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UNITED STATES
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 (fee required) FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
Or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED) For the transition period from to
Commission file number 0-20993
DTM CORPORATION
(Exact Name of Registrant as Specified in its Charter)
TEXAS 74-2487065
(State or Other Jurisdiction of (I.R.S. Employer
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 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
--- ---
AS OF APRIL 8, 1998, THE REGISTRANT HAD 6,286,851 OUTSTANDING SHARES OF COMMON
STOCK.
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DTM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
--------------------------
<S> <C> <C>
Revenue:
Products $ 4,970 $ 7,357
Service and support 864 666
--------------------------
5,834 8,023
Cost of sales:
Products 2,915 4,053
Service and support 512 488
--------------------------
3,427 4,541
--------------------------
Gross Profit 2,407 3,482
Operating expenses:
Selling, general and administrative 2,747 2,957
Research and development 988 1,133
--------------------------
3,735 4,090
--------------------------
Operating loss (1,328) (608)
Other income (expense):
Interest income 2 5
Interest (expense) (8) (305)
--------------------------
(6) (300)
--------------------------
Loss before income tax benefit (1,334) (908)
Income tax benefit - (197)
--------------------------
Net loss $ (1,334) $ (711)
==========================
Net loss per common share - basic $ (0.21) $ (0.22)
==========================
Weighted average number of shares
outstanding 6,286,851 3,243,391
==========================
</TABLE>
See accompanying notes.
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DTM CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands, except share amounts)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
-------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 828 $ 2,050
Accounts receivable, net 5,540 4,981
Inventory 4,700 5,839
Prepaid expenses and other 576 404
-------------------------------
Total current assets 11,644 13,274
Property, net 2,991 2,299
Capitalized software development costs, net 750 753
Patent and license fees, net 1,079 1,080
Other noncurrent assets 142 142
-------------------------------
Total assets $ 16,606 $ 17,548
===============================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,220 $ 3,839
Due to BFGoodrich 907 909
Deferred revenues 1,658 1,604
Accrued expenses and other liabilities 1,797 1,783
Short-term borrowings 175 175
-------------------------------
Total current liabilities 8,757 8,310
Shareholders' equity:
Preferred stock - -
Common stock, 6,286,851 shares outstanding
at March 31, 1998 and December 31, 1997 1 1
Additional paid-in capital 50,256 50,256
Stock options outstanding 2,905 2,905
Accumulated deficit (45,091) (43,757)
Cumulative translation adjustment (222) (167)
-------------------------------
Total shareholders' equity 7,849 9,238
-------------------------------
Total liabilities and shareholders' equity $ 16,606 $ 17,548
===============================
</TABLE>
See accompanying notes.
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DTM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
-----------------------------
<S> <C> <C>
Operating activities:
Net loss $ (1,334) $ (711)
Adjustments to reconcile net loss to net cash provided by
or (used) in operating activities:
Depreciation and amortization 445 607
Changes in assets and liabilities used in operating activities:
Accounts receivable (559) 676
Inventory 1,139 78
Prepaid expenses and current assets (172) 65
Accounts payable 381 (202)
Due to BFGoodrich (2) 378
Deferred revenues 54 (150)
Accrued expenses and other current liabilities 14 5
-----------------------------
Net cash provided by (used in) operating activities (34) 746
Investing activities:
Purchases of property (982) (273)
Capitalized software development costs (87) (67)
Patent and license expenditures (64) (245)
-----------------------------
Net cash used in investing activities (1,133) (585)
Financing activities:
Proceeds from short-term borrowings - 371
Repayments of short-term borrowings - (965)
Proceeds from notes payable - 800
-----------------------------
Net cash provided by financing activities - 206
Effect of foreign exchange rate changes on cash (55) (65)
-----------------------------
Net increase (decrease) in cash (1,222) 302
Cash at the beginning of the period 2,050 329
=============================
Cash at the end of the period $ 828 $ 631
=============================
</TABLE>
See accompanying notes.
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DTM CORPORATION
NOTES TO 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 ended March 31, 1998 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1998. For further information, refer to the consolidated financial statements
and related footnotes of the Company for the year ended December 31, 1997 as
disclosed in the Annual Report on Form 10-K filed with the Securities and
Exchange Commission on March 31, 1998.
2. INVENTORY
Inventory consisted of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
----------------------------
<S> <C> <C>
Raw materials and purchased parts $ 2,763 $ 2,863
Finished goods 2,187 3,101
----------------------------
4,950 5,964
Reserve for obsolesence (250) (125)
----------------------------
$ 4,700 $ 5,839
============================
</TABLE>
3. FINANCIAL INSTRUMENTS
The Company uses forward foreign currency exchange contracts, which typically
expire within one year, to hedge payments and receipts of foreign currencies,
related to the purchase and sale of goods overseas. Realized gains and losses on
these contracts are recognized in the same period as the hedged transactions.
The Company had foreign currency exchange contracts on hand at March 31, 1998,
primarily hedging Yen revenues, totalling $624,000.
4. FACILITIES LEASE
The Company's main facility has been located in Austin, Texas since 1990 and
contains specialized leasehold improvements. A new operating lease for this
facility and expansion into an additional 20,000 square feet in an adjacent
building was executed in April 1998. The Company intends to consolidate its
inventory, currently housed in short-term off-site storage facilities, into the
new space. Additionally, the new space will be used for an enlarged assembly
operation. The new space is expected to be available to the Company by the end
of 1998. The future minimum annual payments under this lease for the
approximately 50,000 square feet are $250,000 through 2000, $275,000 from 2001
through 2003 and $312,500 from 2004 through 2006.
5. CONTINGENCIES
In the ordinary course of business, the Company becomes involved in legal
proceedings and claims. In one such instance, DTM filed an action in the United
States District Court for the Eastern District of Wisconsin in October 1995
against three parties who are operating a selective laser sintering system
manufactured by the Company. DTM alleges that the defendants willfully infringed
a DTM patent. In June 1996, DTM amended its lawsuit to also assert that one of
the defendants breached an oral settlement agreement. The
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DTM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Company seeks injunctive relief, damages and attorneys' fees. The defendants
have denied infringement and the existence of an oral settlement agreement, and
the defendants seek attorneys' fees. The defendants have also asserted the
affirmative defenses of patent invalidity, implied license, and failure to mark
patented articles, patent unenforceability and invalidity of the oral settlement
agreement. Discovery commenced in late 1995. In a subsequent filing, one of the
defendants also has asserted claims against DTM and BFGoodrich for violation of
state and federal antitrust laws. That defendant seeks injunctive relief as well
as damages and attorneys fees. In July 1997, this court granted a temporary
summary judgment that these particular defendants had been given an implied
license by DTM. The Company has filed an appeal of this ruling. The contract
claim against the defendants and the antitrust claim against DTM and BFGoodrich
remain for trial unless this case is settled in the meantime. It is not possible
at this time to predict the outcome of these proceedings, although DTM and
BFGoodrich have indicated that they believe that the subsequent counter and
cross claims for violation of antitrust laws are without merit. However, a
ruling unfavorable to the Company could have a material adverse effect on the
Company's business and financial performance.
