the security deposit to the
extent necessary to make good any arrears of rent, or to repair any
damage or injury, or pay any expense or liability incurred by Landlord
as a result of the event of default or breach of covenant, and any
remaining balance of the security deposit shall be returned by Landlord
to Tenant upon termination of this Lease. If any portion of the
security deposit is so used or applied, Tenant shall upon ten (10) days
written notice from Landlord, deposit with Landlord by cash or
cashier's check an amount sufficient to restore the security deposit to
its original amount.
2.7 LATE CHARGES. Tenant's failure to pay rent promptly may cause Landlord
to incur unanticipated costs. The exact amount of such costs are
impractical or extremely difficult to ascertain. Such costs may
include, but are not limited to, processing and accounting charges and
late charges which may be imposed on Landlord by any ground lease,
mortgage or trust deed encumbering the Property. Therefore, if Landlord
does not receive any rent payment within five (5) days after it becomes
due, Tenant shall pay Landlord a late charge equal to five percent (5%)
of the overdue amount. The parties agree that such late charge
represents a fair and reasonable estimate of the costs Landlord will
incur by reason of such late payment.
2.8 INTEREST ON PAST DUE OBLIGATIONS. Any amount owed by Tenant to Landlord
which is not paid when due shall bear interest at the rate of ten
percent (10%) per annum from the due date of such amount. However,
interest shall not be payable on late charges to be paid by Tenant
under this Lease. The payment of interest on such amounts shall not
excuse or cure any default by Tenant under this Lease. If the interest
rate specified in this Lease is higher than the rate permitted by law,
the interest rate is hereby decreased to the maximum legal interest
rate permitted by law.
ARTICLE 3. TAXES AND ASSESSMENTS
3.1 The Tenant covenants and agrees to pay as additional rent, before any
fine, penalty, interest or cost may be added thereto for the
non-payment thereof, all real estate taxes, special assessments (as
they become certified to, and payable as, real estate taxes), water
rates and charges, and other governmental charges, general and special,
ordinary and extra-ordinary, unforeseen as well as foreseen, of any
kind and nature whatsoever, including but not limited to assessments
for public improvements or benefits, which shall during the term hereby
demised be laid, assessed, levied or imposed upon or become due and
payable and a lien upon the demised premises or any part thereof.
3.2 For the purpose of petitioning for the adjustment or abatement of or
the amount of any real estate tax or special assessment or contesting
the validity of or the amount of any real estate tax or special
assessment, the Tenant shall be deemed, during the term of this Lease,
to be the owner of the demised premises, and Landlord will cooperate
with Tenant with respect to any proceedings involving such real estate
tax or special assessments.
3.3 Tenant covenants to furnish Landlord within thirty (30) days after the
date upon which any such real estate tax or assessment expense is
payable by the Tenant, as in this Article provided, official receipts
of the appropriate taxing authority, or other proof satisfactory to
Landlord, evidencing the payment thereof.
3.4 Tenant shall have the right to contest the amount or validity of any
real estate tax or assessment expense by appropriate legal proceedings
but this shall not be deemed or construed in any way as relieving,
modifying or extending the Tenant's covenant to pay any such expense at
the time and in the manner in this Article provided. In the event that
Tenant shall contest such expense, at the request of Landlord, Tenant
shall deposit with Landlord a deposit of cash sufficient to pay the
amount of such contested expense, together with all interest and
penalties in connection therewith, and all charges that may or might be
assessed against or be a charge on the Premises or any part thereof in
said legal proceedings. Said deposit shall be held by Landlord without
obligation of paying interest thereon pending a decision of such legal
proceedings.
ARTICLE 4. OCCUPANCY AND USE
4.1 USE. Tenant warrants and represents to Landlord that the Premises shall
be used and occupied only for the purpose as set forth in Section 1.5.
Tenant shall occupy the Premises, conduct its business and control its
agents, employees, invitees and visitors in such a manner as is lawful,
reputable and will not create a nuisance. Tenant shall neither permit
any waste on the Premises to be used in any way which would in the
opinion of Landlord, be extra hazardous on account of fire or which
would in any way increase or render void the fire insurance on the
Building.
4.2 SIGNS. No sign of any type or description shall be erected, placed or
painted in or about the Premises or Building which are visible from the
exterior of the Premises, except those signs submitted to Landlord in
writing. Landlord shall not unreasonably withhold its consent to any
signs requested by Tenant, provided that the signs comply with
municipal requirements.
4.3 COMPLIANCE WITH LAWS, RULES AND REGULATIONS. Tenant, at Tenant's sole
cost and expense, shall comply with all laws, ordinances, orders, rules
and regulations of state, federal, municipal or other agencies or
bodies having jurisdiction over the use, condition or occupancy of the
Premises. Tenant will comply with the reasonable rules and regulations
of the Building adopted by Landlord. Landlord shall have the right at
all times to change and amend the rules and regulations in any
reasonable manner as may be deemed advisable for the safety, care,
cleanliness, preservation of good order and operation or use of the
Building or the Premises. All rules and regulations of the Building
will be sent by Landlord to Tenant in writing and shall thereafter be
carried out and observed by Tenant.
4.4 WARRANTY OF POSSESSION. Landlord warrants that it has the right and
authority to execute this Lease, and Tenant, upon payment of the
required rents and subject to the terms, conditions, covenants and
agreements contained in this Lease, shall have possession of the
Premises during the full term of this Lease as well as any extension or
renewal thereof.
