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Exhibit 10.3
OPTION AGREEMENT
This Option Agreement (the "Agreement") is made effective as of the
21st day of August, 1997, by and between STRATASYS, INC., a Delaware corporation
(the "Company") and SEK TECHNOLOGIES, LLC, a Minnesota limited liability company
(the "Developer").
WITNESSETH:
WHEREAS, the Company has developed conceptual specifications (the
"Specifications") for a commercially exploitable "desk-top" version of a device
that will produce three dimensional models from computer aided design programs
using a variety of materials based in part on existing technology of the Company
(the "Device");
WHEREAS, Developer is engaged in the business of developing and
building prototypes of devices and the molding and tooling to be used in the
manufacturing of the devices;
WHEREAS, the Developer desires to develop the Device and tooling (the
"Tooling") necessary for the manufacture of the parts and subassemblies of the
Device (the "Development Services") all of which will satisfy all of the
Specifications;
WHEREAS, the Developer is willing to bear the risk and cost of
developing a Device which satisfies the Specifications;
WHEREAS, the Developer and the Company previously entered into an
Option Agreement dated April 22, 1997, which they hereby terminate; and
WHEREAS, the Company and the Developer have entered into that certain
User Agreement of even date herewith (a copy of which is attached hereto as
Exhibit 1) whereby the Company has granted the Developer a license to use
certain Owner Intellectual Property and Equipment (all as
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defined in the User Agreement) in connection with the development of the Device
and the Tooling, on the condition that, the Developer and the Company enter into
this Option Agreement.
NOW, THEREFORE, in consideration of the foregoing, and for other good
and valuable considerations, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
AGREEMENT:
ARTICLE 1.
DEVELOPMENT
1.1 Development of Device. Developer agrees to use its best efforts to
develop and build, in conformity with the Specifications attached hereto as
Exhibit 1.1. All Development Services shall be performed by qualified
individuals and shall be completed in accordance with sound development
practices and all applicable laws. The Development Services shall include the
making of the Beta Modifications as defined below.
1.2 Development Budget. A preliminary budget for the Development
Services (the "Development Budget") is attached hereto as Exhibit 1.2. The
Development Budget will be revised as necessary from time to time to reflect
added or reduced expenses resulting from changes in Specifications or events
outside the control of the Developer. The Development Budget shall identify all
costs to be incurred by Developer, together with the cost of services and
products to be provided by third parties ("Third Party Costs and Third Party
Services"). The Development Budget shall be prepared in sufficient detail to
permit a meaningful comparison (the "Budget Analysis") of: (i) actual costs
incurred to date together with additional anticipated costs to complete the
Development Services against (ii) budgeted costs. Developer shall prepare the
Budget Analysis on a weekly basis and deliver same to the Company within one
business day following its availability. Developer shall maintain not less
than $300,000 in working capital during the term of this Agreement for the
purpose of funding the Development Services and paying Development Costs.
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1.3 Budget Analysis. The Developer will provide the Company with copies
of each Budget Analysis projecting a Budget Overage.
1.4 Inspection and Tests. The Company and the Developer will agree on
the appropriate inspection and testing of the Device and the Tooling for
determining whether the Device and the other Deliverables comply with the
Specifications, which inspection and testing procedures shall become part of
this Agreement. The Company shall at all times have free access to the
Developer's facility at all reasonable time for the purpose of determining
whether the Development Services are being accomplished as provided for in this
Agreement.
1.5 Development Costs. Stratasys' only obligation hereunder is to pay
the Option Price.
1.6 Technical Coordinators. The Company and the Developer shall each
from time to time designate one person to act as its Technical Coordinator. The
Technical Coordinators shall be responsible for the day to day communications
between the parties and the coordination of efforts between the parties and
third parties.
ARTICLE 2.