The Company has initiated patent infringement litigation in France, Germany and
Italy against a competitor and against one of that competitor's customers. The
Company also initiated patent infringement litigation in Japan against the
competitor's distributor in the Pacific Rim. In each of these cases, the Company
alleges that the competitor is selling rapid prototyping systems in Europe and
Japan that make unauthorized use of selective laser sintering technology covered
by the European and Japanese patents under which the Company has exclusive
rights. The Company seeks injunctive relief plus damages. It is anticipated that
this litigation will be pursued in conjunction with European and Japanese
proceedings in which the competitor has opposed the validity of those European
and Japanese patents. Hearings have begun in the German, French, Italian and
Japanese lawsuits. It is not possible at this time to predict the outcome of
these proceedings.
DTM has been informed by this competitor that it has obtained the worldwide
right to enforce certain U.S. patents and that it may bring patent infringement
litigation against the Company in U.S. courts. It is not possible at this time
to predict the outcome of this possible action, although the Company has
conducted a review of the patents in question and believes that it is not
infringing or would have valid defenses to claims such competitor may make
selective laser sintering. If such a lawsuit is filed, the Company intends to
defend itself vigorously. However, a ruling that would have the effect of
allowing the competitor to sell rapid prototyping systems in the U.S. without a
license from DTM could have a material adverse effect on the Company's business
and financial performance.
A lawsuit has been filed against the Company whereby certain plaintiffs claim
that the Company in connection with the initial public offering of its stock
made material misstatements or omissions. The plaintiffs have styled their
lawsuit as a class action, and they seek to represent the class of all
purchasers of the Company's stock from May 2, 1997 through June 18, 1997. On
June 18, 1997, the Company announced its anticipation that its results for the
quarter ending June 30, 1997 and the year ending December 31, 1997 would be
significantly below previous estimates. There has been no motion to certify the
proposed class to date. Plaintiffs seek rescission and damages. If the class
were certified, damages could include the proceeds of the Company's Initial
Public Offering ($22,818,000), plus interest. It is not possible at this time to
predict the outcome of this lawsuit, although the Company believes that the
allegations are without merit and intends to contest them vigorously. However, a
ruling unfavorable to the Company could have a material adverse effect on the
Company's business and financial performance.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
BUSINESS ENVIRONMENT AND RISK FACTORS
The following discussion and analysis should be read in conjunction with
the information set forth under the Company's Unaudited Condensed Consolidated
Financial Statements and notes thereto as well as the section below under the
heading "Risk Factors That May Affect Future Results and Safe Harbor Statement."
The Company's future operating results may be affected by various trends and
factors, which are beyond the Company's control. These include, among other
factors, changes in general economic conditions, rapid or unexpected changes in
technologies and uncertain business conditions that affect the rapid prototyping
and rapid tooling industry. Accordingly, past results and trends should not be
used by investors to anticipate future results or trends.
With the exception of historical information, the matters discussed below
under the heading "Results of Operations" and "Liquidity and Capital Resources"
may include forward-looking statements that involve risks and uncertainties. The
Company wishes to caution readers that a number of important factors, including
those identified in the section entitled "Risk Factors That May Affect Future
Results and Safe Harbor Statement" as well as factors discussed elsewhere in
this report and in the Company's other reports filed with the Securities and
Exchange Commission, could affect the Company's actual results and cause actual
results to differ materially from those forward-looking statements.
OVERVIEW
DTM Corporation designs, develops, manufactures, markets and supports, on an
international basis, rapid prototyping and rapid tooling systems and related
powdered sintering materials and services. The Company's Sinterstation Systems
and powdered sintering materials are based on proprietary and patented selective
laser sintering technology.
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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
March 31,
1998 1997
-----------------------------
<S> <C> <C>
Revenue:
Products 85.2% 91.7%
Service and support 14.8 8.3
-----------------------------
100.0 100.0
Gross Profit:
Products 41.3 44.9
Service and support 40.7 26.7
41.3 43.4
Operating expenses:
Selling, general and administrative 47.1 36.9
Research and development 16.9 14.1
-----------------------------
64.0 51.0
-----------------------------
Operating loss (22.8) (7.6)
Other income (expense):
Interest income - 0.1
Interest (expense) (0.1) (3.8)
-----------------------------
(0.1) (3.7)
-----------------------------
Loss before income tax benefit (22.9) (11.3)
Income tax benefit - (2.4)
-----------------------------
Net loss (22.9)% (8.9)%
=============================
</TABLE>
Revenues. Revenues decreased 27.3% to $5.8 million in first quarter of
1998, compared to $8.0 million in the first quarter of 1997. This decline was
primarily attributable to softness in international markets as revenues derived
from those areas declined by approximately 38% to $3.3 million. Revenues derived
from the Pacific Rim countries accounted for the majority of the decline in
international revenues. Revenues derived from customers in North America
declined by approximately 5% to $2.5 million. The revenues derived from
manufacturing customers and the revenues derived from service bureau customers
declined by approximately the same percentage. Unit volumes of Sinterstation
Systems declined in the first quarter of 1998 over the first quarter of 1997.
The unit volumes of powdered materials increased during the first quarter of
1998 over the levels of the first quarter of 1997.
Revenues in past periods may not be indicative of revenues in the future,
which may be affected by other business environment and risk factors previously
discussed, as well as other factors included elsewhere herein.
Gross Profit. Gross profit was $2.4 million, or 41.3% of revenue, in the
first quarter of 1998, compared to $3.5 million, or 43.4% of total revenue, in
the first quarter of 1997. The gross profit decrease primarily was due to lower
worldwide unit sales of Sinterstation Systems. The gross margin percentage
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decrease in the first quarter of 1998 was caused primarily by lower average
selling prices on Sinterstation Systems, without a corresponding decrease in
average unit costs. Additionally, in the first quarter of 1998 the Company
included in its consolidated statement of operations a provision for
obsolescence of $125,000. There was no such provision in 1997. In the first
quarter of 1998, service and support margins improved to 40.7% due to reduced
material costs of servicing certain international customers.
The Company believes there is a risk that gross margin percentages may
continue to decline in the face of the soft North American market and the strong
U.S. dollar. Other factors, including changes in material and labor costs, may
also have an adverse effect on gross margins. Past gross margins are not
necessarily indicative of future gross margins.
Selling, General and Administrative Expense. Selling, general and
administrative expense was $2.8 million, or 47.1% of revenues, in the first
quarter of 1998, compared to $3.0 million, or 36.9% of revenues, in the first
quarter of 1997. The decrease in 1998 was primarily related to lower commission
expenses resulting from lower sales levels. Selling, general and administrative
expense may vary as a percentage of revenues in the future.
Research and Development Expense. Research and development expense was
$988,000, or 16.9% of revenues, in the first quarter of 1998, compared to $1.1
million, or 14.1% of revenues, in the first quarter of 1997. The Company plans
to continue its commitment to research and development in 1998, as the Company
believes that the markets for its products are characterized by technological
innovation for hardware, software and powdered materials. Research and
development expense may increase in absolute dollars in future periods, and such
expenditures may vary as a percentage of sales. There can be no assurance that
the Company's research and development efforts will result in commercially
successful new technology and products in the future, and those efforts may be
affected by other factors.
Interest Expense. Net interest expense for the first quarter of 1998 was
$6,000, compared to interest expense of $300,000 for the first quarter of 1997.
The higher year earlier expense resulted from a greater outstanding debt. In May
1997 the Company repaid substantially all of its then outstanding indebtedness
out of the proceeds of an initial public offering of common stock.
Income Taxes. As a result of its tax sharing arrangement with BFGoodrich,
the Company was allocated an income tax benefit of $197,000 in the first quarter
of 1997. In May 1997, BFGoodrich ownership interest fell below 80% and such
benefits are no longer available to the Company. In the fourth quarter of 1997
the Company recorded the final accounting for this tax allocation arrangement.
