<PAGE>
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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 For the quarterly period ended June 30, 1999
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 July 31, 1998, the latest practicable date, the Registrant had 6,973,503
outstanding shares of Common Stock.
================================================================================
<PAGE>
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 Six Months Ended
June 30, June 30,
--------------------- ----------------------
1999 1998 1999 1998
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
Revenues:
Products $ 6,657 $ 6,591 $ 13,648 $ 11,561
Service and support 942 888 1,923 1,752
--------- --------- --------- ---------
7,599 7,479 15,571 13,313
Cost of sales:
Products 2,967 4,595 6,081 7,510
Service and support 580 518 1,160 1,030
--------- --------- --------- ---------
3,547 5,113 7,241 8,540
--------- --------- --------- ---------
Gross Profit 4,052 2,366 8,330 4,773
Operating expenses:
Selling, general and administrative 2,913 2,604 6,191 5,351
Research and development 788 855 1,450 1,843
Provision for litigation settlement - 1,700 - 1,700
--------- --------- --------- ---------
3,701 5,159 7,641 8,894
========= ========= ========= =========
Operating income (loss) 351 (2,793) 689 (4,121)
Other income (expense):
Interest expense, net (21) (14) (28) (20)
Gain on sale of assets 79 - 129 -
--------- --------- --------- ---------
58 (14) 101 (20)
--------- --------- --------- ---------
Income (loss) before income taxes 409 (2,807) 790 (4,141)
Income tax expense (114) - (221) -
--------- --------- --------- ---------
Net income (loss) $ 295 $ (2,807) $ 569 $ (4,141)
========= ========= ========= =========
Net income (loss) per common share-basic $ 0.04 $ (0.45) $ 0.09 $ (0.66)
========= ========= ========= =========
Weighted-average number of shares
outstanding 6,716,928 6,286,851 6,615,687 6,286,851
========= ========= ========= =========
</TABLE>
See accompanying notes.
1
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DTM Corporation
Condensed Consolidated Balance Sheets (unaudited)
(In thousands, except share amounts)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------- -----------
<S> <C> <C>
Assets
Current assets:
Cash $ 489 $ 429
Accounts receivable, net 6,127 5,186
Inventory 2,757 3,456
Prepaid expenses and other 389 262
----------- -----------
Total current assets 9,762 9,333
Property, net 956 1,388
Capitalized software development
costs, net 502 629
Patent and license fees, net 843 956
----------- -----------
Total assets $ 12,063 $ 12,306
=========== ===========
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 2,650 $ 3,090
Due to shareholder - 909
Deferred revenues and customer
deposits 2,123 2,185
Employee and agent compensation 968 891
Income taxes 221 -
Accrued litigation settlement-
stock portion - 400
----------- -----------
Total current liabilities 5,962 7,475
Shareholders' equity:
Common stock, 6,973,503 shares outstanding
at June 30, 1999 and 6,286,851 at
December 31, 1998 1 1
Additional paid-in capital 54,022 53,161
Accumulated deficit (47,766) (48,335)
Accumulated other comprehensive
income (loss) (156) 4
----------- -----------
Total shareholders' equity 6,101 4,831
----------- -----------
Total liabilities and shareholders' equity $ 12,063 $ 12,306
=========== ===========
</TABLE>
See accompanying notes.
2
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DTM Corporation
Condensed Consolidated Statements of Cash Flows (unaudited)
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
Operating activities:
Net income (loss) $ 569 $ (4,141)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 757 858
Provision for doubtful accounts 44 -
Provision for obsolescence 53 675
Stock option compensation expense 6 -
Provision for litigation settlement - 1,700
Gain on disposal of equipment (129) -
Changes in assets and liabilities used in
operating activities:
Accounts receivable (985) (185)
Inventory 646 2,240
Prepaid expenses and current assets (127) 100
Accounts payable (440) (387)
Due to shareholder - (2)
Deferred revenues (62) 330
Income taxes 221 -
Employee and agent compensation 77 27
----------- -----------
Net cash provided by (used in) operating activities 630 1,215
Investing activities:
Purchases of property (144) (966)
Capitalized software development costs (60) (173)
Patent and license expenditures (33) (125)
Proceeds from sale of equipment 281 -
----------- -----------
Net cash provided by (used in) investing activities 44 (1,264)
Financing activities:
Proceeds from short-term borrowings 1,300 500
Repayments of short-term borrowings (1,300) (500)
Repayments of due to shareholder (454) -
----------- -----------
Net cash provided by financing activities (454) -
Effect of foreign exchange rate changes (160) 1
----------- -----------
Net change in cash 60 (48)
Cash at the beginning of the period 429 2,050
----------- -----------
Cash at the end of the period $ 489 $ 2,002
=========== ===========
Noncash items:
Conversion of settlement liability into common
stock $ 400 $ -
Conversion of portion of due to shareholder
into common stock $ 455 $ -
</TABLE>
See accompanying notes.