OPTION TO PURCHASE
2.1 Option to Purchase Device. The Company shall have the option (the
"Option") to acquire upon delivery to the Developer of the Option Price either
(a) all right, title and interest in the Device, the Tooling and all of the
Deliverables and the exclusive right to manufacture, distribute, market and
sell the Device and the Tooling, all free and clear of any and all liens and
encumbrances, ("Device Rights") or (b) all right, title and ownership interest
(the "Ownership Interest") in the Developer, free and clear of any and all liens
and encumbrances upon delivery of the Option Price determined in accordance with
Section 4. Such Option shall be exercised by the Company by delivering written
notice of the Company's exercise of the Option to the Developer on or before
December 31, 1999.
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2.2 Ownership of Device, Intellectual Property. As provided for in the
User Agreement, the Company shall at all times retain ownership of all right
title and interest in the Specifications, the Owner Intellectual Property, the
other tangible and intangible property and other proprietary information of the
Company provided to the Developer by the Company. Upon payment of the Option
Price due hereunder, the Developer shall deliver to the Company the Device and
any and all rights to manufacture, reproduce, use and modify the Device and all
right, title and interest in and to any and all intellectual property used in or
necessary to the manufacture, reproduction, use of, sale, modification of the
Device (the "Device Intellectual Property") other than any intellectual property
owned by an independent third party ("Third Party Intellectual Property") which
the Company has previously agreed to be included in the Device or used in its
manufacture, reproduction, use of, sale, modification on terms agreed to by the
Company and the rights of the Developer under the User Agreement and the License
Agreement shall terminate. The Developer will provide the Company with fully
paid, royalty free, perpetual licenses to use all such Third Party Intellectual
Property in connection with the manufacture, reproduction, use of, sale,
modification of the Device.
ARTICLE 3.
OPTION PRICE
3.1 Acquisition of Device Rights. If the Company elects to acquire all
of the Device Rights, the Option Price shall consist of:
3.1.1 a cash payment equal to the sum of (A) $130,000 for each
Investment Unit (as defined in that certain Private Placement
Memorandum of the Developer) of the Developer (less any amounts
distributed by the Company to the Investors with respect to their
Membership Interests (as defined in that certain Private Placement
Memorandum of the Developer)), (B) the unpaid principal balance of the
Subordinated Notes (as defined in that certain Private Placement
Memorandum of the Developer) and any accrued interest thereon, (C) any
additional capital contributions made to the Company after the
completion of the Offering (as defined in that certain Private
Placement Memorandum of the Developer)(less any amounts distributed by
the Company with respect to such additional
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capital contribution), (D) a return of 30% per annum up to the date of the
exercise of the Option on the aggregate gross amount received by the Company
from time to time on the sale of the Investment Units (both on the Membership
Interests and the Subordinated Note), giving effect to any Company distributions
to its Members and interest paid or accrued through the exercise date in
computing such 30% return, provided, however, that the minimum cash return per
Investor on the amounts paid for the Investment Units (both on the Membership
Interests and the Subordinated Note) shall not be less than the excess of 30% of
the Investment Unit Price of $250,000 over the sum of any distributions and the
payment of Interest to each respective Investor, and (E) a return on funds
advanced by investors after the completion of the Offering in an amount equal to
such percentage return as is offered by the Company to such investor; and
3.1.2 warrants to purchase shares of the common stock of the Company,
$.01 par value of the Company ("Common Stock") in an amount equal to the sum of
(X) 8,000 warrants for each Investment Unit sold, and (Y) the number of warrants
required to be offered to persons making additional capital contributions if the
Company exercises its Option. Such warrants shall expire three (3) years from
the date the Company exercises its Option and are exercisable at a price of
$13.875 per warrant. The warrants will be in substantially the form attached
hereto as Schedule 3.1.2.