4.5 RIGHT OF ACCESS. Landlord or its authorized agents shall, with prior
notice of at least 24 hours except for emergencies, have the right to
enter the Premises during regular business hours except in emergency
situations, to inspect the same, to show the Premises to prospective
purchasers, Lessees, mortgagees, insurers or other interested parties,
and to improve or repair the Premises or any other portion of the
Building. Tenant hereby waives any claim for damages for injury or
inconvenience to or interference with Tenant's business, any loss of
occupancy or use o the Premises, and any other loss occasioned thereby.
Landlord shall have the right to use any and all means which Landlord
may deem proper to open any door in an emergency without liability
therefor.
ARTICLE 5. UTILITIES AND ACTS OF OTHERS
5.1 BUILDING SERVICES. Tenant shall pay when due, all charges for utilities
furnished to or for the use or benefit of Tenant or the Premises during
the Lease term. Tenant shall have no claim for rebate of rent on
account of any interruption in service.
5.2 THEFT OR BURGLARY. Landlord shall not be liable to Tenant for losses to
Tenant's property or personal injury caused by criminal acts or entry
by unauthorized persons into the Premises or the Building.
ARTICLE 6. REPAIRS AND MAINTENANCE
6.1 LANDLORD REPAIRS. Landlord shall not be required to make any
improvements, replacements or repairs of any kind or character to the
Premises or the Building during the term of this Lease except as are
set forth in this Section. Landlord shall be responsible at its sole
cost, for roof replacement and any repairs covered by warranty contract
with roof installer, structural soundness of foundation, floors and the
exterior walls, and the structural soundness of the Building in
general. Landlord shall not be liable to Tenant, except as expressly
provided in this Lease, for any damage or inconvenience, and Tenant
shall not be entitled to any abatement or reduction of rent by reason
of any repairs, alterations or additions made by Landlord under this
Lease, except for damages, inconvenience or losses resulting from gross
negligence or intentional misconduct of Landlord or its employees or
agents.
6.2 TENANT REPAIRS. Tenant shall, at all times throughout the term of this
Lease, including renewals and extensions, and at its sole expense, keep
and maintain the Premises in a clean, safe, sanitary and first class
condition and in compliance with all applicable laws, codes,
ordinances, rules and regulations. Tenant's obligations hereunder shall
include, but not be limited to the maintenance of the roof (except for
any repairs covered by warranty contract with roof installers) parking
and common areas, doors, corridors as well as the maintenance, repair
and replacement, if necessary, of all heating, ventilation, air
conditioning, lighting and plumbing fixtures and equipment, fixtures,
motors and machinery, all interior walls, partitions, doors and
windows, including the regular painting thereof, all exterior
entrances, windows, doors and docks and the replacement of all broken
glass. When used in this provision, the term "repairs" shall include
replacements or renewals when necessary, and all such repairs made by
the Tenant shall be equal in quality and class to the original work.
The Tenant shall keep and maintain all portions of the Premises and the
sidewalk and areas adjoining the same in a clean and orderly condition,
free of accumulation of dirt, rubbish, snow and ice. If Tenant fails,
refuses or neglects to maintain or repair the Premises as required in
this Lease after notice shall have been given Tenant, in accordance
with this Lease, Landlord may make such repairs, and upon completion
thereof, Tenant shall pay to Landlord all costs plus fifteen percent
(15%) for overhead incurred by Landlord in making such repairs upon
presentation to Tenant of bill therefor. Tenant shall only be required
to maintain existing dock door shelters so as to keep them in their
current condition, normal wear and tear excepted.
6.3 TENANT DAMAGES. Tenant shall not cause any damage to any portion of
the Premises or Building or common areas, and at the termination of
this Lease, by lapse of time or otherwise, Tenant shall deliver the
Premises to Landlord in as good condition as existed at the
Commencement Date of this Lease, ordinary wear and tear excepted,
subject to Sections 6.1 and 7.2 hereof. The cost and expense of
repairs necessary to restore the condition of the Premises shall be
borne by Tenant, subject to Sections 6.1 and 7.2 hereof.
ARTICLE 7. ALTERATIONS AND IMPROVEMENTS
7.1 LANDLORD IMPROVEMENTS. At its sole cost, Landlord will complete the
construction of the improvements to the Premises described on Exhibit B
in accordance with plans and specifications attached hereto as Exhibit
B or as otherwise agreed to by Landlord and Tenant, which plans and
specifications are made a part of this Lease by reference. Any changes
or modifications to the approved plans and specifications shall be made
and accepted by written change order or agreement signed by Landlord
and Tenant and shall constitute an amendment to this Lease.
7.2 TENANT IMPROVEMENTS. Tenant shall not make or allow to be made any
alterations or physical additions in or to the Premises without first obtaining
the written consent of Landlord, which consent shall not be unreasonably
withheld, except for those described on Exhibit C. , Tenant agrees to complete
the Required Alterations described on Exhibit C hereto. Landlord hereby consents
to the Required Alterations, and also to Optional Alterations, which may be made
at Tenant's option. Tenant shall have full access to the Premises upon execution
of this Lease to commence the Required Alterations, provided that Tenant shall
cooperate with Landlord's roofing contract or in installing HVAC related
improvements. Any alterations, physical additions or improvements to the
Premises made by Tenant shall at once become the property of Landlord and shall
be surrendered to Landlord upon the termination of this Lease; except that
Tenant, at its option, may elect to remove equipment, furniture and any personal
property installed or supplied by Tenant, so long as Tenant repairs any
resulting damage to the Premises. Landlord may not require Tenant to remove any
physical additions and/or repair any alterations in order to restore the
Premises to the conditions existing at the time Tenant took possession, except
for removal of (i) any back up generator installed by Tenant, and (ii) driveway
connection with 14950 Martin Drive, both of which Landlord may require Tenant to
remove at Tenant's cost, and restore to prior condition. Any moveable equipment
or furniture owned by Tenant may be removed by Tenant at the end of the term of
this Lease.