3
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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 and six months ended June 30, 1999 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1999. For further information, refer to the consolidated
financial statements and related footnotes of the Company for the year ended
December 31, 1998 as disclosed in the Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 31, 1999.
2. Inventory
Inventory consisted of the following (in thousands):
March 31, December 31,
1999 1998
--------------------------
Raw materials and purchsed parts $ 2,046 $ 1,809
Finished goods 893 1,776
--------------------------
2,939 3,585
Reserve for obsolesence (182) (129)
--------------------------
$ 2,757 $ 3,456
==========================
3. Financing Arrangements
In June 1999, the Company entered into a $2.5 million credit facility with a
bank. This line of credit is collateralized solely by the Company's assets.
Borrowings under this line of credit bear interest at the bank's prime rate plus
2% and mature in June 2000. All customer remittances are applied against any
outstanding borrowings. The borrowing base includes a percentage of eligible
domestic and international trade accounts receivable and finished goods
inventories of the parent company. The inclusion of inventories in the borrowing
base is further limited to $400,000. At June 30, 1999, the borrowing base was
approximately $2.2 million and there were no outstanding loans.
This line of credit requires the Company to maintain at least $3.2 million
in tangible net worth. At June 30, 1999, the Company's tangible net worth, for
the purposes of this financial covenant, was approximately $4.8 million.
4. Contingencies
In the ordinary course of business, the Company becomes involved in legal
proceedings and claims. In one such instance, the Company has initiated patent
infringement litigation in France, Germany and Italy against a competitor and
against one of that competitor's customers. The Company also initiated patent
infringement litigation in Japan against the competitor's distributor in the
Pacific Rim. In each of these cases, the Company alleges that the competitor is
selling rapid prototyping systems in Europe and Japan that make unauthorized use
of selective laser sintering technology covered by the European and Japanese
patents under which the Company has exclusive rights, and in each case the
Company is seeking injunctive relief and 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
4
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DTM Corporation
Notes to Consolidated Financial Statements
(Unaudited)
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
regarding 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.
5. Common Stock
On February 4, 1999, the Company issued 334,485 shares of common stock in
satisfaction of the final $400,000 portion of the settlement of the shareholder
class action litigation.
On June 11, 1999, the Company issued 352,167 shares of common stock in
satisfaction of a $455,000 portion of its Due to Shareholder obligation.
At June 30, 1999, the Company had reserved 1,268,659 shares of common stock
for issuance in connection with the 1999 Stock Option Plan (907,755 shares) and
for exercise of outstanding options issued in connection with the IPO in May
1997 under the effectively discontinued Equity Appreciation Plan (360,904
shares). The 1999 Stock Option Plan was approved by Shareholders at the May 25,
1999 Annual Meeting.
6. Stock Option Plans
During the six months ended June 30, 1999, 382,500 option shares were
granted to employees and a Director at a weighted average exercise price of
$1.28 per share. The 1999 grants were made at exercise prices equal to the
market value of the DTM common stock on the date of the grant and vest over
three years. In this same period, no options were exercised and 57,917 option
shares were canceled. At June 30, 1999, there were 959,804 option shares
outstanding at a weighted average exercise price of $2.40 per share.
A summary of information about stock options outstanding and
exercisable at June 30, 1999 is as follows:
Weighted-Average Options Options
Exercise Price Outstanding Exercisable
-------------- ----------- -----------
$ 1.25 328,300 -
$ 1.47 54,000 -
$ 2.00 100,000 35,000
$ 2.06 61,600 21,560
$ 2.23 339,872 339,872
$ 8.03 55,000 38,500
$ 13.53 17,578 17,578
$ 14.67 3,454 3,454
----------- -----------
Total 959,804 455,964
=========== ===========
5
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DTM Corporation
Notes to Consolidated Financial Statements
(Unaudited)
7. Earnings Per Share
Common stock equivalents includes shares which would be issued upon exercise
of stock options. Common stock equivalents amounted to 22,063 in the three month
and six month period ended June 30, 1999. There were no common stock equivalents
in the three month and six month period ended June 30, 1998.