3.1.3 a Success Fee consisting of
3.1.3.1 a cash payment corresponding to the amount set forth
in Schedule 3.1.3 for the week in which the Developer delivers the Beta
Device and Tooling to the Company. For the purposes of this Agreement,
the term Beta shall mean the fully functional and operational product
to which the term applies that represent the final saleable product
except that (a) the product may contain machined parts in lieu of parts
that would or will be produced using tooling and (b) the product may
not have been fully life cycle tested; and
3.1.3.2 options ("Stock Options") to acquire Three Thousand
(3,000) shares of the Common Stock of the Company, $.01 par value
pursuant to the Company's 1994-2 Stock Option Plan as amended on July
15, 1996, by the Board
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of Directors of the Company on such date subject to the approval of the
Company's shareholders. The Stock Options granted will not qualify as
incentive stock options under the Internal Revenue Code. Such Stock
Options shall be exercisable at a price per share equal to the average
of the closing bid and ask price per share hereof of the Common Stock
on the stock exchange on which the Common Stock is traded on the date
of grant. The Options shall be exercisable over a period of five (5)
years from the date of grant and shall be issuable or assignable to
employees of the Developer who work on the Device. To the extent
permitted by law, the Options shall be registered on Form S-8 as
promulgated by the United States Securities and Exchange Commission.
3.1.4 Seventy-five (75%) of the Success Fee shall be payable
on delivery of the Beta Device and Tooling. The remaining twenty-five
percent (25%) of the Success Fee shall be paid upon the successful
completion of the modifications to the Beta Device and Tooling
resulting from the completion of the testing of the Beta Device and
Tooling (the "Beta Modifications"), but not later than the date that is
four (4) months after delivery of the Beta Device and Tooling provided
Developer has not breached its obligations to successfully complete the
Beta Modifications.
3.2 Acquisition of Ownership Interests. If the Company elects to
exercise its Option to acquire the Ownership Interests of the Members of the
Developer, the Company shall pay the Option Price other than the Success Fee
to the Members in proportion to their Ownership Interests or as otherwise
allocated among the Members by agreement and the Company shall pay the Success
Fee to the Developer.
ARTICLE 4.
ACCEPTANCE AND RETURNS
4.1 Acceptance. All prototype, alpha and beta Devices to be delivered
pursuant hereto shall be received subject to the Company's inspection during
a thirty (30) day period after receipt. The Devices may be returned to
Developer if found that they do not comply with the Specifications. All
claims for defects shall be reported in writing to Developer as soon as
possible. At the request
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of Developer, the Company shall provide the Developer with samples of allegedly
defective Devices.
4.2 Returns. Upon report of a defect, Developer may request, at its
expense, that the Devices be returned to Developer or, in the alternative, that
the Devices be destroyed at its expense.
ARTICLE 5.
INDEMNIFICATION
5.1 Company's Indemnity. The Company agrees to indemnify and hold
Developer, its officers, directors, employees, agents and representatives
harmless from all actions, losses, damages or expenses (including reasonable
attorneys' fees) which Developer may incur by reason of the willful or negligent
action of the Company or its employees, contractors or agents or the Company's
breach of its obligations hereunder. In addition, the Company will indemnify the
Developer, its officers, directors, employees, agents and representatives
harmless from all actions, losses, damages or expenses (including reasonable
attorneys' fees) which Developer may incur by reason of any infringement of the
Development Services, the Device or any other Deliverable upon the intellectual
property rights of any other person or entity as a result of any Company
Property provided to the Developer for inclusion or use in providing the
Development Services.
5.2 Developer's Indemnity. Developer agrees to indemnify and hold
harmless the Company, its officers, directors, employees, agents and
representatives from all actions, claims, losses, damages or expenses (including
reasonable attorneys' fees) which the Company may incur by reason of the willful
or negligent action of the Developer or its employees, contractors or agents or
the Developer's breach of its obligations hereunder. In addition, the Developer
will indemnify the Company, its officers, directors, employees, agents and
representatives harmless from all actions, losses, damages or expenses
(including reasonable attorneys' fees) which Company may incur by reason of any
infringement of the Development Services, the Device or any other Deliverable
upon the intellectual property rights of any other person or entity other than
any infringement that results from the use of any Company Property provided to
the Developer by the Company for inclusion or use by the Developer in providing
the Development Services or any Third
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Party Property provided by the Company to the Developer for inclusion or use by
the Developer in providing the Development Services.