Net Loss. The Company had net losses of $1.3 million and $711,000 in the
first quarter of 1998 and 1997, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities (before working capital changes) was
$889,000 in the first quarter of 1998, while it was $104,000 in the first
quarter of 1997. Working capital provided cash of $855,000 in the first quarter
of 1998 and $850,000 in the first quarter of 1997. In the first quarter of 1998,
the apparent aging of receivables increased as sales for the quarter was
weighted to the end of the quarter.
The Company's investing activities include expenditures for patents and
licenses, capitalized software costs and furniture and equipment, principally
consisting of the Company's Sinterstation Systems built for internal use and
rental purposes. Net cash used by investing activities was approximately $1.1
million and $585,000 in the first quarters of 1998 and 1997, respectively. The
increased investment in 1998 was primarily for Sinterstation Systems for
internal use in development activities.
The Company currently has a $2.0 million line of credit with Chase Bank,
Texas NA, with no amounts outstanding, expiring in April 1999. Borrowings under
this line of credit bear interest at prime plus 1.5%. Borrowings under this line
must be approved in advance by The B.F.Goodrich Company
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("BFGoodrich"), which has guaranteed the line of credit. There can be no
assurance that BFGoodrich will approve such bank loans when and if requested by
DTM. In addition BFGoodrich has expressed its intention to divest its interest
in the Company. If BFGoodrich were to divest its interest in the Company, it is
unlikely that it would subject itself to additional guarantee exposures under
the line of credit.
The Company has a current liability to BFGoodrich in the amount of
approximately $907,000, which arose in 1997 as the result of certain payments
made by BFGoodrich on behalf of DTM. This liability is currently non-interest
bearing and is due on demand. Although BFGoodrich has not yet set a time frame
for its repayment, it could do so at any time. Additionally, BFGoodrich could
require that the liability bear interest at any time.
Future capital requirements of the Company will depend on its growth rate,
profitability, working capital requirements, and level of investment in long-
term assets. BFGoodrich has been a significant source of debt and equity funding
in the past. BFGoodrich has indicated that it has no plans to provide future
funding to DTM.
The Company believes that it has the financial resources, needed to meet
business requirements, including capital expenditures, working capital
requirements, the debt obligations outstanding and operating lease commitments
for facilities through the next twelve months, assuming the availability of the
bank line of credit. However, there can be no assurance that this will be the
case.
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS AND SAFE HARBOR STATEMENT
Investors are cautioned that this Quarterly Report on Form 10-Q contains
forward-looking statements that involve risks and uncertainties, including the
following: (i) the Company's plans, strategies, objectives, expectations and
intentions are subject to change at any time at the discretion of management and
the Board of Directors; (ii) the Company's plans and results of operations will
be affected by the Company's ability to manage its growth and working capital;
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. In addition, the Company identifies the risk factors discussed below
which may affect the Company's actual results and may cause actual results to
differ materially from those contained in forward looking statements.
LIMITED OPERATING HISTORY AND LACK OF PROFITABILITY. The Company was
incorporated in 1987, and prior to shipment of its first Sinterstation Systems
in 1992, it derived revenues solely from a rapid prototyping service bureau that
it operated in Austin, Texas. The Company has been unprofitable from its
inception; most recently recognizing a net loss of approximately $7.3 million
for the year ended December 31, 1997. There can be no assurance that the Company
can achieve, or if it achieves, maintain, profitability in the future.
EMERGING RAPID PROTOTYPING MARKET. The market for rapid prototyping products and
services is in an early stage of development and includes multiple, competing
technologies, many of which are not yet fully developed. Participants in this
market are moving to address new applications, many of which may not yet be
known or accepted by potential users. Rapid prototyping requires that a computer
aided design ("CAD") file describe a design. Organizations who are not using CAD
are not, generally, potential customers for rapid prototyping products and
services. Significant education of the end user in both CAD modeling and rapid
prototyping in general has in some cases been a prerequisite to product
acceptance. It is not clear at this time which one or more technologies will
gain broad market acceptance. There can be no assurance that DTM will emerge as
a market leader, or even a major market participant, as the market matures.
EMERGING RAPID TOOLING MARKET. The market for rapid tooling products and
services is even in an earlier stage of development than rapid prototyping.
Participants in this market are moving to address
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new applications, many of which may not yet be known or accepted by potential
users. The companies who make tooling using traditional machining methods have
made large capital investments in traditional equipment and have mature
infrastructures for doing so. They may be highly resistant both on financial and
cultural basis to adopting new technologies. There can be no assurance that
rapid tooling technologies will evolve to the point that the perceived value
will overcome those obstacles. There can be no assurance that DTM will emerge as
a market leader, or even a major market participant, as the market matures.
PENDING CLASS ACTION LITIGATION. The Company is the defendant in a matter styled
as a class action that is pending in a Texas State court. The plaintiffs seek
recission of the May 1997 IPO and the return to certain shareholders the
proceeds of that IPO of approximately $22.8 million, plus interest and costs. An
adverse judgment may have a material adverse effect on the Company's business
and financial performance.
COMPETITION. The market for rapid prototyping systems is intensely competitive.
In marketing its Sinterstation Systems, the Company experiences competition from
many sources. Certain of the Company's competitors are better known and have
greater financial, research and development, production and marketing resources
than DTM. Competition has increased as a result of the introduction of new
products or product enhancements by these competitors or the entry into the
industry by other companies. Industry analysts have estimated that the worldwide
market for rapid prototyping grew in 1997 by 20%. In 1997, the Company's
revenues lagged the overall industry and grew by only 4%.. Increased competition
has resulted in price reductions, reduced margins and loss of market share, all
of which has materially adversely affected the Company's business and financial
results and may continue to do so.
LIMITED PRODUCT COMPANY. The Company currently offers two models of
Sinterstation Systems for sale. The sale of Sinterstation Systems comprised 64%
of revenues in 1998 and 66% of revenues in both 1997 and 1996. The remaining
revenues were comprised of sales of powdered sintering materials, spare parts
and services to the installed base of Sinterstation owners. The Sinterstation
Systems are priced at the premium end of the range of today's rapid prototyping
products and are sold on the basis of performance and suitability to specific
applications. In a downturn or even in a soft market the Company's dependance
upon a limited range of products, as opposed to a wide range of products at
different price points, has caused the Company's financial performance to be
adversely affected and may continue to do so.
CAPITAL RESOURCES. The Company's future capital requirements will depend on a
number of factors, including its profitability, growth rate, working capital
requirements, expenses associated with protection of its patents and other
intellectual property and costs of future research and development activities.
It is typical of developing technology companies to need large amounts of
capital to fund growth. BFGoodrich, the Company's majority shareholder, has been
a significant source of debt and equity funding in the past. BFGoodrich has
indicated to the Company that BFGoodrich has no plans to provide future funding
and in fact intends to divest its position in the Company. Future operating
results will depend, in part, on the Company's ability to obtain and manage
capital sufficient to finance its business. The inability of the Company to
secure capital funding sufficient to meet its needs could have a material
adverse effect on the Company's business and financial performance. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS. Protection of the Company's
intellectual property is an important factor in its ability to be successful in
a highly competitive market that is subject to rapid technological changes.
However, it is expensive and consumes a significant portion of time of DTM's
officers.