7.3 LIEN REMOVAL. During the term, Tenant shall remove, within thirty (30)
days, all liens levied against the Land or Building arising out of work
incurred by or at the request of the Tenant unless such liens are the
subject of a bona fide contest as hereinafter provided. The Tenant
shall, at the Tenant's sole cost and expense, keep all buildings
erected upon the demised premises and the fixtures therein, insured for
the benefit of the Landlord, as the named insured, in an amount
equivalent to the full replacement value thereof (excluding foundation
and excavation costs), (a) against loss or damage by fire and (b)
against such other risk, of a similar or dissimilar nature, as are or
shall be customarily covered with respect to buildings in construction,
general location, use and occupancy to the building then on the demises
premises, including but without limiting the generality of the
foregoing, windstorm, hail, explosion, vandalism, riot and civil
commotion, damage from vehicles and smoke damage. These insurance
provisions shall in no way limit or modify any of the obligations of
the Tenant under any provisions of this Lease.
7.4 CONTESTED LIENS. Tenant shall not be required to pay, discharge or
remove any mechanic's liens, or other imposition or charges against the
Building, or any part thereof, or the improvements at any time situated
thereon, so long as Tenant shall in good faith contest the same or the
validity thereof by appropriate proceedings which shall operate to
prevent the collection of the lien or imposition so contested, or the
forfeiture and/or sale of the Premises to satisfy the same. Pending any
such legal proceedings, Landlord shall not have the right to pay,
remove, or discharge the lien or imposition thereby contested, provided
Tenant shall, prior to the date such lien or imposition is due and
payable, have given such reasonable security as may be required by
Landlord to insure such payments and prevent any sale or forfeiture of
the Premises by reason of such non-payment, not to exceed one hundred
twenty-five percent (I 25 %) of the amount of such lien, including any
penalties and interest charges thereon imposed by law. Nothing in this
Lease shall be construed as a consent by Landlord that would subject
Landlord's estate in the Building to any lien or liability under the
mechanic's lien laws of the State of Minnesota.
7.5 LANDLORD REIMBURSEMENT. Upon substantial completion by Tenant of
substantially all interior Required Alterations, as described on the
attached Exhibit C, Landlord shall pay $45,000.00 to Tenant, as
evidenced by an invoice and mechanic's lien waiver supplied to Landlord
by Tenant.
ARTICLE 8. CASUALTY AND INSURANCE
8.1 SUBSTANTIAL DESTRUCTION. If all or a substantial portion (more than 50%
of the floor area) of the Premises or the Building should be totally
destroyed by fire or other casualty, or if the Premises or the Building
should be damaged so that rebuilding cannot reasonably be completed
within one hundred eighty (180) working days after the date of written
notification by Tenant to Landlord of the destruction, or if insurance
proceeds are not made available to Landlord (through no fault of
Landlord), this Lease shall terminate within sixty (60) days following
the occurrence, and the rent shall be abated for the unexpired portion
of the Lease effective as of the date of the casualty.
8.2 PARTIAL DESTRUCTION. If the Premises should be partially damaged by
fire or other casualty, and rebuilding or repairs can reasonably be
completed within one hundred eighty (180) working days from the date of
written notification by Tenant to Landlord of the destruction, and
insurance proceeds are available to Landlord for restoration, this
Lease shall not terminate, and Landlord shall at its sole risk and
expense proceed with reasonable diligence to rebuild or repair the
Building or other improvements to substantially the same condition in
which they existed prior to the damage. If the Premises are to be
rebuilt or repaired and are untenantable in whole or in part following
the damage, the rent payable under this Lease during the period for
which the Premises are untenantable shall be adjusted to such an extent
as may be fair and reasonable under the circumstances. In the event
that Landlord fails to complete the necessary repairs or rebuilding
within one hundred eighty (180) working days from the date of written
notification by Tenant to Landlord of the destruction, Tenant may at
its option to terminate this Lease by delivering written notice of
termination to Landlord, whereupon all rights and obligations under
this Lease shall cease to exist, or pursue an action for specific
performance (but not damages) against Landlord.
8.3 PROPERTY INSURANCE. Tenant shall during the term hereof, keep in full
force and effect at its expense a policy of all risk casualty insurance
for the full insurable value of the Building, naming Landlord as loss
payee and an additional insured. Landlord shall not be obligated in any
way or manner to insure any personal property (including, but not
limited to, any furniture, machinery, goods or supplies) of Tenant upon
or within the Premises, any fixtures installed or paid for by Tenant
upon or within the Premises, Tenant shall maintain property insurance
on its personal property and shall also maintain plate glass insurance.
Tenant shall have no right in or claim to the proceeds of any policy of
insurance maintained by Landlord even if the cost of such insurance is
borne by Tenant as set forth in Article 2.
8.4 WAIVER OF SUBROGATION. Anything in this Lease to the contrary
withstanding, Landlord and Tenant hereby waive and release each other
of and from any and all right of recovery, claim, action or cause of
action, against each other, their agents, officers and employees, for
any loss or damage that may occur to the Premises, the improvements of
the Building or personal property within the Building, by reason of
fire or other insurable casualty, regardless of cause or origin,
including negligence of Landlord or Tenant and their agents, officers
and employees. Landlord and Tenant agree immediately to give their
respective insurance companies which have issued policies of insurance
covering all risk of direct physical loss, written notice of the terms
of the mutual waivers contained in this Section.
