<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
for the quarterly period ended September 30, 1997
or
Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission file number 0-20993
DTM CORPORATION
(Exact name of registrant as specified in its charter)
Texas 74-2487065
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1611 Headway Circle, Building 2
Austin, Texas 78754
(Address of principal executive offices)
(Zip code)
512-339-2922
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes /X/ No / /
--- ---
The number of outstanding shares of common stock was 6,283,082 as of September
30, 1997.
1
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Part 1. Financial Information
- ------------------------------
Item 1. Financial Statements
- -----------------------------
DTM CORPORATION
---------------
Condensed Consolidated Statements of Operations (unaudited)
-----------------------------------------------------------
(In thousands, except per share amounts)
----------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ --------------------------
1996 1997 1996 1997
---------- --------- --------- -----------
<S> <C> <C> <C> <C>
Revenue:
Products $ 3,040 $ 2,214 $ 13,418 $ 15,647
Service and Support 736 638 1,704 2,027
---------- ---------- ---------- ----------
3,776 2,852 15,122 17,674
Cost of sales:
Products 1,757 1,139 7,948 8,699
Service and Support 428 575 1,048 1,607
---------- ---------- ---------- ----------
2,185 1,714 8,996 10,306
---------- ---------- ---------- ----------
Gross Profit 1,591 1,138 6,126 7,368
Operating Expenses:
Selling, general and
administrative 2,526 2,266 6,836 8,289
Research and development 1,198 1,203 3,096 3,596
Stock compensation (EAP) - - - 2,927
---------- ---------- ---------- ----------
3,724 3,469 9,932 14,812
---------- ---------- ---------- ----------
Operating loss (2,133) (2,331) (3,806) (7,444)
Other income 5 56 19 96
Interest expense (262) (17) (743) (418)
---------- ---------- ---------- ----------
Loss before income taxes (2,390) (2,292) (4,530) (7,766)
Income tax benefit (expense) 781 (29) 1,454 478
---------- ---------- ---------- ----------
Net Loss $ (1,609) $ (2,321) $ (3,076) $ (7,288)
========== ========== ========== ==========
Net loss per share $ (.45) $ (.36) $ (.85) $ (1.38)
========== ========== ========== ==========
Number of shares used 3,609,211 6,525,882 3,609,211 5,272,352
========== ========== ========== ==========
</TABLE>
See notes to condensed consolidated financial statements
2
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DTM CORPORATION
Condensed Consolidated Balance Sheets (unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
----------- -------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 329 $ 2,006
Accounts receivable, net 7,205 3,394
Inventory 4,835 7,900
Prepaid expenses and other 595 287
-------- --------
Total current assets 12,964 13,587
Furniture and equipment, net 3,057 2,569
Capitalized development costs, net 848 776
Patent and license fees, net 791 1,059
Other noncurrent assets 237 171
-------- --------
Total assets $ 17,897 $ 18,162
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 5,845 $ 4,470
Due to BFGoodrich 614 1,269
Deferred revenues 1,474 1,384
Accrued expenses and other liabilities 2,640 1,574
Short-term borrowings 769 175
-------- --------
Total current liabilities 11,342 8,872
Borrowings under line of credit from
BFGoodrich 4,000 -
Notes payable 11,040 -
Shareholders' equity (deficit):
Preferred stock, $.001 par value,
3,000,000 shares authorized, no
shares issued and outstanding - -
Common stock, $.0002 par value,
60,000,000 shares authorized;
6,283,082 shares issued and
outstanding (3,243,391 at
December 31, 1996) 1 1
Additional paid-in capital 28,019 50,225
Stock options outstanding - 2,927
Accumulated deficit (36,469) (43,756)
Cumulative translation adjustment (36) (107)
-------- --------
Total shareholders' equity (deficit) (8,485) 9,290
-------- --------
Total liabilities and shareholders' equity $ 17,897 $ 18,162
======== ========
</TABLE>
See notes to condensed consolidated financial statements
3
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DTM CORPORATION
Condensed Consolidated Statements of Cash Flows (unaudited)
(In thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPT. 30,
---------------------------
1996 1997
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (3,076) $ (7,288)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 1,573 1,795
Stock compensation (EAP) expense - 2,927
Changes in assets and liabilities:
Accounts receivable (890) 3,811
Inventory (3,905) (3,065)
Due to/from BFGoodrich 827 655
Prepaid expenses and other assets (519) 308
Accounts payable 2,415 (1,375)
Deferred revenues 238 (90)
Other, net (640) (1,011)
-------- --------
Net cash used in operating activities (3,977) (3,333)
INVESTING ACTIVITIES
Purchases of furniture and equipment (1,778) (752)
Capitalized software development costs (318) (200)
Patent and license expenditures (419) (539)
-------- --------
Net cash used in investing activities (2,515) (1,491)
FINANCING ACTIVITIES
Proceeds from issuance of stock - 20,706
Proceeds from notes payable 1,700 -
Proceeds from short-term borrowings 2,851 371
Repayments of short-term borrowings (2,499) (965)
Draws (repayments) on line of credit from BFGoodrich 3,800 (2,500)
Repayments of notes payable - (11,040)
-------- --------
Net cash provided by financing activities 5,852 6,572
Effect of foreign exchange rate changes on cash (89) (71)
-------- --------
Increase (decrease) in cash and cash equivalents (729) 1,677
Cash and cash equivalents at beginning of period 756 329
-------- --------
Cash and cash equivalents at end of period $ 27 $ 2,006
======== ========
</TABLE>
See notes to condensed consolidated financial statements
4
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DTM CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of DTM
Corporation ("DTM" or the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and notes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three months and nine months ended September 30, 1997
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1997. For further information, refer to the consolidated
financial statements and related footnotes of the Company for the year ended
December 31, 1996 as disclosed in the Prospectus dated May 2, 1997 (the
"Prospectus").
2. INVENTORY
Inventory consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Raw materials and purchased
parts $3,187 $5,088
Finished goods 1,648 2,812
------ ------
$4,835 $7,900
====== ======
</TABLE>
3. SHORT-TERM BORROWINGS
During the nine-month period ended September 30, 1997, DTM borrowed $371,000 and
repaid $965,000 under the terms of financing arrangements with a third party. At
September 30, 1997, the Company had a total of $175,000 of short-term borrowings
outstanding, comprised of one loan, bearing an annual interest rate of
approximately 15 percent. The borrowings are collateralized by certain
equipment.
4. LINE OF CREDIT FROM BFGOODRICH
The Company had a line of credit agreement with The BFGoodrich Company
("BFGoodrich") under which the Company could borrow up to $4.0 million, which
was settled in full in connection with an initial public offering in May 1997
(the "IPO").
5
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DTM CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)
5. NOTES PAYABLE
At December 31, 1996, DTM had lines of credit with three banks under unsecured
promissory notes. Total available borrowings from the three banks were $12.2
million and the outstanding balances subsequent to the IPO were repaid.
The Company's line of credit with Texas Commerce Bank (as amended) provides for
borrowings up to $2.0 million through June 1, 1998. Borrowings under the line of
credit agreement are guaranteed by BFGoodrich.