In pursuing protection for its proprietary rights in its Sinterstation
Systems, materials and related technology, the Company currently relies on a
combination of patent, copyright, trademark and trade secret rights, as well as
contractual provisions. The Company typically seeks patent protection for its
selective laser sintering technology, including, where deemed appropriate, the
selective laser sintering process, its Sinterstation Systems and the materials
used in its Sinterstation Systems. However, patent protection may not always be
available. There can be no assurance that patents will be issued under any or
all of the patent applications to which the Company has rights. In addition, the
laws of various countries in which the
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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.
Furthermore, the Company can give no assurance that the issued patents to
which it holds rights will be adequate to protect its interests or, if
challenged, held valid. The Company's competitors could develop non-infringing
systems, materials or technologies that are equivalent or superior to those of
the Company. Competitors currently do and also may practice technology covered
by DTM's patents or other legal or contractual protections regardless of the
fact that it is legally protected, forcing the Company to engage in costly
litigation to defend its interests. While DTM defends its intellectual property
vigorously, there can be no assurance that it will be successful in its various
litigations in many countries. If the Company were unsuccessful in enforcing its
intellectual property rights or other contractual rights in the context of
third-party offers to sell selective laser sintering systems or sintering
powders or if the Company were found to have violated state or federal antitrust
laws, the Company's future revenues might be adversely affected. In 1997, a
court granted a temporary summary judgment, ruling that a customer had been
given an implied personal license by DTM to one of DTM's patented sintering
materials. This ruling has been appealed by the Company. The inability of the
Company to successfully establish and defend its intellectual property rights
could have a material adverse effect on the Company's business and financial
performance.
Unrelated third parties hold many patents and pending patent applications
under which the Company is not a licensee that relate to the design and
manufacture of rapid prototyping systems and materials. If such a third party
brought infringement litigation against the Company, and if the Company was not
successful in defending such litigation or in obtaining a license, the Company's
business and financial performance could be materially adversely affected. The
Company has been threatened with such litigation by a competitor.
Certain key intellectual property used in the selective laser sintering
process is licensed to the Company by The University of Texas System. As a
licensee, the Company's rights to practice the technology are not absolute. The
University of Texas could terminate, attempt to terminate or amend the license
if the Company could be shown to be in material default of the terms of the
license. Even if DTM has a basis for objection, defense of its rights as a
licensee could be costly and the outcome would be uncertain. Loss of significant
rights as a licensee under this license could have a material adverse effect on
the Company's business and financial performance.
MANAGEMENT OF VARYING OR NOMINAL GROWTH. DTM has experienced varying revenue
growth or contractions since 1991. DTM experienced increases in total net
revenues from approximately $1.1 million in 1991 to approximately $25.3 million
in 1997. In the third quarter of 1997, however, revenues began to contract
overall and this contraction has continued through the first quarter of 1998.
Throughout 1997 the Company's revenues derived from North America contracted
while its revenues derived from international markets expanded rapidly. In the
first quarter of 1998, revenues derived from both North America and
international markets contracted. Also, in 1997 the Company's revenues from
customers directly involved in product development expanded while its revenues
derived from service bureaus contracted. This varying or nominal growth has,
from time to time, strained its management resources and systems. DTM's ability
to manage its varying growth effectively will depend on, among other things, its
ability to increase the capability and quality of its operational, financial and
management information systems and controls and to train, motivate, in some
cases re-deploy, manage and retain its employees. There can be no assurance that
the Company will experience future growth or be successful in managing any
future growth. Failure to manage or enter into any future growth could have a
material adverse affect on the Company's business and financial performance.
QUARTERLY FLUCTUATIONS IN OPERATING RESULTS. The Company's revenues and
operating results have varied substantially from quarter to quarter and may
continue to do so. DTM typically experiences a relatively long lead-time to
complete a Sinterstation System sale and has historically experienced no
backlog. Furthermore, new product introductions, seasonality of customer buying
patterns and other factors can cause fluctuations in quarterly results. These
fluctuations have and may continue to preclude the Company from managing its
operating results effectively from quarter to quarter. Further, a
11
<PAGE>
majority of the sales of the Company's Sinterstation Systems occur at the end of
the quarter. As the duration of the current manufacturing cycle is approximately
19 weeks, this has a significant impact on the Company's ability to control its
inventories. The bunching of sales at the end of the quarter also negatively
impacts the Company's ability to predict sales, control sales prices and enforce
its standard terms. The failure of the Company to complete a particular
Sinterstation System sale in any given quarter can have a material adverse
effect on the Company's business and financial performance for that quarter and
quarterly fluctuations could cause a material adverse effect on the price at
which the Company's Common Stock trades.
NEW PRODUCTS; ENGINEERING TESTING DELAYS. The Company's ability to achieve and
maintain a significant market share depends heavily on its ability to improve
the perceived value of its Sinterstation Systems, through a combination of lower
installed cost, lower operating costs, higher productivity and improved ease of
use. In addition, DTM must 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 Sinterstation 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 sometimes defer
or forego purchases of Company products. This could materially adversely affect
the Company's business and financial performance. While the Company performs
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 can adversely affect the Company's business and
financial performance.
DEPENDENCE ON KEY PERSONNEL. The Company's success depends to a substantial
extent on certain key employees. Losing the services of one or more key
employees could have a material adverse effect on the Company's business and
financial performance. The Company's success also depends on its ability to
continue to attract highly talented technical personnel. Candidates with
appropriate training and expertise may be in short supply in the geographic
areas where the Company is attempting to recruit personnel. The Company has put
in place incentive compensation plans intended to provide motivation for
continued employment of key employees. However, the exercise prices of employee
stock options are currently above market value and, management incentive goals
have not been met for the past two years and certain sales force incentive goals
were not met last year. This has resulted in reduced incentive compensation for
Company employees. During the last half of 1997, several executive officers left
the Company. The Company can give no assurance that it will be able to retain
employees or continue to attract, assimilate and retain other skilled personnel.
DEPENDENCE ON THIRD-PARTY SUPPLIERS. The Company subcontracts for manufacture of
Sinterstation System components, powdered sintering materials and accessories
from single-source, third-party suppliers. A disruption in supply or failure of
a supplier to remain competitive in functionality or price could have a material
adverse effect on the Company's sales or reputation for timely delivery, and,
hence, on the Company's business and financial performance.
INTERNATIONAL 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, Europe
(excluding Germany) and South America. In 1997, approximately 62% of the
Company's sales were made to customers outside of the United States. The Company
expects that sales to customers in countries outside of the United States will
continue to make up a significant percentage of total sales. Fluctuations in
exchange rates as well as interest rates have significantly affected DTM's sales
in foreign markets. In particular, a strengthening U.S. dollar has adversely
affected the price competitiveness of DTM's products and services in the
international markets. The Company also maintains a subsidiary for sales and
technical support in Europe. In addition, exchange rates have adversely affected
the value of receivables arising from foreign sales. The Company does engage in
some hedging to limit the currency exchange risk related to some sales. There
can be no assurance that
12
<PAGE>
the Company's exposure to risks associated with international operations will
not continue to have a material adverse effect on its liquidity, capital
resources and results of operations. The regulatory environment, including
import/export laws, protective trade policies and currency controls of foreign
governments, also could materially adversely affect the Company's business and
financial performance.