8.5 PUBLIC LIABILITY INSURANCE. Tenant shall during the term hereof keep in
full force and effect at its expense a policy or policies of public
liability insurance with respect to the Premises and the business of
Tenant, on terms and with companies approved in writing by Landlord,
such approval not to be withheld unreasonably, in which both Tenant and
Landlord shall be covered by being named as insured parties under
reasonable limits of liability not less than $1,000,000, combined
single limit coverage for injury or death. Such policy or policies
shall provide that thirty (30) days' written notice must be given to
Landlord prior to cancellation thereof. Tenant shall furnish evidence
satisfactory to Landlord at the time this Lease is executed that such
coverage is in full force and effect.
ARTICLE 9. CONDEMNATION
9.1 SUBSTANTIAL TAKING. If all or a substantial part of the Premises are
taken for any public or quasi-public use under any governmental law,
ordinance or regulation, or by right of eminent domain or by purchase
in lieu thereof, and the taking would prevent or materially interfere
with the use of the Premises for the purpose for which it is then being
used, this Lease shall terminate and the rent shall be abated during
the unexpired portion of this Lease effective on the date physical
possession is taken by the condemning authority. Tenant shall have no
claim to the condemnation award or proceeds in lieu thereof, except
that Tenant shall be entitled to a separate award for the cost of
removing and moving its personal property.
9.2 PARTIAL TAKING. If all or a substantial part of the Premises are taken
for any public or quasi-public use under any governmental law,
ordinance or regulation, or by right of eminent domain or by purchase
in lieu thereof, and this Lease is not terminated as provided in
Section 9.1 above, the rent payable under this Lease during the
unexpired portion of the term shall be adjusted to such an extent as
may be fair and reasonable under the circumstances. Tenant shall have
no claim to the condemnation award or proceeds in lieu thereof, except
that Tenant shall be entitled to a separate award for the cost of
removing and moving its personal property.
ARTICLE 10. ASSIGNMENT OR SUBLEASE
10.1 LANDLORD ASSIGNMENT. Landlord shall have the right to sell, transfer or
assign, in whole or in part, its rights and obligations under this
Lease and in the Building, provided that Landlord also transfers to its
assignee the security deposit and any other unearned funds or property
of Tenant. Any such sale, transfer or assignment shall operate to
release Landlord from any and all liabilities under this Lease arising
after the date of such sale, assignment or transfer.
10.2 TENANT ASSIGNMENT. Tenant shall not assign, in whole or in part, this
Lease, or allow it to be assigned, in whole or in part, by operation of
law or otherwise (including without limitation by transfer of a
majority interest of stock, merger, or dissolution, which transfer of
majority interest of stock, merger or dissolution shall be deemed an
assignment) or mortgage or pledge the same, or sublet the Premises, in
whole or in part, without the prior written consent of Landlord, which
shall not be unreasonably withheld or delayed, and in no event shall
said such assignment or sublease ever release Tenant or any guarantor
from any obligation or liability hereunder. Notwithstanding anything in
this Lease to the contrary, in the event of any assignment or sublease,
any option or right of first refusal granted to Tenant shall not be
assignable by Tenant to any assignee or sublessee. No assignee or
sublessee of the Premises or any portion thereof may assign or sublet
the Premises or any portion thereof.
10.3 CONDITIONS OF ASSIGNMENT. If Tenant desires to assign or sublet all or
any part of the Premises, it shall so notify Landlord at least seven
(7) days in advance of the date on which Tenant desires to make such
assignment or sublease. Tenant shall provide Landlord with a copy of
the proposed assignment or sublease and such information as Landlord
might request concerning the proposed sublessee or assignee to allow
Landlord to make informed judgments as to the financial condition,
reputation, operations and general desirability of the proposed
sublessee or assignee. Within three (3) days after Landlord's receipt
of Tenant's proposed assignment or sublease and all required
information concerning the proposed subleases or assignee, Landlord
shall notify Tenant in writing whether it consents to the assignment or
sublease. Refusal shall be deemed to have been exercised unless
Landlord gives Tenant written notice providing otherwise. Upon the
occurrence of an event of default, if all or any part of the Premises
are then assigned or sublet, Landlord, in addition to any other
remedies provided by this Lease or provided by law, may, at its option,
collect directly from the assignee or sublessee all rents becoming due
to Tenant by reason of the assignment or sublease, with any sums
collected to be applied to the rent then or next due hereunder. Any
collection directly by Landlord from the assignee or sublessee shall
not be construed to constitute a novation or a release of Tenant or any
guarantor from the further performance of its obligations under this
Lease.
10.4 RIGHTS OF MORTGAGE. Tenant accepts this Lease subject and subordinate
to any recorded mortgage presently existing or hereafter created upon
the Building and to all existing recorded restrictions, covenants,
easements and agreements with respect to the Building. Landlord is
hereby irrevocably vested with full power and authority to subordinate
Tenant's interest under this Lease to any first mortgage lien hereafter
placed on the Premises, and Tenant agrees upon demand to execute
additional instruments subordinating this Lease as Landlord may
require. If the interests of Landlord under this Lease shall be
transferred by reason of foreclosure or other proceedings for
enforcement of any first mortgage or deed of trust on the Premises,
Tenant shall be bound to the transferee (sometimes called the
'Purchaser") under the terms, covenants and conditions of this Lease
for the balance of the term remaining, including any extensions or
renewals, with the same force and effect as if the Purchaser were
Landlord under this Lease, and, if requested by the Purchaser, Tenant
agrees to attorn to the Purchaser, including the first mortgagee under
any such mortgage if it be the Purchaser, as its Landlord.
Notwithstanding the foregoing, Tenant shall not be disturbed in its
possession of the Premises so long as Tenant is not in default
hereunder, and Landlord shall obtain from any existing mortgage holder,
prior to the Commencement Date, an appropriate subordination and
non-disturbance agreement.