5.3 Investigation. The Company and the Developer shall promptly
investigate any and all complaints relating to claims for indemnification
hereunder.
5.4 Inspection. The Company shall, from time to time, have the right to
inspect Developer's facilities for purposes of determining compliance with the
terms and provisions of this Agreement. All such inspections shall be conducted
during regular business hours, and in a manner not to interfere with Developer's
business.
5.5 Insurance. The Company shall carry general products liability
insurance covering the Device and general liability insurance in an amount of
not less than $1 million. Developer shall carry product liability insurance
covering the Device and general liability insurance in an amount of not less
than $1 million, which insurance shall name the Company as an additional and/or
coinsured, as well as fire and other risks insured against by extended or
comprehensive coverage, public liability insurance and workers' compensation
insurance. Either party shall be given thirty (30)days advance written notice of
termination or cancellation of the other party's insurance. Either party shall
provide proof of insurance within ten (10) days of advance written notice. In
the event of a claim which is subject to indemnification from Developer,
Developer's product liability insurance carrier shall be the primary insurer. In
the event of a claim which is subject to indemnification from the Company, the
Company's Device liability insurance carrier shall be the primary insurer. Any
insurance required under this Section shall be issued by a company authorized to
do business in the State in which the principal offices of the party obtaining
the insurance is located and having an A.M. Best & Company, Inc. rating of A or
higher and shall require thirty (30) days advance notice to Landlord before
cancellation or alteration. Each party shall on request deliver to the other
party certificates evidencing the insurance required herein.
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ARTICLE 6.
TERM OF AGREEMENT AND TERMINATION
6.1 Term:Termination. This Agreement shall become effective as of the
date first above written and shall continue until terminated as provided herein.
6.1.1 Upon either party's breach of any provision of this
Agreement following expiration of a ten (10) day period (the "Notice
Period") commencing on delivery of the non-breaching party's written
notice thereof to the breaching party, the non-breaching party may
elect to immediately terminate this Agreement if the breaching party
has not cured the breach within such Notice Period and upon any such
termination, this Agreement shall have no further force or effect;
provided, however, that Section 7 hereof shall survive indefinitely.
ARTICLE 7.
NON-DISCLOSURE OF CONFIDENTIAL INFORMATION
AND
NON-COMPETITION
7.1 Non-Disclosure. Unless granted written permission by the other
party, each party, agrees not to directly or indirectly use or disclose
Confidential Information belonging to the other party (as hereinafter defined)
disclosed by such other party in connection with the performance of this
Agreement.
7.2 Confidential Information. Confidential Information means any
information or compilations of information that derives independent economic
value from not being generally known or readily ascertainable by proper means,
including, without limitation, trade secrets, customer lists, manufacturing
know-how and processes, product formulations and specifications, whether
complete or in process, and any other information which may be designated as
confidential in writing by either party. Nothing herein shall be construed to
preclude disclosure of any information:
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7.2.1 which is known to the recipient as evidenced by its
written records before receipt thereof under this Agreement;
7.2.2 which is disclosed in good faith to the recipient after
acceptance of this Agreement by a third person lawfully in possession
of such information and not under an obligation of nondisclosure;
7.2.3 which is or becomes part of the public domain or is
publicly divulged through no fault of the recipient;
7.2.4 which is disclosed by the disclosing party to any third
person on a non-confidential basis;
7.2.5 as may be inherent in or reasonably necessary to the
design, manufacture, and finishing of the Device or the Tooling or the
Device Intellectual Property, the testing by accredited laboratories of
samples of the Device to determine if they meet required
specifications, the securing from any governmental agency of any
necessary approval or license, or the obtaining of patents; or
7.2.6 as may be mandatorily requested in any court proceeding,
provided that the party receiving the request shall immediately notify
the other party of such request.