CONTROL OF THE COMPANY. BFGoodrich owns approximately 50.2% of the outstanding
Common Stock. At this percentage, BFGoodrich could control elections of the
Company's Board of Directors and could control or substantially affect the
outcome of certain matters submitted to the Company's shareholders for their
vote or consent. BFGoodrich could also cause, prevent or delay a change in
control of the Company. BFGoodrich has advised the Company that its interest in
DTM is primarily financial and that it intends to divest its interest in the
Company. The Company cannot predict the effect of a sale of a controlling
interest in the Company; although, depending on the identity of the purchaser
and its reason for acquiring control of the Company, minority shareholders could
be adversely affected.
LOSS OF TAX ALLOCATION AGREEMENT AND OTHER BENEFITS FROM BFGOODRICH. As a result
of the IPO, the ownership of outstanding Common Stock by BFGoodrich decreased to
less than 80%. BFGoodrich is no longer able to include DTM's income or loss in
BFGoodrich's consolidated federal income tax return; consequently, DTM has lost
the benefit of the tax allocation agreement between DTM and BFGoodrich effective
May, 1997. Without the tax benefit allocated from BFGoodrich, the Company's net
loss for 1997 would have increased from approximately $7.3 million to
approximately $8.1 million. To the extent the Company incurs future losses, the
resulting tax loss carryforward would be deferred until sufficient income is
generated by DTM to utilize the carryforward.
Historically, DTM has received certain tangible and intangible benefits
from BFGoodrich. For example, BFGoodrich currently provides DTM participation in
a group program for various types of business insurance. This arrangement is on
terms that could be considered more favorable to the Company than those that
would be available to DTM in arms-length transactions with unrelated vendors,
principally because DTM is able to take advantage of cost efficiencies
experienced by BFGoodrich due to the size of its operations. DTM will be
ineligible to take part in any BFGoodrich insurance programs once BFGoodrich no
longer owns a majority of the outstanding Common Stock. Either party has the
option to terminate any of such arrangements at any time.
In addition at March 31, 1998, DTM had a current liability to BFGoodrich in
the amount of $907,000. This amount is currently non-interest bearing and is due
on demand. The balance is the result of certain payments made by BFGoodrich on
behalf of DTM in 1997. BFGoodrich could require interest on its advance or
require the advance to be repaid at any time.
POSSIBLE ISSUANCE OF PREFERRED STOCK. The Company's Articles of Incorporation
authorize the issuance of up to 3,000,000 shares of preferred stock, $.001 par
value ("Preferred Stock"), the terms of which would be determined by the Board
of Directors at the time of issuance, without further shareholder approval. The
Board of Directors would determine whether these shares would carry voting
rights, preferences in the payment of dividends, sinking fund provisions and
liquidation, redemption or conversion rights, if any. The Company has no current
plans to issue Preferred Stock. However, if such stock is issued in the future,
the rights of the holders of Common Stock could be materially adversely
affected. It is possible that the Board of Directors could grant future holders
of Preferred Stock rights that could restrict the Company's ability to merge or
sell its assets to a third party, resulting in preservation of the control of
the Company by its then current owners. The Preferred Stock provisions of the
Company's Articles of Incorporation could inhibit a third party from acquiring a
significant amount of the Common Stock, thereby delaying or preventing changes
of the management or control of the Company, and possibly materially adversely
affecting the Common Stock price as a result.
SHARES ELIGIBLE FOR FUTURE SALE. All shares of the Common Stock owned by
BFGoodrich are freely tradeable, subject to volume limitations of Rule 144. In
addition, BFGoodrich has rights to require the Company to register sales of its
shares of Common Stock under the Securities Act in certain circumstances.
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<PAGE>
DTM employees hold immediately exercisable options to purchase 553,150
shares of Common Stock under the Equity Appreciation Plan. The Company
registered the issuance and the sale of the shares of Common Stock that would be
issued upon exercise of options under the Equity Appreciation Plan on a Form S-8
Registration Statement. As a result, the Common Stock acquired by employees of
DTM upon exercise of options outstanding under the Equity Appreciation Plan will
be freely tradeable (subject to compliance with certain provisions of Rule 144,
in the case of affiliates of the Company).
Sales of shares of Common Stock into the market by BFGoodrich or employees
exercising options could cause a decline in the price of such stock.
MARKET VOLATILITY. The Company is listed for quotation of the Common Stock on
the Nasdaq National Market. Historically, the stock market has experienced
volatility that has particularly affected the market price of common stock of
technology-related companies. That volatility sometimes has been unrelated to
the operating performance of such companies.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Information related to quantitative and qualitative disclosures regarding
market risk is set forth in Managements Discussion and Analysis of Financial
Condition and Results of Operations and the risk factors under Item 2 above.
Such information is incorporated by reference herein.
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit 10.21 - DTM Corporation 1998 Stock Option Plan
Exhibit 10.22 - Amendment to the DTM Corporation Equity
Appreciation Plan, effective February 19, 1998
Exhibit 27.1 - Current Financial Data Schedule for the quarter ended
March 31, 1998
SIGNATURES
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: May 11, 1998
DTM Corporation
(Registrant)
By: /s/ John S. Murchison, III
---------------------------------------
John S. Murchison, III
President and Chief Executive Officer
By: /s/ Geoffrey W. Kreiger
---------------------------------------
Geoffrey W. Kreiger
Controller, Treasurer and Secretary
(Principal Financial and
Accounting Officer)
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<PAGE>
Index to Exhibits
-----------------
Number Description
- ------ -----------
10.21 DTM Corporation 1998 Stock Option Plan
10.22 Amendment to the DTM Corporation Equity Appreciation Plan, effective
February 19, 1998
27.1 Financial Data Schedule for the quarter ended March 31, 1998
15
<PAGE>
EXHIBIT 10.21
THE DTM CORPORATION
1998 STOCK OPTION PLAN
(Amended and Restated Effective May 13, 1998)
(Subject to Shareholder Approval on May 13, 1998)
1. PURPOSE. The purpose of the Plan is to promote the interests of the
-------
shareholders by providing stock-based incentives to employees of the Company to
align their interests with shareholders and to motivate them to put forth
maximum efforts toward the continued growth, profitability and success of the
Company. In furtherance of this objective, stock options, stock appreciation
rights, performance shares, restricted shares, common stock, and/or other
incentive awards may be granted in accordance with the provisions of this Plan
to some or all employees.
2. ADMINISTRATION. The Board of Directors of the Company (the "BOARD")
--------------
shall have authority to administer the Plan with respect to Participants who are
subject to Section 16 of the Securities Exchange Act of 1934 ("SECTION 16
INSIDERS") but may delegate such authority to the Compensation Committee (the
"COMMITTEE") of the Board. The Committee shall administer the Plan with respect
to all other Participants. The Committee shall consist of at least three
members who shall not be eligible to participate in the Plan.
The Committee may delegate to the Chief Executive Officer and to other
senior officers of the Company the authority to make awards under the Plan with
respect to not more than ten percent of the shares authorized under the Plan,
pursuant to such conditions and limitations as the Committee may establish.
However, only the Board or the Committee may make awards to Section 16 Insiders.
For purposes of the Plan, the PLAN ADMINISTRATOR shall mean the
particular entity, whether the Board, the Committee or the Chief Executive
Officer or other officer which is authorized to administer the Plan with respect
to one or more classes of eligible persons, to the extent such entity is
carrying out its administrative functions under the Plan with respect to the
persons under its jurisdiction. All decisions, action or interpretations of the
Plan Administrator shall be final, conclusive and binding on all parties.