10.5 TENANT'S STATEMENT. Tenant agrees to furnish, from time to time, within
ten (10) days after receipt of a request from Landlord or Landlord's
mortgagee, a statement certifying, if applicable, the following: Tenant
is in possession of the Premises; the Premises are acceptable; the
Lease is in full force and effect; the Lease is unmodified; Tenant
claims no present charge, lien, or claim or offset against rent; the
rent is paid for the current month, but is not prepaid for more than
one month and will not be prepaid for more than one month in advance;
there is no existing default by reason of some act or omission by
Landlord; and such other matters as may be reasonably required by
Landlord or Landlord's mortgagee. Tenant's failure to deliver such
statement, in addition to being a default under this Lease, shall be
deemed to establish conclusively that this Lease is in full force and
effect except as declared by Landlord, that Landlord is not in default
of any of its obligations under this Lease, and that Landlord has not
received more than one month's rent in advance. Tenant agrees to
furnish, from time to time, within ten (10) days after receipt of a
request from Landlord, a current financial statement of Tenant,
certified as true and correct by Tenant.
ARTICLE 11. DEFAULT AND REMEDIES
11.1 DEFAULT BY TENANT. The following shall be deemed to be events of
default ("Default") by Tenant under this Lease: (1) Tenant shall fail
to pay within five days of when due any installment of rent or any
other payment required pursuant to this Lease; (2) Tenant shall fail
to comply with any term, provision or covenant of this Lease, other
than the payment of rent, and the Tenant fails to commence to cure
such failure within ten (10) days after written notice to Tenant or
shall fail to thereafter diligently complete such cure; or (3) Tenant
shall file a petition or if an involuntary petition is filed against
Tenant, or becomes insolvent, under any applicable federal or state
bankruptcy or insolvency law or admit that it cannot meet its
financial obligations as they become due; or a receiver or trustee
shall be appointed for all or substantially all of the assets of
Tenant; or Tenant shall make a transfer in fraud of creditors or
shall make an assignment for the benefit of creditors.
In the event that an order for relief is entered in any case under
Title 11, U.S.C. (the "Bankruptcy Code") in which Tenant is the
debtor and: (A) Tenant as debtor-in-possession, or any trustee who
may be appointed in the case (the 'Trustee') seeks to assume the
Lease, then Tenant, or Trustee if applicable, in addition to
providing adequate assurance described in applicable provisions of
the Bankruptcy Code, shall provide adequate assurance to Landlord of
Tenant's future performance under the Lease by depositing with
Landlord a sum equal to the lesser of twenty-five percent (25%) of
the rental and other charges due for the balance of the Lease term of
six (6) months's rent ("Security"), to be held (without any allowance
or interest thereon) to secure Tenant's obligation under the Lease,
and (B) Tenant, or Trustee if applicable, seeks to assign the Lease
after assumption of the same, then Tenant, in addition to providing
adequate assurance described in applicable provisions of the
Bankruptcy Code, shall provide adequate assurance to Landlord of the
proposed assignee's future performance under the Lease by depositing
with Landlord a sum equal to the Security to be held (without any
allowance or interest thereon) to secure performance under the Lease.
Nothing contained herein expresses or implies, or shall be construed
to express or imply, that Landlord is consenting to assumption and/or
assignment of the Lease by Tenant, and Landlord expressly reserves
all of its rights to object to any assumption and/or assignment of
the Lease. Neither Tenant nor any Trustee shall conduct or permit the
conduct of any "fire," "bankruptcy, 1. "going out of business" or
auction sale in or from the Premises.
11.2 REMEDIES FOR TENANT'S DEFAULT. Upon the occurrence of a Default as
defined above, Landlord may elect, with ten (10) days prior written
notice to Tenant, either (i) to cancel and terminate this Lease and
this Lease shall not be treated as an asset of Tenant's bankruptcy
estate, or (ii) to terminate Tenant's right to possession only
without canceling and terminating Tenant's continued liability under
this Lease. Notwithstanding the fact that initially Landlord elects
under (ii) to terminate Tenant's right to possession only, Landlord
shall have the continuing right to cancel and terminate this Lease by
giving ten (10) days' written notice to Tenant of such further
election, and shall have the right to pursue any remedy at law or in
equity that may be available to Landlord.
In the event of election under (ii) to terminate Tenant's right to
possession only, Landlord may, at Landlord's option, enter the
Premises and take and hold possession thereof, without such entry
into possession terminating this Lease or releasing Tenant in whole
or in part from Tenant's obligation to pay all amounts hereunder for
the full stated term. Upon such re-entry, Landlord may remove all
persons and property from the Premises and such property may be
removed and stored in a public warehouse or elsewhere at the cost and
for the account of Tenant, without becoming liable for any loss or
damage which may be occasioned thereby. Such re-entry shall be
conducted in the following manner: without resort to judicial process
or notice of any kind if Tenant has abandoned or voluntarily
surrendered possession of the Premises; and, otherwise, by resort to
judicial process. Upon and after entry into possession without
termination of the Lease, Landlord shall use reasonable efforts to
relet the Premises, or any part thereof, to any one other than the
Tenant, for such time and upon such terms as are commercially
reasonable. Landlord may make alterations and repairs to the Premises
to the extent deemed by Landlord reasonably necessary or desirable.