Interest paid in connection with all of the above financing arrangements was
approximately $796,000 and $569,000 for the nine months ended September 30, 1996
and 1997, respectively.
6. INCOME TAXES
For periods prior to the IPO, DTM was included in the consolidated federal tax
return of BFGoodrich. Accordingly, for such periods, the Company has recorded
the tax benefit allocated to it by BFGoodrich, which credited the Company with a
tax benefit approximating the benefit that BFGoodrich derived from the use of
the Company's tax losses. For periods subsequent to the IPO, the Company is no
longer entitled to the benefit of the tax allocation agreement between the
Company and BFGoodrich.
7. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1996 1997
--------- --------
<S> <C> <C>
Noncash investing and financing
transactions:
Stock issued upon conversion of note by
majority Shareholder $ - $1,500
Stock options outstanding - 2,927
</TABLE>
6
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DTM CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)
8. SUPPLEMENTAL EARNINGS PER SHARE
The supplemental earnings per share are computed on a stand alone basis, without
allocation of income tax benefit from BFGoodrich. Both computations reflect the
shares of common stock issuable to employees related to exercisable options that
are outstanding under the Company's Equity Appreciation Plan, less shares
presumed to be repurchased using the treasury stock method. The 1997 as adjusted
computation assumes that the IPO took place at the beginning of the period and
reflects elimination of historically incurred interest expenses related to debt
repaid with proceeds from the IPO, along with the number of shares offered, the
net proceeds of which were used to fund debt repayment.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
1997
1997 AS ADJUSTED
----------- -------------
<S> <C> <C>
Pro forma net loss $ (7,766) $ (7,766)
Plus interest on debt repaid with
proceeds from offering - 406
Pro forma net loss as adjusted $ (7,766) $ (7,360)
========== ==========
Shares:
Weighted average number of shares
outstanding 4,935,820 6,283,082
Dilutive effect of options issued 336,532 336,532
---------- ----------
Total shares used in computing pro
forma net loss per share 5,272,352 6,619,614
========== ==========
Pro forma net loss per share
(primary and fully dilutived) $ (1.47) $ (1.11)
========== ==========
</TABLE>
9. RECENTLY ISSUED ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, Earnings per Share. SFAS No.
128 replaces the presentation of primary earnings per share ("EPS") under
Accounting Principles Board Opinion No. 15 and related Interpretations, with the
presentation of basic EPS (which gives effect only to common shares actually
outstanding) and requires dual presentation of basic and diluted EPS on the face
of the income statement for all entities with complex capital structures. The
Company is required to adopt SFAS No.128 during the fourth quarter of 1997. The
Company has not completed its evaluation of the potential impact of this new
standard on EPS in future periods. However, based on the equity instruments
currently outstanding under existing stock compensation plans, this new standard
is not currently expected to have a material impact on EPS in future periods.
7
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DTM CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)
10. OTHER EVENTS
In May 1997, the Company completed the IPO. The net proceeds received by the
Company have been used to repay substantially all of the Company's bank debt and
other short-term borrowings. The Company intends to use the remaining net
proceeds for general corporate purposes, including the funding of working
capital requirements.
The Company has a phantom stock appreciation rights plan whereby all phantom
stock appreciation rights outstanding upon the IPO were converted into
immediately exercisable options to acquire shares of the Company's common stock.
Such conversion resulted in a non-recurring, non-cash, compensation expense of
approximately $2.9 million in the second quarter of 1997.
8
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Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Company's Condensed Consolidated Financial Statements and the Notes thereto
included in Item 1 of this Quarterly Report and the Prospectus. This discussion
and analysis contains forward-looking statements. Such statements are subject to
certain risks and uncertainties, including those discussed below or in the
Prospectus, that could cause actual results to differ materially from the
Company's expectations. Readers are cautioned not to place undue reliance on any
forward-looking statements, as they reflect management's analysis only as of the
date hereof. The Company undertakes no obligation to publicly release any
revision to these forward looking statements which may be made to reflect events
or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain income
statement data as a percentage of total revenues and certain cost of sales data
as a percentage of respective product revenues and service and support revenues.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- ------------------
1996 1997 1996 1997
------------------- ------- -------
<S> <C> <C> <C> <C>
Revenue:
Products 80.5% 77.6% 88.7% 88.5%
Service and Support 19.5 22.4 11.3 11.5
------- ------- ------- ------
100.0 100.0 100.0 100.0
Cost of sales:
Products 57.8 51.4 59.2 55.6
Service and Support 58.2 90.2 61.5 79.3
------- ------- ------- ------
57.9 60.1 59.5 58.3
------- ------- ------- ------
Gross Profit 42.1 39.9 40.5 41.7
Operating Expenses:
Selling, general and administrative 66.9 79.5 45.2 46.9
Research and development 31.7 42.2 20.5 20.3
Stock compensation (EAP) - - - 16.6
------- ------- ------- ------
98.6 121.6 65.7 83.8
------- ------- ------- ------
Operating loss (56.5) (81.8) (25.2) (42.1)
Other income .1 2.0 .1 .5
Interest expense (6.9) (.6) (4.9) (2.4)
------- ------- ------- ------
Loss before income taxes (63.3) (80.4) (30.0) (43.9)
Income tax benefit (expense) 20.7 (1.0) 9.6 2.7
------- ------- ------- ------
Net Loss (42.6)% (81.4)% (20.3)% (41.2)%
======= ======= ======= ======
</TABLE>
9
<PAGE>
Comparison of the Quarters Ended September 30, 1997 and September 30, 1996
The Company's operating results have varied substantially from year to year and
quarter to quarter. A sale by the Company of one of its selective laser
sintering systems ("Systems") can be material to the operating results for any
one quarter. Furthermore, new product introductions, seasonality of customer
buying patterns and other factors can cause fluctuations in operating results.
Revenues. Revenues for the third quarter of 1997 were $2.9 million, a decrease
of 24.5 percent, compared to revenues of $3.8 million for the third quarter of
1996. The Company's 1997 third quarter revenues of $2.9 million resulted
primarily from sales of SLS(R) systems.
Product sales revenue for the third quarter of 1997 was $2.2 million, a decrease
of 27.2 percent, compared to product sales revenue of $3.0 million for the third
quarter of 1996. Revenues in the third quarter of 1997 were negatively impacted
primarily because the Company experienced a reduction in sales volume from what
it had anticipated consistent with prior seasonal slowdowns in Europe and the
Pacific Rim, as well as continuing softness in North American market demand.
Service and support revenue for the third quarter of 1997 was $638,000, a
decrease of 13.3 percent, compared to service and support revenue of $736,000
for the same period in 1996. Service and support revenue decreased primarily as
a result of a decrease in other revenue, such as training, consulting and other
customer support.
Gross Profit. The Company has historically experienced significant fluctuations
in its gross profits. Gross profit for the third quarter of 1997 was $1.1
million, a decrease of 28.5 percent, compared to gross profit of $1.6 million
for the third quarter of 1996. As a percentage of revenue, gross profit for the
quarter ended September 30, 1997 decreased to 39.9 percent from 42.1 percent for
the same period in 1996.