3. SHARES AVAILABLE FOR THE PLAN. An aggregate of 300,000 shares of
-----------------------------
common stock of the Company shall be available for delivery pursuant to the
provisions of the Plan. Such shares may be either authorized but unissued
shares or treasury shares. Any shares awarded under the Plan which are not
issued or otherwise are returned to the Company, whether because awards have
been forfeited, lapsed, expired, been canceled shall again be available for
other awards under the Plan. However, upon surrender of a stock option or
exercise of any related stock appreciation right, or in the event that shares
are withheld to satisfy tax withholding obligations, the number of shares
subject to the surrendered option or withheld shall be charged against the
maximum number of shares issuable under the Plan and shall not be available for
future awards.
4. LIMITATION ON AWARDS. No individual employee may receive awards under
--------------------
this Plan with respect to more than 50,000 shares in any calendar year.
<PAGE>
5. TERM. No awards may be made under this Plan after May 13, 2003.
----
6. ELIGIBILITY. Awards under the Plan may be made to any full-time
-----------
employee of the Company or any Subsidiary corporation. Directors who are not
full-time employees are not eligible to participate.
7. STOCK OPTIONS. The Plan Administrator may in its discretion from time
-------------
to time grant to eligible employees options to purchase, at a price not less
than 100% of the fair market value on the date of grant (the "option price"),
common stock of the Company, subject to the conditions set forth in this Plan.
The Plan Administrator may not reduce the option price of any stock option grant
after it is made, except in connection with a Corporate Reorganization, nor may
the Plan Administrator agree to exchange a new lower priced option for an
outstanding higher priced option.
The Plan Administrator, at the time of granting to any employee an
option to purchase shares or any related stock appreciation right or limited
stock appreciation right under the Plan, shall fix the terms and conditions upon
which such option or appreciation right may be exercised (including a schedule
for vesting, the granting of rights to exercise after termination of Service in
addition to those specified herein, and any other terms and conditions deemed
appropriate by the Plan Administrator and not inconsistent with this Plan) and
may designate options incentive stock options pursuant to Section 422 of the
Internal Revenue Code of 1986, as amended (the "Internal Revenue Code") or any
other statutory stock option that may be permitted under the Internal Revenue
Code from time to time, provided, however that (i) the date on which such
options and related appreciation rights shall expire, if not exercised, may not
be later than ten years after the date of grant of the option, (ii) in the case
of options designated as incentive stock options (as defined in Section 422 of
the Internal Revenue Code), the aggregate fair market value of stock optioned to
an employee (determined at time of grant) under this plan or any other plan of
this Company and its subsidiaries with respect to which incentive stock options
are exercisable for the first time by such employee during any calendar year
shall be limited to $100,000 (unless such Section 422 limit is revised, then in
conformance with such revision) and (iii) in case of any other statutory stock
option permitted under the Internal Revenue Code, then in accordance with such
provisions as in effect from time to time.
Within the foregoing limitations, the Plan Administrator shall have the
authority in its discretion to specify all other terms and conditions, including
but not limited to provisions for the exercise of options in installments, the
time limits during which options may be exercised, and in lieu of payment in
cash, the exercise in whole or in part of options by tendering common stock of
the Company owned by the employee, valued at the fair market value on the date
of exercise or other acceptable forms of consideration equal in value to the
option price. The Plan Administrator may, in its discretion, issue rules or
conditions with respect to utilization of common stock for all or part of the
option price, including limitations on the pyramiding of shares.
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<PAGE>
8. STOCK APPRECIATION RIGHTS. The Plan Administrator may, in its
-------------------------
discretion, grant stock appreciation rights and limited stock appreciation
rights (as hereinafter described) in connection with any stock option, either at
the time of grant of such stock option or any time thereafter during the term of
such stock option. Except for the terms of this Plan with respect to limited
stock appreciation rights, each stock appreciation right shall be subject to the
same terms and conditions as the related stock option and shall be exercisable
at such times and to such extent as the Plan Administrator shall determine, but
only so long as the related option is exercisable. The number of stock
appreciation rights or limited stock appreciation rights shall be reduced not
only by the number of appreciation rights exercised but also by the number of
shares purchased upon the exercise of a related option. A related stock option
shall cease to be exercisable to the extent the stock appreciation rights or
limited stock appreciation rights are exercised. Upon surrender to the Company
of the unexercised related stock option, or any portion thereof, a stock
appreciation right shall entitle the optionee to receive from the Company in
exchange therefor (a) a payment in stock as determined below, or (b) to the
extent determined by the Plan Administrator, the cash equivalent of the fair
market value of such payment in stock on the exercise date had the employee been
awarded a payment in stock instead of cash, or any combination of stock and
cash. The number of shares which shall be issued pursuant to the exercise of
stock appreciation rights shall be determined by dividing (1) the total number
of stock appreciation rights being exercised multiplied by the amount by which
the fair market value of a share of common stock of the Company on the exercise
date exceeds the option price of the related option, by (2) the fair market
value of a share of common stock of the Company on the exercise date. No
fractional shares shall be issued.
The grant of limited stock appreciation rights will permit a grantee to
exercise such limited stock appreciation rights for cash during a sixty-day
period commencing on the date on which any of the events described in the
definition of Change of Control occurs. The amount of cash received upon the
exercise of any limited stock appreciation rights shall equal the excess, if
any, of the fair market value of a share of the Company's common stock on the
date of exercise of the limited stock appreciation rights, over the option price
of the stock option to which the limited stock appreciation rights relate.
9. PERFORMANCE SHARE AWARDS. The Plan Administrator may make awards in
------------------------
common stock subject to conditions established by the Plan Administrator which
may include attainment of specific performance objectives ("Performance Share
Awards"). Performance Share Awards may include the awarding of additional
shares upon attainment of the specified performance objectives.
10. PERFORMANCE OBJECTIVES. Performance objectives that may be used under
----------------------
the Plan include Net Income, Pretax Income, Consolidated Operating Income,
Segment Operating Income, Return on Equity, Operating Income Return on Net
Capital Employed, Return on Assets, Cash Flow, Working Capital and Earnings per
Share of Common Stock of the Company (the "Performance Objectives"). The
Performance Objectives shall be calculated without regard to any change in
accounting standards adopted pursuant to the Financial Accounting Standards
Board after the goal for a Performance Objective is adopted which will affect
the performance measure by 10 percent or more.
11. RESTRICTED SHARES. The Plan Administrator may make awards in common
-----------------
stock subject to conditions, if any, established by the Plan Administrator which
may include continued
3
<PAGE>
service with the Company or its subsidiaries. Any award of Restricted Shares
which is conditioned upon continued Service shall be conditioned upon continued
Service for a minimum period of two years and ten months following the award,
except in the case of death, disability or retirement. The maximum number of
Restricted Shares that may be awarded under the plan shall be 50,000 shares.
12. OTHER AWARDS. The Plan Administrator may make awards authorized under
------------
this Plan in Units, the value of which is based, in whole or in part, on the
value of the Company's common stock, in lieu of making such awards in common
stock. The Plan Administrator may provide for the deferral of cash-based awards
under such terms and conditions as in its discretion it deems appropriate.
13. FAIR MARKET VALUE. For all purposes of this Plan, the fair market
-----------------
value of a share of stock shall be the mean of the high and low prices of the
Company's common stock on the relevant date as reported on the Nasdaq National
Market System -- based on a generally recognized report or reporting service,
or, if no sale was made on such date, then on the next preceding day on which
such a sale was made.