Upon such re-entry, Tenant shall be liable to Landlord as
follows:
A. For reasonable attorneys' fees incurred by
Landlord in connection with exercising any remedy
hereunder;
B. For the unpaid installments of base rent,
additional rent or other unpaid sums which were
due prior to such re-entry, including interest and
late payment fees, which sums shall be payable
immediately;
C. For the installments of base rent, additional
rent, and other sums falling due pursuant to the
provisions of this Lease for the period after
re-entry during which the Premises remain vacant,
including late payment charges and interest, which
sums shall be payable as they become due
hereunder;
D. For all reasonable expenses incurred in releasing
the Premises, including leasing commissions,
attorneys, fees, and costs of reasonable
alteration or repairs, which shall be payable by
Tenant as they are incurred by Landlord; and
E. While- the Premises are subject to any new lease
or leases made pursuant to this Section, for the
amount by which the monthly installments payable
under such new lease or leases is less than the
monthly installment for all charges payable
pursuant to this Lease, which deficiencies shall
be payable monthly.
Notwithstanding Landlord's election to terminate Tenant's right to
possession only, and notwithstanding any reletting without termination,
Landlord, at any time thereafter, may elect to terminate this Lease,
and to recover (in lieu of the amounts which would thereafter be
payable pursuant to the foregoing, but not in diminution of the amounts
payable as provided above before termination), as damages for loss of
bargain and not as a penalty, an aggregate sum equal to the amount by
which the rental value of the portion of the term unexpired at the time
of such election is less than an amount equal to the unpaid base rent,
which deficiency, discounted at an annual percentage rate of 10% (to
reflect the time value of money), shall be due to Landlord as of the
time Landlord exercises said election, notwithstanding that the term
had not expired. If Landlord, after such re-entry, leases the Premises
in accordance with this Lease, then the rent payable under such new
Lease shall be conclusive evidence of the rental value of the unexpired
portion of the term of this Lease.
If this Lease shall be terminated by reason of bankruptcy or insolvency
of Tenant, Landlord shall be entitled to recover from Tenant or
Tenant's estate, as liquidated damages for loss of bargain and not as a
penalty, the amount determined by the immediately preceding paragraph.
11.3 LANDLORD'S RIGHT TO PERFORM FOR ACCOUNT OF TENANT. If either party
shall be in default under this Lease, the non-defaulting party may cure
the default at any time for the account and at the expense of the
defaulting party, if the defaulting party fails to cure, or commence to
cure, such default within ten (10) days of written notice thereof from
the defaulting party. The defaulting party shall reimburse the
non-defaulting party upon demand for any amount expended by the
non-defaulting party in connection with the cure, including, without
limitation, attorneys' fees and interest.
11.4 INTEREST, ATTORNEY'S FEES AND LATE CHARGE. In the event of a Default by
Tenant: (1) if a monetary Default, interest shall accrue on any sum due
and unpaid at the rate of the lesser of ten percent (10 %) per annum or
the highest rate permitted by law and, if Landlord places in the hands
of an attorney the enforcement of all or any part of this Lease, the
collection of any rent due or to become due or recovery of the
possession of the Premises, Tenant agrees to pay Landlord's costs of
collection, including reasonable attorney's fees for the services of
the attorney, whether suit is actually filed or not. Other remedies for
nonpayment of rent notwithstanding, if the monthly rental payment or
any other payment due from Tenant to Landlord is not received by
Landlord on or before the fifth (5th) day of the month for which the
rent is due, a late payment charge of five percent (5%) of such past
due amount shall become due and payable in addition to such amounts
owed under this Lease.
11.5 ADDITIONAL REMEDIES, WAIVERS, ETC.
A. The rights and remedies of Landlord set forth
herein shall be in addition to any other right and
remedy now and hereafter provided by law. All
rights and remedies shall be cumulative and not
exclusive of each other. Landlord may exercise its
rights and remedies at any time, in any order, to
any extent, and as often as Landlord deems
advisable without regard to whether the exercise
of one right or remedy precedes, concurs with or
succeeds the exercise of another.
B. A single or partial exercise of a right or remedy
shall not preclude a further exercise thereof, or
the exercise of another right or remedy from time
to time.
C. No delay or omission by Landlord in exercising a
right or remedy shall exhaust or impair the same
or constitute a waiver of, or acquiesce to, a
Default.
D. No waiver of Default shall extend to or affect any
other Default or impair any right or remedy with
respect thereto.
E. No action or inaction by Landlord shall constitute
a waiver of Default.
F. No waiver of a Default shall be effective unless
it is in writing and signed by Landlord.
ARTICLE 12. RENEWAL OPTION
12.11 RENEWAL OPTION. Tenant shall have the option to renew this Lease for an
additional term of two (2) years from December 1, 1999 through November
30, 2001 ("Renewal Term"), by giving written notice to Landlord of the
exercise of such option by June 1, 1999. The Renewal Term, if
exercised, shall be upon the same terms and conditions as contained
herein, except for Basic Rent. The base rental rate will be as follows:
Months Monthly Base Rent Annual Base Rent
1-24 $21,780.00 $261,360.00
ARTICLE 13. AMENDMENT AND LIMITATION OF WARRANTIES
13.1 ENTIRE AGREEMENT. It is expressly agreed by Tenant, as a material
consideration for the execution of this Lease, that this Lease, with
the specific references to written extrinsic documents, is the entire
agreement of the parties: that there are, and were, no verbal
representations, warranties, understandings, stipulations, agreements
or promises pertaining to this Lease or to the expressly mentioned
written extrinsic documents not incorporated in writing in this Lease.
13.2 AMENDMENT. This Lease may not be altered, waived, amended or extended
except by an instrument in writing signed by Landlord and Tenant.
13.3 LIMITATION OF WARRANTIES. Landlord and Tenant expressly agree that
there are and shall be no implied warranties or merchantability,
habitability, fitness for a particular purpose or of any other kind
arising out of this Lease, and there are no warranties which extend
beyond those expressly set forth in this Lease.