Gross profit attributable to product sales for the third quarter of 1997 was
$1.1 million, a decrease of 16.2 percent, compared to gross profit attributable
to product sales of $1.3 million for the third quarter of 1996. As a percentage
of product sales revenue, gross profit attributable to product sales increased
to 48.6 percent during the period, compared to 42.2 percent for the same period
in 1996. The increase in gross profit attributable to product sales as a
percentage of product sales revenue resulted primarily from a favorable product
mix of Sinterstation(R) 2500 and 2000 Systems.
Gross profit attributable to service and support revenues for the third quarter
of 1997 was $63,000, a decrease of 79.5 percent, compared to gross profit
attributable to service and support revenues of $308,000 for the third quarter
of 1996. As a percentage of service and support revenue, gross profit
attributable to service and support revenues was 9.9 percent and 41.8 percent
for the third quarter of 1997 and 1996, respectively. The decrease in profit
percentage is due to the decrease in other revenues, as well as the increase in
international service and maintenance costs.
Selling, General and Administrative Expense. Selling, general and administrative
expense includes payroll and fringe benefits, advertising and promotion expenses
and other general expenses. Selling, general and administrative expense for the
third quarter
10
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of 1997 was $2.3 million, a decrease of 10.3 percent, compared to selling,
general and administrative expense of $2.5 million for the third quarter of
1996. A reduction in employee commissions and relocation expenses of $261,000
from 1996 costs was offset by an increase in payroll and benefits of $77,000 due
to a slightly larger work force. Agent commissions and currency transaction
losses increased by $65,000 and $83,000, respectively, over 1996 costs due to
increased activity internationally. Selling, general and administrative expense
in the third quarter of 1997 was impacted by a decrease in travel, office and
support costs of approximately $285,000. As a percentage of revenue, selling,
general and administrative expense increased to 79.5 percent in the third
quarter of 1997 from 66.9 percent in the third quarter of 1996.
Research and Development Expense. Research and development expense for the third
quarter of 1997 was $1.2 million, which remained flat compared to the third
quarter of 1996. As a percentage of revenue, research and development expense
increased to 42.2 percent for the third quarter of 1997 from 31.7 percent for
the third quarter of 1996, which is due to the decline in sales previously
discussed.
Interest Expense. Interest expense for the third quarter of 1997 was $17,000, a
decrease of $245,000 compared to interest expense of $262,000 for the third
quarter of 1996. The decrease reflects the repayment of the company's bank debt
and other short-term borrowings following the IPO.
Income Taxes. Due to a change in BFGoodrich ownership percentage resulting from
the IPO, for periods subsequent to the IPO, the Company no longer has the
benefit from the tax allocation agreement with BFGoodrich. As a result, the
Company was not allocated an income tax benefit in the third quarter of 1997. In
the third quarter of 1996, the Company's benefit was $781,000. The Company did
incur $29,000 in income tax expense in the third quarter of 1997 from its
operations in Germany.
Comparison of the Nine Months Ended September 30, 1997 and September 30, 1996
Revenues. Revenues for the first nine months of 1997 were $17.7 million, an
increase of 16.9 percent, compared to revenues of $15.1 million for the first
nine months of 1996. The Company's 1997 first nine months revenues of $17.7
million resulted primarily from sales of SLS Systems. From time to time, the
Company will allow existing customers to "trade-up" from a SLS 2000 System to a
SLS 2500 System.
Product sales revenue for the first nine months of 1997 was $15.6 million, an
increase of 16.6 percent, compared to product sales revenue of $13.4 million for
the first nine months of 1996. The increase was primarily attributable to
greater sales of SLS Systems and powdered materials. Revenues from powdered
materials sales increased as a result of a larger number of installed SLS
Systems. Revenues in the third quarter of 1997 were negatively impacted
primarily because the Company experienced a reduction in sales volume from what
it had anticipated consistent with prior seasonal slowdowns in Europe and the
Pacific Rim, as well as continuing softness in North American market demand.
Service and support revenue for the first nine months of 1997 was $2.0 million,
an increase of 19.0 percent, compared to service and support revenue of $1.7
million for the same period in 1996. Service and support revenue increased
primarily as a result of the recognition of deferred warranty and maintenance
revenue associated with the larger number of installed SLS Systems, which was
offset to some degree by the factors affecting the third quarter of 1997
described above.
11
<PAGE>
Gross Profit. The Company has historically experienced significant fluctuations
in its gross profits. Gross profit for the first nine months of 1997 was $7.4
million, an increase of 20.3 percent, compared to gross profit of $6.1 million
for the first nine months of 1996. As a percentage of revenue, gross profit for
the nine months ended September 30, 1997 increased to 41.7 percent from 40.5
percent for the same period in 1996.
Gross profit attributable to product sales for the first nine months of 1997 was
$6.9 million, an increase of 27.0 percent, compared to gross profit attributable
to product sales of $5.5 million for the first nine months of 1996. As a
percentage of product sales revenue, gross profit attributable to product sales
increased to 44.4 percent during the period, compared to 40.8 percent for the
same period in 1996. The increase in gross profit attributable to product sales
as a percentage of product sales revenue resulted primarily from a favorable
product mix of Sinterstation 2500 and 2000 Systems.
Gross profit attributable to service and support revenues for the first nine
months of 1997 was $420,000, a decrease of 36.0 percent, compared to gross
profit of $656,000 for the first nine months of 1996. As a percentage of service
and support revenue, gross profit attributable to service and support revenues
was 20.7 percent and 38.5 percent for the first nine months of 1997 and 1996,
respectively. The decrease in profit percentage is due to a decrease in
training, consulting and other customer support revenues, and an increase in
international service and maintenance costs.
Selling, General and Administrative Expense. Selling, general and administrative
expense includes payroll and fringe benefits, advertising and promotion expenses
and other general expenses. Selling, general and administrative expense for the
first nine months of 1997 was $8.3 million, an increase of 21.3 percent,
compared to selling, general and administrative expense of $6.8 million for the
first nine months of 1996. A larger work force in the first nine months of 1997
resulted in compensation and fringe benefits increasing more than $339,000 over
1996 costs. Agent commissions increased by approximately $480,000 over 1996
costs due to increased activity internationally. Selling, general and
administrative expense in the first nine months of 1997 was impacted by an
increase in travel, office and support costs of approximately $648,000. As a
percentage of revenue, selling, general and administrative expense increased to
46.9 percent in the first nine months of 1997 from 45.2 percent in the first
nine months of 1996.
Research and Development Expense. Research and development expense for the first
nine months of 1997 was $3.6 million, an increase of 16.1 percent, compared to
research and development expense of $3.1 million for the first nine months of
1996. As a percentage of revenue, research and development expense decreased to
20.3 percent for the first nine months of 1997 from 20.5 percent for the first
nine months of 1996.
Interest Expense. Interest expense for the first nine months of 1997 was
$418,000, a decrease of $325,000 compared to interest expense of $743,000 for
the first nine months of 1996. The decrease reflects the repayment of the
Company's bank debt and other short-term borrowings following the IPO.