14. TERMINATION OF SERVICE. Upon the termination of Service of any
----------------------
employee for any reason, his or her options and any related appreciation rights
shall terminate at that time with respect to all shares which were not then
purchasable by him or her, provided, however, that if the termination of Service
is by reason of death, disability or retirement the Plan Administrator may in
its sole discretion provide that such options and related appreciation rights
shall not terminate upon death, disability or retirement and may become
immediately exercisable or continue to become exercisable in accordance with the
terms of the original grant. Terms for exercise of options for shares that are
purchasable by an employee upon termination of Service for reasons other than
death, disability or retirement shall be specified by the Plan Administrator.
For purposes of the Plan, SERVICE shall mean the performance of
services for the Company (or any Parent or Subsidiary corporation) by a person
in the capacity of an employee, a non-employee member of the board of directors
or a consultant or independent advisor, except to the extent otherwise
specifically provided in the documents evidencing the award under the Plan.
For purposes of the Plan, PARENT shall mean any corporation (other than
the Company) in an unbroken chain of corporations ending with the Company,
provided each corporation in the unbroken chain (other than the Company) owns,
at the time of the determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.
For purposes of the Plan, SUBSIDIARY shall mean any corporation (other
than the Company) in an unbroken chain of corporations beginning with the
Company, provided each corporation (other than the last corporation) in the
unbroken chain owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
15. ASSIGNABILITY. Options and any related appreciation rights and other
-------------
awards granted under this Plan shall not be transferable other than by will or
the laws of descent and distribution or by such other means as the Plan
Administrator may approve from time to time.
4
<PAGE>
16. CORPORATE REORGANIZATION. The number and kind of shares authorized for
------------------------
delivery under the Plan and the price at which shares may be purchased may be
adjusted appropriately in the event of any stock split, stock dividend,
combination of shares, merger, consolidation, reorganization, or other change in
the structure of the Company or the nature of the shares of the Company. The
determination of what adjustments, if any, are appropriate shall be made in the
discretion of the Plan Administrator.
17. PLAN ADMINISTRATOR'S DETERMINATION. The Plan Administrator's
----------------------------------
determinations under the Plan, within the scope of its administrative functions
under the Plan, including without limitation, determinations of the employees to
receive awards or grants, the form, amount and timing of such awards or grants,
the terms and provisions of such awards or grants and the agreements evidencing
same, and the establishment of Performance Objectives need not be uniform and
may be made by it selectively among employees who receive, or are eligible to
receive awards or grants under the Plan whether or not such employees are
similarly situated.
18. LEAVE OF ABSENCE. The Plan Administrator shall be entitled to make
----------------
such rules, regulations and determinations as it deems appropriate under the
Plan in respect of any leave of absence taken by an employee. Without limiting
the generality of the foregoing, the Plan Administrator shall be entitled to
determine (i) whether or not any such leave of absence shall constitute a
termination of Service within the meaning of the Plan and (ii) the impact, if
any, of any such leave of absence on awards under the Plan theretofore made to
any employee who takes such leave of absence.
19. WITHHOLDING TAXES. The Plan Administrator shall have the right to
-----------------
require any Federal, state or local withholding tax requirements to be satisfied
by withholding shares of common stock or other amounts which would otherwise be
payable under the Plan.
20. RETENTION OF SHARES. If shares of common stock are awarded subject to
-------------------
attainment of Performance Objectives, continued service with the Company or
other conditions, the shares may be registered in the employees' names when
initially awarded, but possession of certificates for the shares shall be
retained by the Secretary of the Company for the benefit of the employees, or
shares may be registered in book entry form only, in both cases subject to the
terms of this Plan and the conditions of the particular awards. In either
event, each employee shall have the right to receive all dividends and other
distributions made with respect to such awards registered in his or her name and
shall have the right to vote or execute proxies with respect to such registered
shares.
21. FORFEITURE OF AWARDS. Any awards or parts thereof made under this plan
--------------------
which are subject to Performance Objectives or other conditions which are not
satisfied, shall be forfeited, and any shares of common stock issued shall
revert to the Treasury of the Company.
22. CONTINUED EMPLOYMENT OR SERVICE RIGHTS. Nothing in the Plan or in any
--------------------------------------
agreement entered into pursuant to the Plan shall confer upon any employee the
right to continue in Service of the Company or affect any right which the
Company may have to terminate Service of such employee.
23. CHANGE IN CONTROL. For purposes of the Plan, a CHANGE IN CONTROL shall
-----------------
5
<PAGE>
mean:
(i) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")), of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of
either (A) the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (B) the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting Securities"); provided,
however, that the following acquisitions shall not constitute a Change of
Control: (A) any acquisition directly from the Company (other than by exercise
of a conversion privilege), (B) any acquisition by the Company or any of its
subsidiaries, (C) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any of its subsidiaries or (D)
any acquisition by any corporation with respect to which, following such
acquisition, more than 70% of, respectively, the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Company Voting
Securities immediately prior to such acquisition in substantially the same
proportions as their ownership, immediately prior to such acquisition, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be; or
(ii) During any period of two consecutive years, individuals who,
as of the beginning of such period, constitute the Board (the "Incumbent
Board"), cease for any reason to constitute at least a majority of the Board;
provided, however, that any individual becoming a director subsequent to the
beginning of such period whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act); or
(iii) approval by the shareholders of the Company of a
reorganization, merger or consolidation, in each case, with respect to which all
or substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such reorganization, merger or
consolidation, do not, following such reorganization, merger or consolidation,
beneficially own, directly or indirectly, more than 70% of, respectively, the
then outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such
reorganization, merger or consolidation in substantially the same proportions as
their ownership, immediately prior to such reorganization, merger or
consolidation of the Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be; or
(iv) Approval by the shareholders of the Company of (A) a
complete liquidation or dissolution of the Company or (B) a sale or other
disposition of all or substantially all of the assets of the Company, other than
to a corporation, with respect to which following such sale or other
disposition, more than 70% of, respectively, the then outstanding shares of
common stock of such
6
<PAGE>
corporation and the combined voting power of the then outstanding voting
securities of such corporation to vote generally in the election of directors is
then beneficially owned, directly or indirectly, by all or substantially all of
the individuals and entities who were the beneficial owners, respectively, of
the Outstanding Company Common Stock and Outstanding Company Voting Securities
immediately prior to such sale or other disposition in substantially the same
proportion as their ownership, immediately prior to such sale or other
disposition, of the Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be.
24. EFFECT OF CHANGE IN CONTROL. In the event of any Change in Control in
---------------------------
connection with which outstanding options and any related appreciation rights
are not continued pursuant to the following provisions, such options and related
rights shall automatically accelerate so that each such option shall,
immediately prior to the effective date of the Change in Control, become fully
exercisable with respect to the total number of shares at the time subject to
such option and may be exercised for any or all of those shares as fully-vested
shares of the Company's common stock. Holders of options and any related
appreciation rights shall be given reasonable advance notice of the effective
date of the Change of Control and a reasonable opportunity to deliver notice of
exercise in a timely manner.
Outstanding options and any related appreciation rights may be
continued and shall not so accelerate in connection with a Change in Control if
and to the extent: (i) such options are to be assumed by the successor
corporation (or parent thereof), to be replaced with a comparable option to
purchase shares of the capital stock of the successor corporation (or parent
thereof) or to otherwise continue in effect, in all material respects, pursuant
to the provisions of the Change in Control, or (ii) such options are to be
replaced with a cash or other equivalent incentive program of the successor
corporation which preserves the spread existing at the time of the Change in
Control on the option shares for which the options are not otherwise at that
time exercisable (the excess of the fair market value of those shares over the
aggregate option exercise price payable for those shares) and provides for
subsequent payout in accordance with the same exercise/vesting schedule
applicable to those option shares. The determination of option comparability or
equivalence under clause (i) and (ii) above shall be made by the Plan
Administrator.