ARTICLE 14. MISCELLANEOUS
14.1 SUCCESSORS ASSIGNS. This Lease shall be binding upon and inure to the
benefit of Landlord and Tenant and their respective heirs, personal
representatives, successors and assigns. It is hereby covenanted and
agreed that should Landlord's interest in the Premises cease to exist
for any reason during this Lease, then notwithstanding the happening of
such event this Lease nevertheless shall remain unimpaired and in full
force and effect, and Tenant hereunder agrees to attorn to the then
owner of the Premises.
14.2 USE OR RENT TAX. If applicable in the jurisdiction where the Premises
are issued, Tenant shall pay and be liable for all rental, sales and
use taxes or other similar taxes, except to the extent in lieu of or
supplemental to income taxes. If any, levied or imposed by any city,
state, county or other governmental body having authority, such
payments to be in addition to all other payments required to be paid to
Landlord under the terms of this Lease. Any such payment shall be paid
concurrently with the payment of the rent, additional rent, operating
expenses or other charge upon which the tax is based as set forth
above.
14.3 ACT OF GOD. Neither party shall not be required to perform any covenant
of obligation in this Lease, or be liable in damages to the other
party, so long as the performance or nonperformance of the covenant or
obligation is delayed, caused or prevented by an act of God, force
majeure or by the other party.
14.4 HEADINGS. The section headings appearing in this Lease are inserted
only a matter of convenience and in no way define, limit, construe or
describe the scope or intent of any Section.
14.5 NOTICE. All rent and other payments required to be made by Tenant shall
be payable to Landlord at the address set forth in Section 1.8. All
payments required to be made by Landlord to Tenant shall be payable at
the address set forth in Section 1.8, or at any other address within
the United States as Tenant may specify from time to time by written
notice. Any notice or document required or permitted to be delivered by
the terms of this Lease shall be deemed to be delivered (whether or not
actually received) when deposited in the United States Mail, postage
prepaid, certified mail, return receipt requested, addressed to the
parties at the respective addresses set forth in Section 1.8.
14.6 TENANT'S AUTHORITY. If Tenant executes this Lease as a corporation,
each of the persons executing this Lease on behalf of Tenant does
hereby personally represent and warrant that Tenant is a duly
authorized and existing corporation, that Tenant is qualified to do
business in the state in which the Premises are located, that the
corporation has full right and authority to enter into this Lease, and
that each person signing on behalf of the corporation is authorized to
do so.
14.7 HAZARDOUS SUBSTANCES. Tenant shall not bring or store or handle on the
Premises or Building any asbestos, petroleum or petroleum products,
explosives, toxic materials, or substances defined as hazardous wastes,
hazardous material, or hazardous substances under any federal, state,
or local law or regulation ("Hazardous Materials") in violation of
applicable law. Tenant's violation of the foregoing prohibition shall
constitute a material breach and default hereunder and Tenant shall
indemnify, hold harmless and defend Landlord from and against any
claims, damages, penalties, liabilities, and costs (including
reasonable attorney fees and court costs) caused by or arising out of
(i) a violation of the foregoing prohibition or (ii) the presence of
any Hazardous Materials released by Tenant on, under, or about the
Premises or the Building during the term of the Lease. Tenant shall
immediately give Landlord written notice of any suspected breach of
this paragraph or upon learning of the presence of any release by
Tenant of any Hazardous Materials, or upon receiving any notices from
governmental agencies pertaining to Hazardous Materials which may
affect the Premises or the Building. The obligations of Tenant and
Landlord hereunder shall survive the expiration of earlier termination,
for any reason, of this Lease. Landlord shall indemnify and hold Tenant
harmless from any cost, expense, claim or liability charged or claimed
against Tenant related to the presence of any Hazardous Materials first
released or brought upon the Premises prior to the Commencement Date.
14.8 SEVERABILITY. If any provision of this Lease or the application thereof
to any person or circumstances shall be invalid or unenforceable to any
extent, the remainder of this Lease and the application of such
provisions to other persons or circumstances shall not be affected
thereby and shall be enforced to the greatest extent permitted by law.
14.9 BROKERAGE. Landlord and Tenant each represents and warrants to the
other that there is no obligation to pay any brokerage fee, commission,
finder's fee or other similar charge in connection with this Lease,
other than fees due to CB Commercial and Koll which are the
responsibility of Landlord. Each party covenants that it will defend,
indemnify and hold harmless the other party from and against any loss
or liability by reason of brokerage or similar services alleged to have
been rendered to, at the instance of, or agreed upon by said
indemnifying party. Notwithstanding anything herein to the contrary,
Landlord and Tenant agree that there shall be no brokerage fee or
commission due on expansions, options or renewals by Tenant.
14.10 SUBMISSION OF LEASE. Submission of this Lease to Tenant for signature
does not constitute a reservation of space or an option to lease. This
Lease is not effective until execution by and delivery to both Landlord
and Tenant.
ARTICLE 15: ROTH SUBLEASE
15.1 ROTH SUBLEASE. Tenant's obligations under this Lease are contingent
upon the execution and performance by Roth Corporation of a Sublease in
accordance with the Sublease attached hereto as Exhibit D-1.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease effective the
day and year first above written.
LANDLORD: TENANT:
By: /s/ R. A. Burke By: /s/ Donald W. Moffatt
Its: Owner Its: Chief Operating Officer
Date: 11/18/96 Date: 11/14/96
CONSULT YOUR ATTORNEY: This document has been prepared for approval by your
attorney. No representation or recommendation is made by Broker as to the legal
sufficiency, legal effect, or tax consequence of this document or the
transaction to which it relates. These are questions for your attorney and
financial advisors.