12
<PAGE>
Income Taxes. As a result of its tax sharing arrangement with BFGoodrich,
the Company was allocated an income tax benefit of $507,000 in the first nine
months of 1997 compared to $1.5 million in the first nine months of 1996. Due
to a change in BFGoodrich ownership percentage resulting from the IPO, for
periods subsequent to the IPO, the Company no longer has the benefit from the
tax allocation agreement with BFGoodrich. The Company did incur $29,000 in
income tax expense as a result of its operations in Germany.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, cash used by the Company for operations and investing
activities has exceeded cash generated by the Company. The Company generally has
financed its cash needs through transactions with BFGoodrich and borrowings from
commercial banks and other short-term sources, and more recently, from the
proceeds of the IPO.
Net cash used in operating activities was approximately $4.0 million and $3.3
million in the first nine months of 1996 and 1997, respectively. Net cash used
in operating activities of $3.3 million for the first nine months of 1997
resulted from the net loss of $7.3 million adjusted for non-cash charges for
depreciation and amortization of $1.8 million and stock compensation (EAP)
expense of $2.9 million. In addition, decreases in accounts receivable and
prepaid expenses of $3.8 million and $308,000, respectively, and increases in
amounts due to/from BFGoodrich of $655,000 were offset by increases in inventory
and deferred revenues of $3.1 million and $90,000, respectively, as well as
decreases in accrued expenses of $1.0 million and accounts payable of $2.4
million. For the nine months ended September 30, 1996 and 1997, BFGoodrich
allocated to the Company approximately $781,000 and $507,000, respectively, for
tax benefits resulting from inclusion of the Company in the consolidated income
tax return of BFGoodrich. Such amounts are included in "Due to/from BFGoodrich"
in changes in assets and liabilities used in calculating cash used in operating
activities in the Condensed Statements of Cash Flows.
The Company's investing activities included expenditures for patents and
licenses, capitalized software costs and furniture and equipment. Net cash used
in investing activities was approximately $2.5 million and $1.5 million in the
first nine months of 1996 and 1997, respectively.
The existence of the tax benefit allocation from BFGoodrich reduced the
Company's net loss for years 1994 through May 2, 1997. The Company expects that
the loss of the tax benefit allocation will materially adversely affect its
financial results and cash flows in any period in which the Company generates a
loss. The benefits of utilizing future tax loss carryforwards might be realized,
however, should sufficient profits be generated prior to the expiration of the
tax loss carryforwards.
Total indebtedness of the Company was approximately $16.0 million as of May 2,
1997, consisting primarily of notes payable to commercial banks under existing
lines of credit, short-term borrowings from other financing sources
13
<PAGE>
and a line of credit extended to the Company by BFGoodrich under which the
Company had $4.0 million in outstanding borrowings. The Company retired
approximately $14.3 million of the debt with proceeds from the IPO, and $1.5
million under the BFGoodrich line of credit was converted to equity. In the
past, BFGoodrich assisted the Company in obtaining loans from commercial banks.
In October 1997, the Company amended the revolving line of credit ("amended
line") with Texas Commerce Bank. The amended line is limited to the principal
dollar amount of $2.0 million which is guaranteed by BFGoodrich. The covenants
of the revolving line of credit agreement executed in August 1997 have been
waived through June 1, 1998. The amended line bears interest at the bank's prime
interest rate minus one and one-half percent. In addition, the agreement
specifies that the bank has the option to terminate the obligation to make
further advances under the line of credit on 30 days notice if employment of the
chief executive officer of the Company terminates and a qualified successor is
not appointed by the Company and approved by Texas Commerce Bank within a
specified period of time.
On October 28, 1997, the Company and John Murchison entered into a severance
agreement that will take effect in the event that Mr. Murchison's employment
should ever be terminated without cause by the Company. In such event, the
severance agreement provides that the Company will continue to pay Mr.
Murchison's base salary for one year after the date of the termination of his
employment. Furthermore, the severance agreement provides that Mr. Murchison
shall not compete with the Company for a period of one year after the date of
the termination of his employment.
OTHER FACTORS AFFECTING FUTURE OPERATIONS
Seasonality; Market Conditions. The Company's revenues are affected by capital
budgeting and spending patterns in the world wide market and shortened selling
periods in certain international markets. Due to these seasonal factors, the
Company typically experiences slowdowns in sales of SLS Systems during the first
quarter as a result of capital spending patterns in the North American market
and during the third quarter as a result of shortened selling periods in certain
international markets. Revenues in the third quarter of 1997 were negatively
impacted primarily because the Company experienced a reduction in sales volume
from what it anticipated consistent with prior seasonal slowdowns in Europe and
the Pacific Rim, as well as continuing softness in North American market demand.
The Company is unable to assess if these conditions will continue through future
periods.
Foreign Operations. The Company competes on an international basis through its
wholly owned subsidiary located in Germany and through export sales derived from
its United States sales operations (principally to the Pacific Rim). Sales to
customers outside of the United States constitute a significant portion of DTM's
revenues. International sales are generally priced in U.S. dollars. However,
European sales prices are sometimes negotiated in either Deutsche marks or the
local currency. The Company does not engage in hedging to mitigate the effects
of foreign currency exchange rate risk. The Company incurred approximately
$297,000 in transaction losses for the nine months ended September 30, 1997.
Equity Appreciation Plan. The Company has a phantom stock appreciation rights
plan whereby all phantom stock appreciation rights outstanding upon the IPO were
converted into immediately exercisable options to acquire shares of the
Company's common stock. Such conversion resulted in a non-recurring, non-cash,
compensation expense of approximately $2.9 million in the second quarter of
1997. Refer to the Prospectus for additional information.
Intellectual Property and Proprietary Rights. In pursuing protection for
its proprietary rights in its SLS Systems, materials and related technology, the
Company currently relies on a combination of patent, copyright, trademark and
trade secret rights, as well as contractual provisions. The Company typically
seeks patent protection for its selective laser sintering technology, including,
where deemed appropriate, the selective laser
14
<PAGE>
sintering process, the SLS Systems and the materials used in the SLS Systems.
However, patent protection may not always be available. There can be no
assurance that patents will be issued under any or all of the patent
applications to which the Company has rights. In addition, the laws of various
countries in which the Company's products may be sold may not protect the
Company's products and intellectual property rights to the same extent as the
laws of the United States. Refer to the Prospectus for additional details
regarding intellectual property and litigation.
A Wisconsin federal court has granted partial summary judgement ending patent
infringement charges brought by the Company against Midwest Composite
Technologies, Inc. of Hartland Wisconsin which does not dispose of counterclaims
brought by the defendant or the Company's breach of contract claim against
Midwest. The Company intends to vigorously pursue its rights and remedies, but
cannot predict the impact, if any, this will have on the Company's ongoing
business activities.