7.3 Documents and Tangible Items. Except as provided herein, all
documents and tangible items which contain or deal in any manner with
Confidential Information belonging to either party shall be and remain the
exclusive property of such party along with all copies, records, abstracts,
notes or reproductions of any kind made from or about the documents and tangible
items or the information they contain.
7.4 Reasonableness of Restrictions. Each party agrees that considering
their relationship and the degree of their mutual reliance, and given the other
terms of this Agreement that the restrictions set forth in this Section are
reasonable. Notwithstanding the foregoing, if any of the covenants set forth in
this Section shall be held to be invalid or unenforceable, the remaining parts
thereof shall nevertheless continue to be valid and enforceable as though the
invalid or unenforceable parts have not been included herein.
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7.5 Return of Confidential Information and Other Property. Except as
otherwise provided herein, upon termination of this Agreement, each party shall
return to the other party the other party's Confidential Information and any
other property of the other party in its possession.
7.6 Non-competition. Developer will not directly or indirectly assist
any other person or entity to develop a three dimensional modeler of any kind or
type for a period of five (5) years.
7.7 Business Relationships. Developer will not during the period
commencing on the date hereof and ending two (2) years after the termination of
this Agreement:
7.7.1 request, induce, advise or encourage any customer or
supplier, or any other entity having business dealings with the
Company, to withdraw, curtail or cancel such business dealings; or
7.7.2 hire as employee or independent contractor, or request,
induce, advise or encourage a termination of employment by, any other
employee of the Company, whether acting directly or indirectly and
whether acting alone or together with or on behalf of or through any
other entity.
7.8 Other Businesses. During the period commencing on the date hereof
and ending on the date of the termination of this Agreement, Developer shall not
contract to perform any other Development Services for any other person or
entity.
ARTICLE 8.
MISCELLANEOUS
8.1 Binding Nature. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto, their successors and permitted
assigns.
8.2 Notices. All notices, demands, requests, instructions or other
communications required or permitted to be given by any of the provisions of
this Agreement must be in writing and shall be deemed to have been sufficiently
given only if delivered by (i) hand against receipt therefor or if mailed by
certified or registered mail, postage prepaid, return receipt requested, and if
(ii) sent by facsimile as follows:
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If to the Company at:
STRATASYS, INC.
00000 Xxxxxx Xxxxx
Xxxx Xxxxxxx, XX 00000-0000
Attention: Mr. S. Xxxxx Xxxxx
Telephone: 000-000-0000
Facsimile: 000-000-0000
With a copy to:
Xxxxx X. Xxxx
Xxxxxx Xxxxxxx Xxxxxx & Brand, LLP
0000 Xxxxxxx Xxxxxx
00 X. Xxxxxxx Xxxxxx
Xxxxxxxxxxx, XX 00000-0000
Telephone: 000-000-0000
Facsimile: 000-000-0000
If to Developer at:
SEK TECHNOLOGIES, LLC
000 Xxxxx Xxxxxxx
Xxxxx "X"
Xxx Xxxxxxxx, XX 00000-0000
Attention: Xxxxxxx Xxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a copy to:
Xxxxxxxx Xxxxx
Attorney At Law
000 Xxxxxxx Xxxxxx Xxxxx, Xxxxx 000
Xxxxxxx Xxxxx, XX 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
or to such other address as may be designated by a party hereto by notice
similarly given, and shall be deemed to have been duty given upon the receipt
thereof if delivered by hand or facsimile, and on the third business day after
mailing, if mailed.
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8.3 Entire Agreement. This Agreement constitutes the entire
understanding between the parties hereto with respect to the subject matter
hereof, and any modification of this Agreement shall be in writing and shall be
signed by a duly authorized representative of each party.
8.4 Superseded Prior Understandings. This Agreement shall be deemed to
supersede any agreements heretofore entered into by and between Developer and
the Company.
8.5 Governing Law. This Agreement shall be interpreted and construed,
and the legal relationships created hereby shall be construed in accordance with
the laws of the State of Minnesota, without giving effect to conflict of law
provisions contained therein.