EXHIBIT A
Site Plan
(Exhibit A is a diagram of the building site)
[DIAGRAM OMITTED]
EXHIBIT B
LANDLORD IMPROVEMENTS:
Landlord, at its sole expense, without recapture, will:
* Pave and stripe the parking lots pursuant to the attached Exhibit B-1.
* Caulk and seal the exterior walls and paint exterior with an elastomer
paint TO create a seat to prevent moisture.
* Landlord will replace the refrigerator in the model kitchen area.
* Landlord will have the roof replaced, as described on the attached
Exhibit B-2.
* Make the following repairs:
(a) Change the locking mechanism in the upper and lower entrances to
the office space to prevent people from becoming locked in the
vestibule.
(b) Seal leak in the lower level windows in the lunch room area.
(c) On the westerly corner of the north wall, there is a protruding
pipe which shall be sealed to the block to prevent moisture
penetration.
(d) Replace/repair the glass and bulbs in the light standards in the
upper parking lot.
(e) The crack between the walkway and the front door to the second
level office shall be filled with cement or rubber.
* Remove existing signage and repair resulting damage. Landlord reserves
the right to maintain directional signage to the Roth Company's space,
which is satisfactory to Tenant, who shall not withhold its consent to
such directional signage unreasonably.
* Landlord will have all existing HVAC equipment inspected (with Tenant
to accompany inspector) and maintained to ensure that all HVAC
equipment is in good operating condition as of the Lease commencement.
EXHIBIT B-1
(paving contract WITH specifications)
(Exhibit B-1 is a quotation from The Ryan Company, General
Contractors for $49,470 for parking lot repair at 7640 Commerce
Way, Eden Prairie, MN and a diagram of the parking areas.)
EXHIBIT B-2
(Roof Replacement Contract with Specifications)
(Exhibit B-2 is a quotation from Rayco Construction, Inc. for
$248,283.00 of roof repair at 7640 Commerce Way, Eden Prairie, MN
and a diagram of the roof.)
EXHIBIT C
TENANTS ALTERATIONS AND IMPROVEMENTS:
Tenant plans on making the Required Alterations before occupying the Building
for use in early 1997. Optional Alterations will be made at the sole option of
Tenant and, if undertaken, will be completed later in the lease term. All items,
both Required and Optional, are hereby approved by Landlord, according to
Article 7.2.
REQUIRED ALTERATIONS
1. DOOR: Add 3' employee entrance door on north wall between posts A7 & A8.
Widening of existing paving for roll up door will be necessary near the
door.
2. SIDEWALK: Run sidewalk from the north parking lot to employee entrance door
on north wall near post A4. An air lock vestibule will be constructed
inside that entrance door.
3. Build interior demising walls along the C column line, along post 4 line
from post A4 (north wall) to post 4C, and along post line 2 from C2 to the
shipping/receiving office northeast corner; paint interior surface of
exterior walls.
4. CEILING: Install drop ceiling to 12' clear height and drop sprinklers per
appropriate codes; or, in the alternative, install ceiling insulation and
new lighting, leaving ceilings at present height.
5. AIR COMPRESSOR: Enclose air compressor in northwest corner of bay A. Run
distribution lines as necessary.
6. PHONE DATA LINES: Run fiber optics and phone lines to building from 14950
Martin Drive.
7. DRIVEWAY. Construct 24' driveway connection from southwest comer of
property to northwest comer of 14950 Martin Drive.
8. HVAC: Install roof top units in Bays A & B, install roof penetrations for
possible future HVAC.
9. WALL CHANGES: Demolish walls in mezzanine area and construct five offices.
Demolish customer counter and walls nearby and leave open for testing
machines, office cubicles.
10. SECURITY: Update existing Honeywell system or install new including badges.
Rekey doors.
11. OUTSIDE LIGHTING: Replace existing flood lights with higher output
lighting.
12. SIGNAGE: Install directional signs and dock identification numbers, and
informational and tenant identification signs.
13. FLOORS: Clean, reseal as necessary, in warehouse areas.
14. STAIRWAY: Install interior stairway with exterior exit in office area.
15. BATHROOMS: Install handicap style bathroom(s) near warehouse area.
16. LANDSCAPING: As needed, to commercially reasonable standards.
17. EXTERIOR DOORS: Install firewall for one drive in door, replace other drive
in door with three man doors.
OPTIONAL ALTERATIONS
1. PARKING: Expand parking lot north of building.
2. WALKWAY: Enclosed or covered walkway between Commerce Way and Martin Drive
buildings.
3. WALL CHANGES: Remove demising wall from post C4 to post C7. Install
demising wall from shipping/receiving office to existing wall near column
G2.
4. HVAC: Install roof top units for Bays C, D, E & F.
5. AIR COMPRESSOR: Install additional air compressor in bay D.
6. GENERATOR: Install backup generator outside Building.
7. DOCK PROTECTION: As needed for four northerly dock doors, similar to
existing Formelt protection on two most southerly dock doors.
EXHIBIT D-1
(Roth Corporation Sublease)
(Exhibit D-1 is a copy of the the sublease from CB Commercial Real Estate Group,
Inc. for the 14,000 square feet sublet by Roth Corporation at 7460 Commerce Way,
Eden Prairie, MN.)
EXHIBIT 23.1
INDEPENDENT AUDITORS CONSENT
The Board of Directors
Stratasys, Inc.:
We hereby consent to the incorporation by reference in the registration
statements of Stratasys, Inc. on Forms SB-2 (Registration No. 33-99108), S-8
(Registration No. 93362) and S-3 (Registration No. 333-4185), of our report on
the financial statements of Stratasys, Inc. and to the reference to our firm
under the heading "experts" in the prospectuses included in such registration
statements.
Rothstein, Kass & Company, P.C.
Roseland, New Jersey
March 27 , 1997
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