Quarterly Fluctuations in Operating Results. The Company's revenues and
operating results have varied substantially from quarter to quarter and may
continue to do so. The Company's revenues are earned unevenly throughout the
quarter and are typically skewed to the latter end of the quarter. DTM
typically experiences a relatively long lead time to complete an SLS System sale
and has historically experienced little or no backlog. Furthermore, new product
introductions, seasonality of customer buying patterns and other factors can
cause fluctuations in quarterly results. The failure of the Company to complete
a particular SLS System sale in any given quarter can have a material adverse
effect on the Company's business and financial performance for that quarter.
15
<PAGE>
Dependence on Third-Party Suppliers. The Company subcontracts for manufacture of
SLS System components, powdered sintering materials and accessories from single-
source, third-party suppliers. A disruption in supply or failure of a supplier
to remain competitive in functionality or price could have a material adverse
effect on the Company's sales or reputation for timely delivery, and hence, on
the Company's business and financial performance.
New Products; Engineering Testing Delays. The Company's ability to achieve and
maintain a significant market share may depend heavily on its ability to improve
its existing products, as well as to introduce new and innovative products that
facilitate increased use and more specialized applications of existing products.
DTM cannot predict with any certainty the degree to which its ongoing research
and development efforts in the areas of SLS System and materials enhancements
will be successful or, if so, when. In addition, the Company can provide no
assurance of its future success in selecting, developing, manufacturing and
marketing new products. When the Company or its competitors announce new
products with capabilities or technologies that have the potential to replace
the Company's existing product offerings, customers may defer or forego
purchases of existing Company products. This could materially adversely affect
the Company's business, including revenues and financial performance. While the
Company performs extensive testing prior to releasing new product designs or
product enhancements, products may contain unforeseen errors or performance
problems. The correction of errors and problems in new products could cause
delays in product introductions or shipments, require design modifications to
previously shipped products or cause adverse publicity, any of which could
adversely affect the Company's business and financial performance.
Competition. The market for rapid prototyping systems is highly competitive. In
marketing its SLS Systems, the Company experiences competition from many
sources. Certain of the Company's competitors may be better known and may have
greater financial, research and development, production and marketing resources
than DTM. Competition could increase as a result of the introduction of new
products or product enhancements by these competitors or the entry into the
industry by other companies. Increased competition could result in price
reductions, reduced margins and loss of market share, all of which could
materially adversely affect the Company's business and financial results.
SAFE HARBOR STATEMENT
Investors are cautioned that forward-looking statements contained in this 10-Q
involve risks and uncertainties including without limitation the matters
described in "Other factors affecting future operations" and the following: (i)
the Company's plans, strategies, objectives, expectations and intentions are
subject to change at any time at the discretion of management and the Board of
Directors; (ii) the Company's plans and results of operations will be affected
by the Company's ability to manage its working capital; and (iii) the Company's
business is highly competitive and the entrance of new competitors or the
expansion of the operations by existing competitors in the Company's markets
could adversely affect the Company's plans and results of operations.
16
<PAGE>
Part 2. Other Information
Item 1. Legal Proceedings
A Wisconsin federal court has granted partial summary judgement ending patent
infringement charges brought by the Company against Midwest Composite
Technologies, Inc. of Hartland, Wisconsin, which does not dispose of
counterclaims brought by the defendant or the Company's breach of contract claim
against Midwest. The Company intends to vigorously pursue its rights and
remedies, but cannot predict the impact, if any, this will have on the Company's
ongoing business activities.
Item 6. Exhibits and Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended September 30, 1997.
Exhibit 10.1 - First Amendment to Credit Agreement and Note
Exhibit 10.2 - Severance Agreement
Exhibit 11 - Statement of computation of per share earnings is filed as part of
this report.
Exhibit 27 - Financial Data Schedule
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 13, 1997
DTM CORPORATION
(Registrant)
/s/ John S. Murchison, III
----------------------------
John S. Murchison, III
President and Chief Executive Officer
/s/ Thomas A. Beck
----------------------------
Thomas A. Beck
Corporate Controller
(Principal Financial and Accounting Officer)
17
<PAGE>
EXHIBIT 10.1
FIRST AMENDMENT TO CREDIT AGREEMENT
(with Borrowing Base)
AND NOTE
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (with Borrowing Base) and Note (this
"Amendment") dated effective as of October 1, 1997 (the "Effective Date"), is by
and between DTM CORPORATION ("Borrower") and TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, a national banking association whose principal office is located in
Houston, Texas ("Bank").
PRELIMINARY STATEMENT. Bank and Borrower entered into a Credit Agreement (with
- ---------------------
Borrowing Base) dated as of August 6, 1997 (the "Credit Agreement"). The
"Agreement", as used in the Credit Agreement shall a1so refer to the CredIt
Agreement as amended by this Amendment. All capitalized terms defined in the
Credit Agreement and not otherwise defined herein shall have the same meanings
herein as in the Credit Agreement.
In order to induce Bank to make Loans under the Credit Agreement and to waive
compliance by Borrower with certain requirements of the Agreement through June
1, 1998. The B.F.Goodrich Company, a New York corporation, (the "Guarantor") has
agreed to provide a continuing limited guaranty of payment in the form of
Exhibit A hereto ("Guaranty") and Bank is willing to make Loans subject to the
terms and conditions set forth in the Credit Agreement as amended by this
Amendment.
NOW THEREFORE, in consideration of the premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Bank and Borrower agree as follows.
1. Section 1.2 of the Credit Agreement is amended by adding the following to
the end of Section 1.2 of the Credit Agreement:
Notwithstanding the foregoing, through June 1, 1998, the "Borrowing Base"
--------------
will be the principal dollar amount to which the Guarantor's Guaranty is
limited."
Each of Borrower and Guarantor understands that due to the amount of Guarantor's
Guaranty the Borrowing Base cannot exceed $2,000,000.00 as of October 1, 1997
--------------
and the maximum amount that may be borrowed subject to the terms of the
Agreement is $2,000,000.00 through June 1, 1998, effectively reducing the
Commitment to $2,000,000.00 for purposes of calculating the Commitment Fee under
Section 1.4 through June 1, 1998.
2. Exhibit A.1 of the Credit Agreement is amended by replacing prior Exhibit
A.1 with the Exhibit B.1 attached to and incorporated into this Amendment and
the Credit Agreement for all purposes. Exhibit A.2 of the Credit Agreement is
amended by replacing prior Exhibit A.2 with the Exhibit B.2 attached to and
incorporated into this Amendment and the Credit Agreement for all purposes.
3. Section 2.1(b) of the Credit Agreement is amended to read as follows:
"2.1(b) Bank as received the following, duly executed and in Proper Form:
(1) copy of Borrower's investment's policy, (2) Borrowing Base Report
within the time required by this Agreement, (3) A Request for Loan,
substantially in the form of Exhibit 2.1 (b), not later than one (1)
---------------
Business Day before the date which shall also be a Business Day of the
proposed Loan signed by a representative of Borrower and Guarantor;
provided however, Bank may accept and act upon verbal advance requests
received from Borrower's and Guarantor's representative reasonably believed
by Bank to be authorized to make such requests as of the Effective Date of
this Amendment but, until the loan is approved in writing by Guarantor, the
Loan is not subject to the payment guaranty of the Guaranty but is subject
to this
Page 1 of 3 Pages
<PAGE>
Agreement and the other Loan Documents. The authorized representatives to
request Loans are listed on the attached Schedule A. Bank may rely on
Schedule A until Bank receives from Borrower and Guarantor a written notice
of a change in the authorized representatives to approve a Loan. A fax from
the Guarantor showing a signature of an authorized representative on a Loan
Request shall satisfy the requirement that the Loan be approved in writing
to be subject to the payment guaranty of the Guaranty. Any request for Loan
may be executed in counterparts; and (4) such other documents as Bank
reasonably may require."