Notwithstanding the foregoing, options shall not accelerate or be
continued if such acceleration or continuation contravenes or conflicts with
terms or conditions established for such options at the time of the option
grant.
Immediately following the consummation of the Change in Control, all
outstanding options and related stock appreciation rights shall terminate and
cease to be outstanding, except to the extent continued pursuant to the
foregoing provisions or to the extent necessary to allow for the completion of
exercise transactions for which notice of exercise was timely given in
connection with the Change in Control.
Each option which is assumed in connection with a Change in Control
shall be appropriately adjusted, immediately after such Change in Control, to
apply to the number and class of securities which would have been issuable to
the employee in consummation of such Change in Control had the option been
exercised immediately prior to such Change in Control. Appropriate adjustments
to reflect such Change in Control shall also be made to (i) the exercise price
payable per share under
7
<PAGE>
each outstanding option, provided the aggregate exercise price payable for such
securities shall remain the same, (ii) the maximum number and/or class of
securities available for issuance over the remaining term of the Plan, (iii) the
maximum number and/or class of securities for which any one person may be
granted securities under the Plan per calendar year, and (iv) the maximum number
of Restricted Shares that may be awarded under the Plan.
The Plan Administrator shall have full power and authority, exercisable
either at the time the option is granted or at any time while the option remains
outstanding, to provide for the automatic acceleration of one or more
outstanding options under the Plan in the event the employee's Service
subsequently terminates by reason of an Involuntary Termination within a
designated period (not to exceed eighteen (18) months) following the effective
date of any Change in Control in which those options or other awards are assumed
or replaced or otherwise continued in effect and do not otherwise accelerate.
Any options so accelerated shall remain exercisable for fully-vested shares
until the earlier of (i) the expiration of the option term or (ii) the
expiration of the one (1)-year period measured from the effective date of the
Involuntary Termination.
For purposes of the Plan, INVOLUNTARY TERMINATION shall mean the
termination of the Service of any employee which occurs by reason of:
a. such employee's involuntary dismissal or discharge by the
Company (or successor corporation) for reasons other than Misconduct, or
b. an employee's voluntary resignation due to a change in
employee's position with the Company (or Parent or Subsidiary employing
such individual) or successor corporation which materially reduces the
employee's duties and responsibilities or a reduction in the employee's
level of cash compensation (including base salary, fringe benefits and
target bonus under any corporate performance-based bonus or incentive
programs) by more than fifteen percent (15%), in the aggregate, provided
and only if such change or reduction is effected without the employee's
consent.
c. such other material change or changes in such employee's
employment as are determined appropriate by the Plan Administrator at the
time of the option grant.
For purposes of the Plan, MISCONDUCT shall mean the commission of any
act of fraud, embezzlement or dishonesty by an employee or other individual
receiving an award under the Plan, any unauthorized use or disclosure by such
person of confidential information or trade secrets of the Company (or any
Parent or Subsidiary) or successor corporation, or any other reckless conduct or
knowing or intentional misconduct by such person that materially adversely
affects (or that could be predicted to materially adversely affect in the
future) the performance of the job functions of such person, in his or her
position with the Company (or any Parent, Subsidiary or successor). The
foregoing definition shall not be deemed to be inclusive of all the acts or
omissions which the Company (or any Parent or Subsidiary) or successor
corporation may consider as grounds for the dismissal or discharge of any
employee or other person in the Service of the Company (or any Parent or
Subsidiary) or successor corporation.
8
<PAGE>
The Plan Administrator may, either at the time of approving Performance
Share Awards, awards of Restricted Shares or other awards under the Plan, or at
any time such awards remain outstanding, apply the provisions described above
with respect a Change In Control to such awards as it deems appropriate in its
discretion.
25. COMPLIANCE WITH LAWS AND REGULATIONS. Notwithstanding any other
------------------------------------
provisions of the Plan, the issuance or delivery of any shares may be postponed
for such period as may be required to comply with any applicable requirements of
any national securities exchange or any requirements under any other law or
regulation applicable to the issuance or delivery of such shares, and the
Company shall not be obligated to issue or deliver any such shares if the
issuance or delivery thereof shall constitute a violation of any provision of
any law or any regulation of any governmental authority, whether foreign or
domestic, or any national securities exchange.
26. AMENDMENT. The Board may alter or amend the Plan, in whole or in part,
---------
from time to time, or terminate the Plan at any time, provided however, that no
amendment shall be made without the approval of the shareholders if required
pursuant to applicable laws or regulations, and no such action shall adversely
affect any rights or obligations with respect to awards previously made under
the Plan, unless the holder of such awards consents in writing.
9
<PAGE>
EXHIBIT 10.22
AMENDMENT TO EQUITY APPRECIATION PLAN
This AMENDMENT to the Equity Appreciation Plan (the "Plan") of DTM
Corporation, a Texas corporation (the "Company") is effective the 19th day of
February, 1998.
W I T N E S S E T H:
WHEREAS, the DTM Corporation Equity Appreciation Plan (the AEAP
Plan), which was adopted in January 1995 for the purpose in providing
certain incentives to Company employees in the context of certain changes
in control, has been limited by previous Board action to a total of
1,000,000 units; and
WHEREAS, awards have been made under the EAP Plan and the change in
control contemplated by such plan has occurred; and
WHEREAS, the EAP Plan is not suited for awards after the contemplated
change in control trigger has occurred;
NOW, THEREFORE, in accordance with the approval and direction of the board
of Directors of the Company, effective on the date hereof the Plan is amended
as follows:
1. The Plan is deemed closed for purposes of future grants.
2. The number of shares reserved for issuance under the Plan is reduced to
553,150, with further reductions to be made from time to time as appropriate
upon delivery to the transfer agent, and filing in the minutes of the Board of
Directors, of a certificate of the chief financial officer or Treasurer of the
Company certifying the amount of EAP Plan options that have been canceled or
have expired unexercised, along with the sum of the aggregate amount of shares
that have, to that date, been issued under EAP options and shares that are
subject to outstanding EAP options.
3. All other provisions of the EAP Plan shall continue in full force and
effect.
IN WITNESS WHEREOF, the undersigned Secretary of the Company, hereby
certifies that the foregoing is a true and correct statement of the amendment to
the EAP Plan adopted by the Board of Directors of the Company on February 19,
1998.
/s/ Geoffrey Kreiger
----------------------------
Geoffrey Kreiger, Secretary
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<PAGE>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS OF THIS QUARATERLY REPORT
ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 828
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<RECEIVABLES> 6,035
<ALLOWANCES> 495
<INVENTORY> 4,700
<CURRENT-ASSETS> 11,644
<PP&E> 10,094
<DEPRECIATION> 7,103
<TOTAL-ASSETS> 16,606
<CURRENT-LIABILITIES> 8,757
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 52,939
<TOTAL-LIABILITY-AND-EQUITY> 16,606
<SALES> 4,970
<TOTAL-REVENUES> 5,834
<CGS> 2,915
<TOTAL-COSTS> 3,427
<OTHER-EXPENSES> 3,735
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8
<INCOME-PRETAX> (1,334)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,334)
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<EXTRAORDINARY> 0
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<NET-INCOME> (1,334)
<EPS-PRIMARY> (0.21)
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