8.6 Assignment. This Agreement is not assignable by either party
without the prior written consent of the other party.
8.7 Severability. If any portion or provision of the Agreement shall be
held unenforceable or illegal, the illegal or unenforceable provision shall be
inoperable and the remaining provision of this Agreement shall be effective as
if such unenforceable or illegal provision were not a part thereof.
8.8 Arbitration. If any disagreements arise under this Agreement that
are not settled promptly in the ordinary course of business, the senior
management of the parties shall meet promptly to attempt to resolve the problems
on an informal basis. If the senior management is not able to resolve such
problems within a reasonable time, any dispute between the Company and the
Developer arising out of, relating to, or in connection with this Agreement
involving its interpretation or the obligations of a party thereto, shall be
determined by binding arbitration using the following procedures:
8.8.1 The arbitration shall be conducted under the administration
of and in accordance with the commercial arbitration rules of the
American Arbitration Association ("AAA") in Minneapolis, Minnesota, as
modified by this Agreement.
8.8.2 There shall be three (3) arbitrators on the panel. The
chairman shall be an attorney at law and the other two shall have a
background or training in computer law, computer science or the
computer industry. Each party shall appoint one (1) arbitrator within
thirty (30) days after the first demand for arbitration, and the third
arbitrator shall be appointed by the first two. If either party fails
to appoint its arbitrator or if a third arbitrator
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is not chosen by agreement of the first two within forty-five (45) days
after the first demand for arbitration, either party may request the
AAA to appoint the remaining arbitrators. All arbitrators shall be
independent of the party appointing him.
8.8.3 The validity and performance of this Agreement shall be
governed by the internal laws of the State of Minnesota without regard
to its rates on conflict of law.
8.8.4 The arbitrators shall have the authority to permit
discovery, to the extent deemed appropriate by the arbitrators, upon
request of a party. The arbitrators shall have no power or authority to
add to or detract from the agreements of the parties. The cost of the
arbitration shall be home equally pending the arbitrator's award. The
arbitrators shall have the authority to grant any temporary preliminary
or permanent injunctive or other equitable relief in a form
substantially similar to that which would otherwise be granted by a
court.
8.8.5 Any monetary award shall be in United States Dollars,
and the award may include the costs of the arbitration, reasonable
attorney fees, and interest at commercial rates from the date the
compensated loss occurred at the discretion of the arbitrators. The
resulting arbitration award may be enforced by all lawful remedies,
including, without limitation, injunctive or other equitable relief in
any court of competent jurisdiction.
8.9 Enforcement. In the event either party shall commence litigation to
enforce any provision of this Agreement and/or with regard to any dispute
associated with this Agreement not governed by the arbitration provisions
hereof, the prevailing party shall be entitled to collect its costs, including
reasonable attorneys' fees from the nonprevailing party.
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IN WITNESS WHEREOF, the parties execute this Agreement as of the date
and year first above written.
STRATASYS, INC SEK TECHNOLOGIES, LLC
By: /s/ S. Xxxxx Xxxxx By: /s/ Xxxxxx Xxxxx Xxxxxxxx
----------------- -------------------------
Its: President Its: Manager
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Exhibit 1
User Agreement
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Exhibit 1.1
SPECIFICATIONS
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EXHIBIT 1.2
DEVELOPMENT BUDGET
1997 1998
EXPENSES $1,500,000 $1,000,000
TOOLING 300,000 700,000
SW 400,000 300,000
PERFORMANCE BONUS 0 300,000
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TOTAL $2,200,000 $2,300,000
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Exhibit 3.1.2
Form of Warrant
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EXHIBIT 3.1.3
SUCCESS FEE
Month Beginning Amount of Success Fee
--------------- ---------------------
May, 1998 465,000
June,1998 425,000
July, 1998 380,000
August, 1998 330,000
September, 1998 275,000
October, 1998 215,000
November, 1998 150,000
December, 1998 80,000
January, 1999 0