4. Exhibit B of the Credit Agreement is amended by replacing Exhibit B with
the Exhibit 2.1(b) attached to this Amendment.
5. This Amendment shall become effective as of the Effective Date upon its
execution and delivery by each of the parties named in the signature lines below
and execution and delivery by Guarantor of the Guaranty and the Certificate of
Incumbency in Proper Form and payment of the Closing Fee of $5,000.00.
6. Borrower further acknowledges that each of the other Loan Documents is in
all other respects ratified and confirmed, and all of the rights, powers and
privileges created thereby or thereunder are ratified, extended, carried forward
and remain in full force and effect except as the Credit Agreement and the Note
are amended by this Amendment.
7. This Amendment and the Guaranty shall be included within the definition of
"Loan Documents" as used in this Agreement.
8. WAIVER AGREEMENT: Bank has agreed to waive compliance with the following
requirements imposed upon Borrower as described and limited below for the time
period from August 6, 1997 through June 1, 1998:
. The requirement in 2.1(b)(2) to submit a Borrowing Base Report with a
Request for a Loan or to submit on a monthly or weekly basis as required by
the Borrowing Base Report and Exhibit C and Section 4.3;
. The requirement in 2.1(e) that the asset audit by Bank be found acceptable
to the Bank in its sole judgment;
. The representation in 3.2 regarding material adverse change and change in
the condition, financial or otherwise, of the Borrower and its Consolidated
Subsidiaries;
. The representation in Section 3.4 that neither Borrower nor any Subsidiary
of Borrower is in default in the payment of any other material agreement to
which it is party;
. The requirement to comply with the lockbox requirements and to provide
notice to account debtors of the Lockbox contained in 4.9 & 4.10 and 5.9;
. The restriction on additional indebtedness and liens in section 5.1 & 5.2;
. Compliance with the financial covenants required by 5.3 as described in
Exhibit CB.1, 2, & 3 (Tangible Net Worth; Quick Ration and EBITDA); and
. The Events of Default described in 6.1(b) (c) & (d) but only as they relate
to Borrower as Obligor and, as to (c) and (d), only as to the covenants
that have been waived for purposes of 6.1(d).
The waivers contained herein do not constitute a waiver of any other defaults
not described in this Amendment that may currently exist or that may hereafter
occur. Bank's delay in exercising any of its rights under the Credit Agreement
does not constitute a waiver of any rights or interests of Bank except as
specifically agreed to in writing by Bank. Bank has the right to refuse to make
a Loan at any time that Borrower is not in compliance with the terms of the
Agreement as amended by this Amendment. If Bank elects to make any Loans to
Borrower while Borrower is out of compliance with
Page 2 of 3 Pages
<PAGE>
the Agreement or during the existence of an Event of Default, the making of the
Loan shall not constitute a waiver of any defaults then existing or thereafter
arising under the Agreement, and will not constitute the agreement of Bank to
make further Loans. This Section constitutes the only evidence of Bank's waiver
of compliance with the above cited Sections of the Credit Agreement and then
only for the period described in this Amendment.
9. Amendment to the Note - The Revolving Promissory Note dated August 6, 1997,
in the original principal amount of $6,000,000.00 (which is hereby reduced to
$2,000,000.00 by virtue of this Amendment) executed by Borrower and delivered to
Bank is amended by replacing: "(i) the sum of the Prime Rate (as hereinafter
defined) from time to time in effect plus three-quarters of one percent (3/4%),
(the "Stated Rate") or," in the first paragraph, with "(i) the sum of the Prime
Rate (as hereinafter defined) from time to time in effect minus one and one-half
-----
percent (1.5%), (the "Stated Rate") or, The "Note" as used in the Credit
Agreement and the Note shall refer to the Note as amended by this Amendment.
10. This Amendment may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed shall be deemed an original and all of which taken together shall
constitute but one and the same agreement.
11. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF TEXAS AND AS APPLICABLE, THE LAWS OF THE UNITED STATES OF
AMERICA.
THIS WRITTEN AMENDMENT AND THE OTHER LOAN DOCUMENTS CONSTITUTE A "LOAN
AGREEMENT" AS DEFINED IN SECTION 26.02(a) OF THE TEXAS BUSINESS & COMMERCE CODE,
AND REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed
effective as of October 1, 1997.
BORROWER: DTM CORPORATION
By: /s/ John S. Murchison, III
------------------------------------------
Name: John S. Murchison, III
President & CEO
Address: 1611 Headway Circle
Building 2
Austin, Texas 78754
BANK: TEXAS COMMERCE BANK NATIONAL ASSOCIATION
By: /s/ Donna Tanner-Day
------------------------------------------
Name: Donna Tanner-Day,
TCB-Austin, Vice President
Address: P.O. Box 550
Austin, Texas 78789
Page 3 of 3 Pages
<PAGE>
EXHIBIT 2.1(b)
REQUEST FOR LOAN
Letterhead of Borrower
May be executed in Counter Parts
Texas Commerce Bank National Association
700 Lavaca
P.O. Box 550
Austin, Texas 78789-0001
Re: Request for Loan under Agreement
Attention: Donna Tanner-Day
This letter confirms our oral or telephonic request of ________________,
19__, for a Loan in accordance with that certain Credit Agreement dated as of
August 6, 1997, as amended effective as of October 1, 1997 (the "Agreement"),
between you and us. Any term defined in the Agreement and used in this letter
has the same meaning as in the Agreement.
The proposed Loan is to be in the amount of $_________ and is to be made on
_____________________, 19__, which is a Business Day at least ___ Business Days
after the date of this letter. The proceeds of the proposed Loan should be
(check one:) [_] deposited into account number ________________ with the Bank
[_] _______________________________________________
The undersigned hereby certifies that;
(1) The representations and warranties made by Borrower or by any other
Person in the Agreement and the other Loan Documents are true and
correct in all material respects on and as of this date as though made
on this date except for those described in the First Amendment dated
October 1, 1997.
(2) The proposed Loan complies with all applicable provisions of the
Agreement.
(3) [_] No event of Default has occurred and is continuing that has not
been waived by the First Amendment to the Agreement dated October 1,
1997.
[_] The following Event of Default exists. __________________________
_____________________________________________________________________
Sincerely,
BORROWER: DTM CORPORATION
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
AND The payment of the Loan requested above will be guaranteed pursuant to the
- ---
Guaranty dated October 1, 1997 executed and delivered to Bank by the
undersigned Guarantor.
GUARANTOR: THE B.F.GOODRICH COMPANY
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
<PAGE>
EXHIBIT 10.2
October 9, 1997
Dear Mr. Murchison:
This letter will confirm that the DTM Board of Directors has approved the
payment of severance on the termination of your employment from DTM Corporation
on the following terms and conditions.
The compensation and benefits that will be paid to you pursuant to this letter
are in lieu of any benefits you would otherwise receive under any separation
plan, policy, or practice of the Company, and are provided to you as
consideration for your execution of the attached Release prior to the payment of
such benefits. Inasmuch as the compensation and benefits provided herein are
greater than those to which you would otherwise be entitled, your acceptance of
the arrangements outlined in this letter shall constitute a waiver of any other
rights that you may have under any separation plan, policy, or practice of the
Company.
1. DATE OF RESIGNATION
-------------------
Your last day of active employment would be established at the time of
termination, and is referred to as your "Severance Date" later in this
letter, and in the attached Release. Up through that date, you will remain
an active employee of the Company and will be eligible to participate in
and receive all compensation and benefits to which you are currently
entitled. Thereafter, you will have no status as an employee of the
Company.
2. SEPARATION PAYMENTS
-------------------
If your employment is terminated at the request of the Company, for
reasons other than fraud, unethical conduct, or intentional misconduct on
your part, your base salary as of the Severance Date will be continued
through the end on the month in which the first anniversary of the
Severance Date occurs. Payments will be made to you in the same amounts and
at the same time as your base salary payments were made to you when you
were an active employee of the Company. These payments shall be considered
separation payments, and not consideration for any services rendered. You
will not be required or expected to perform any additional services for the
Company to receive these separation payments, but you must fulfill your
obligations under this letter and the attached Release.
1
<PAGE>
3. MEDICAL, DENTAL AND LIFE INSURANCE BENEFITS.
-------------------------------------------
To and including your Severance Date, you will be entitled to continue to
receive medical, dental, and life insurance benefits from the Company, at
the same rates as those paid by active employees for such coverage.
Thereafter, you will be entitled to exercise any rights to extend coverage
by paying the premium as required under applicable law. You will be advised
of this opportunity separately by our Human Resources administrator.
4. EQUITY APPRECIATION PLAN
------------------------
Pursuant to the terms of the DTM Equity Appreciation Plan, the stock
options granted to you under this Plan will become null and void if they
are not exercised by the deadlines imposed by the plan.
5. VACATION
--------
The Company agrees to pay, with the first separation payment made to you,
an amount representing any earned but untaken vacation hours accrued
through the Severance Date, as determined from the appropriate records
maintained by the Company, in accordance with Company policy.
6. UNREIMBURSED EXPENSES
---------------------
The Company agrees to pay your unreimbursed expenses, if any, incurred on
behalf of the Company, upon submission by you of a properly supported
expense report by not later than ten business days following your Severance
Date. You agree to fully satisfy any outstanding debts to the Company and
to pay in full the outstanding balance on your Corporate American Express
account as promptly as possible, but in any event no later than fifteen
business days following your Severance Date.
7. COMPANY PROPERTY
----------------
You must return all Company property in your possession, including, without
limitation, the brochures, manual, supplies paid for by DTM, and computer
system used by you in your employment at the Company, (the hardware and the
software should remain loaded on the system, and any monitor and docking
station, printer, and laptop each shall be included in the returned
equipment). Company property must be returned no later than five business
days following your Severance Date. Failure to do so will be considered
theft and may be prosecuted.
8. CONFIDENTIALITY, NON-DISCLOSURE AND NON-COMPETE PROVISIONS
----------------------------------------------------------
2
<PAGE>
In addition to the duties of non-disclosure set forth in the letter
agreement dated ______________ between you and the Company (the "Original
Agreement"), you agree not to disclose any trade secrets known to you and
owned by the Company, said trade secrets including but not limited to the
identity of any current customer or potential customer of the Company whose
identity has become known to you during your employment with the Company,
and Company proprietary information regarding technology, marketing
methodologies, corporate opportunities, and acquisition prospects.
In addition to the duties to return property to the Company set forth in
the Original Agreement, you agree to return all assets and recorded
expressions of any information owned by or relating to the Company, said
information including but not limited to trade secrets, ideas, concepts,
improvements, discoveries, inventions, and materials relating to new types
of products or services. You further agree that said return of assets will
be effected immediately, or within a reasonable time of not more than one
calendar week after the date of your termination, by submitting said assets
to either your direct supervisor or the Controller of the Company.
For a period ending one year after your Severance Date, you agree, unless
specifically requested by the Company, not to communicate directly or
indirectly with, or cause communications with, any current customer, or any
potential customer of the Company whose identity has become known to you
during your employment with the Company, where such communication relates
to the Company, rapid prototyping, or constructing three dimensional parts.
For a period ending one year after your Severance Date, you agree that you
will not, acting alone or in conjunction with others, directly or
indirectly, became employed by, perform service for, or otherwise engage in
any competing business which derives revenue from, or manufactures, uses,
or sells, apparatus for rapid prototyping, rapid tooling or constructing
three dimensional parts, whether for your own account or by soliciting,
canvassing or accepting any transaction from any business. Such competing
businesses include, but are not limited to, the following: (1) 3D Systems,
Inc.; (2) Helisys, Inc.; (3) Stratasys, Inc.; (4) Cubital, Inc.; (5)
Sanders; and (6) EOS.
You agree that at no time in the future will you make any statements of any
kind to any third party about the Company or any aspect of its business, or
any of its officers, directors, employees, or others associated in any way
with the Company, which are or could reasonably be regarded as disparaging,
derogatory, defamatory, or otherwise negative. You agree that you will not
disclose to any third party the provisions of this letter agreement.
3
<PAGE>
For purposes of this Section 8, "Company" shall include the Company, and
its successors, assigns, divisions, parents, related or affiliated
companies, including The B.F. Goodrich Company, and the officers,
directors, shareholders, employees, agents and counsel of both the Company
and all related and affiliated companies, including The B.F. Goodrich
Company, including, without limitation, all management and supervisory
employees. The terms and agreements set forth in this Paragraph 8 shall,
except as stated otherwise, survive the completion of the obligations
contained in this letter agreement.
9. REFERENCES
----------
The Company will provide to any third parties information about your dates
of employment and your compensation level, but will provide no information
about your performance.
10. ASSISTANCE TO THE COMPANY
-------------------------
You agree to be available after your resignation to answer questions and
assist in locating files, data or information regarding the work you have
been doing for the Company, upon reasonable request by the Company. You
also agree to make yourself available upon request by the Company to assist
the Company in the transaction of any active matters on which you are
currently working and the prosecution or defense of any litigation
involving the Company concerning any matter of which you have knowledge as
a result of your position within the Company. You will be reimbursed for
travel and will receive a per diem equivalent to the daily rate of your
base pay as of the Severance Date, for the days you provide such service.
11. WITHHOLDING TAXES
-----------------
All payments made to you under this letter agreement will be subject to any
applicable federal, state and local tax withholding requirements.
12. RELEASE
-------
The Company's obligation to provide the foregoing termination payments and
benefits to you are subject to receipt from you of a Release in the form
attached, in accordance with the time frames referenced in such Release.
The Company reserves the right to defer making any payment hereunder until
the signed Release has been delivered and such time frames have expired.
This letter sets forth our full understanding regarding the compensation and
benefits that will be available to you following your severance of employment
with the Company. If you
4
<PAGE>
agree to the foregoing, please sign both copies of the agreement and the
attached Release and return one of each to me. This agreement will become
effective only if it and the Release are executed by you and returned to me on
or prior to October ___, 1997. If you do not do so, the Company's offer to
provide the compensation and benefits described in this letter agreement shall
be deemed automatically withdrawn. Further, if this letter agreement becomes
effective, and you breach any of its terms and conditions, the Company shall
have the right to terminate any remaining payments to you hereunder, and to
recover any amounts previously paid under this letter agreement, as well as any
additional damages arising as a result of your breach.
Very truly yours,
DTM Corporation
By:
--------------------------------------------
D. Lee Tobler
Chairman of the Board
Accepted and Agreed by:
By signing below I certify that I have read each provision of the foregoing
letter agreement, as well as the attached Release; that I understand their
meaning and consequences; that I have had appropriate time to consult advisors
and consider signing; and that I am signing of my own free will, without
pressure from the Company, or duress.
- ----------------------------------
John S. Murchison, III
- ----------------------------------
Date
5
<PAGE>
RELEASE
-------
This Release is given in exchange for my receipt of the enhanced severance
benefits which are being offered to me, pursuant to the terms of a letter
agreement provided to me by DTM Corporation (the "Company") dated October __,
1997 to which this Release is attached. I acknowledge having received this
letter agreement and having had a sufficient opportunity to review and consider
it and to meet with a Human Resources representative of the Company to discuss
its contents, and I agree that in exchange for the benefits described therein, I
will be bound by the conditions set forth in that letter. I further acknowledge
that the benefits of the enhanced severance benefits represent substantial
consideration over and above those to which I would otherwise be entitled under
any plan, program or practice for severance or termination benefits provided or
maintained by the Company at any time.
I hereby release and discharge the Company from any and all liabilities, claims,
causes of action, demands, and damages of any kind, whether known or unknown,
arising out of or related in any way to any aspect of my employment, including
the termination of my employment. This release includes, but is not limited to,
any claim of discrimination on any basis, including race, color, national
origin, religion, sex, disability, or age, arising under any federal, state, or
local statute, ordinance, order or law, including the Age Discrimination in
Employment Act. The release also includes, but is not limited to, any claim that
the Company breached any contract or promise, express or implied, made to me
concerning my employment, or any term or condition of my employment, and any
claim of tortious conduct by the Company with respect to any aspect of my
employment, including the termination of my employment.
Notwithstanding anything contained in this Release to the contrary, this Release
shall not be construed as a waiver of my rights to any vested benefits under the
terms of any tax-qualified retirement plans of the Company in which I have been
a participant during my employment. I acknowledge, however, that the enhanced
severance benefits are being provided to me in lieu of, and not in addition to,
the benefits of any severance or termination plan, program, or practice of the
Company.
I further agree that this Release shall also be binding on my spouse, dependent
children, heirs, successors, assigns and legal representatives, and that the
Release shall release the Company, and its successors, assigns, divisions,
parents, related or affiliated companies, officers, directors, plan trustees,
shareholders, employees, agents and counsel, including, without limitation, all
management and supervisory employees. (The term "Company", whenever used in the
Release, shall refer to all such persons and entities.) If any provision of this
Release is declared invalid or unenforceable, the remaining portions of the
Release shall not be affected thereby, and shall be enforced.
6
<PAGE>
I, THE UNDERSIGNED EMPLOYEE, HAVE READ AND FULLY UNDERSTAND THE CONTENTS OF THIS
RELEASE. I ACKNOWLEDGE THAT I HAVE BEEN GIVEN AT LEAST 7 DAYS TO CONSIDER THE
RELEASE, TO DISCUSS IT WITH A HUMAN RESOURCES REPRESENTATIVE OF THE COMPANY, AND
TO CONSULT WITH PROFESSIONAL ADVISERS, INCLUDING AN ATTORNEY OF MY CHOOSING
REGARDING IT.
I FURTHER UNDERSTAND THAT I HAVE A PERIOD OF SEVEN DAYS, BEGINNING ON THE DAY I
SIGN THIS RELEASE, DURING WHICH I MAY REVOKE MY ACCEPTANCE OF THE RELEASE. THIS
RELEASE WILL NOT BECOME EFFECTIVE UNTIL SEVEN DAYS AFTER I HAVE SIGNED IT.
I have signed this Release on this _____ day of ____________, 199_.
____________________________________
Employee Name
7
<PAGE>
EXHIBIT 11
STATEMENT OF COMPUTATION OF EARNINGS (LOSS) PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ---------------------------
1996 1997 1996 1997
------------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Net loss $(1,609,000) $(2,321,000) $(3,076,000) $(7,288,000)
============= ============= ============ ============
Shares:
Weighted average number of shares
Outstanding 3,243,391 6,283,082 3,243,391 4,935,820
Dilutive effect of options to be
issued (1) 365,820 242,800 365,820 336,532
------------- ------------- ------------ ------------
Total shares used in computing net
loss per share 3,609,211 6,525,882 3,609,211 5,272,352
============= ============= ============ ============
Net loss per share (primary & fully dilutive) $ (.45) $ (.36) $ (.85) $ (1.38)
============= ============= ============ ============
</TABLE>
(1) Reflects the shares of Common Stock issuable to employees related to
exercisable options that are outstanding under the Equity Appreciation Plan,
less shares assumed to be repurchased using the treasury stock method.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AND THE CONDENSED CONSOLIDATED STATEMENT OF
INCOME OF THIS FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JUL-01-1996 JUL-01-1997
<PERIOD-END> SEP-30-1996 SEP-30-1997
<CASH> 329 2,006
<SECURITIES> 0 0
<RECEIVABLES> 7,845 4,122
<ALLOWANCES> 640 728
<INVENTORY> 4,835 7,900
<CURRENT-ASSETS> 12,964 13,587
<PP&E> 9,159 9,323
<DEPRECIATION> 6,102 6,754
<TOTAL-ASSETS> 17,897 18,162
<CURRENT-LIABILITIES> 11,342 8,872
<BONDS> 0 0
0 0
0 0
<COMMON> 1 1
<OTHER-SE> 28,019 50,225
<TOTAL-LIABILITY-AND-EQUITY> 17,897 18,162
<SALES> 3,040 2,214
<TOTAL-REVENUES> 3,776 2,852
<CGS> 1,757 1,139
<TOTAL-COSTS> 2,185 1,714
<OTHER-EXPENSES> 3,724 3,469
<LOSS-PROVISION> 0 40
<INTEREST-EXPENSE> 262 17
<INCOME-PRETAX> (2,390) (2,292)
<INCOME-TAX> (781) 29
<INCOME-CONTINUING> (1,609) (2,321)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,609) (2,321)
<EPS-PRIMARY> 0 (.37)
<EPS-DILUTED> 0 (.36)
</TABLE>