8. Geographic and Customer Information
The Company and its subsidiaries operate in one industry segment: the
development, manufacturing and service of selective laser sintering systems and
related products. Operations outside of the United States consist principally of
sales, marketing and customer support. Revenues are attributed to geographic
areas based upon the location of the customers. The following is a summary of
geographic area data for the for the interim periods (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues from external customers:
North America $ 3,513 $ 3,520 $ 7,521 $ 6,053
Europe 2,256 2,944 5,085 4,948
PacRim 1,830 1,015 2,965 2,312
--------- --------- --------- ---------
$ 7,599 $ 7,479 $ 15,571 $ 13,313
========= ========= ========= =========
</TABLE>
9. Comprehensive Income
Comprehensive income (loss) for the three months ended June 30, 1999 and
1998 was $189,000 and $(2,751,000), respectively. Comprehensive income (loss)
for the six months ended June 30, 1999 and 1998 was $409,000 and $(4,140,000),
respectively. The difference between comprehensive loss and net loss is
comprised of the effect of currency translation adjustments and hedging activity
in accordance with Financial Accounting Standards Board Statement No. 52,
"Foreign Currency Translation." The accumulated balance of foreign currency and
hedging activity, excluded from net loss, is presented in the Condensed
Consolidated Balance Sheets as "Accumulated other comprehensive loss."
10. New Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities", which is required to be adopted in years beginning
after June 15, 1999. The Statement permits early adoption as of the beginning of
any fiscal quarter after its issuance. Derivatives that are not hedges must be
adjusted to fair value through income. If the derivative is a hedge, depending
on the nature of the hedge, changes in the fair market value of the derivative
will either be offset against the change in fair value of the hedged assets,
liabilities, or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of the derivative's change in fair value will be immediately
recognized in earnings.
The Company has not yet determined what the effect of Statement of
Financial Accounting Standards No. 133 will be on its earnings and financial
position and has not yet determined the timing or method of adoption. However,
the Statement could increase volatility in earnings and comprehensive income.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANNALYSIS 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. All
statements, trends and other information contained in this Quarterly Report on
Form 10-Q relative to markets for the Company's products and trends in revenue,
gross margin and anticipated expense levels constitute forward-looking
statements. These forward-looking statements generally can be identified by the
use of words such as "anticipate", "believe", "plan", "estimate", "expect",
"intend", "may", and "should" and other similar terminology. The Company wishes
to caution readers that a number of important factors, including those
identified in the section entitled "Risk Factors That May Affect Future Results
and Safe Harbor Statement" as well as factors discussed elsewhere in this report
and in the Company's other reports filed with the Securities and Exchange
Commission, could affect the Company's actual results and cause actual results
to differ materially from those forward-looking statements.
Overview
DTM Corporation designs, develops, manufactures, markets and supports, on
an international basis, rapid prototyping and rapid tooling systems and related
powdered sintering materials and services. The Company's Sinterstation Systems
and powdered sintering materials are based on proprietary and patented selective
laser sintering technology. DTM was incorporated in 1987 and completed its
initial public offering ("IPO") of Common Stock in May 1997. Since 1992, DTM has
shipped over 250 Sinterstation Systems worldwide.
The Company's selective laser sintering process uses laser energy to sinter
powdered material to create solid objects that aid in the design and manufacture
of products. The Company's Sinterstation Systems employ a combination of
software and hardware to produce functional models, patterns, injection-molding
tooling and metal parts from a variety of powdered materials. Customers input
designs into the Sinterstation Systems in the form of CAD drawings. The
functional models are used to verify a design's form and fit. The patterns can,
in turn, be used for secondary processes such as the production of non-durable
molds and investment casting. The Company's RapidTool process employs selective
laser sintering along with a furnace cycle to produce steel/copper composite
mold inserts that are used by the injection molder to produce production parts
in quantity. A variant of the RapidTool process is the production of mold
inserts in the Sinterstation System from a copper-reinforced thermoplastic-based
material system, without the need for a furnace cycle. These inserts produced
with this product are used by the injection molder to produce short-run
production parts. Sinterstation Systems also can be used in combination with the
Company's RapidTool process with a furnace cycle to produce metal parts.
The Company's Sinterstation Systems are purchased by manufacturers,
universities, military and defense organizations and by service bureaus. These
service bureaus utilize rapid prototyping equipment to provide services to other
companies involved in product development. The Company distributes its products
in the United States, Canada, Western Europe and certain Pacific Rim and South
American countries. In the United States and Canada, the Company employs a
direct sales force. In Germany, DTM GmbH, a wholly owned subsidiary, distributes
DTM's products. DTM GmbH is a sales and service organization whose efforts are
augmented by sales agents in France, Italy, Portugal, Spain and Sweden. In
7
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the United Kingdom, DTM (UK) LTD., a wholly owned subsidiary, distributes and
services DTM's products. The Company also distributes its goods and provides
services in the Pacific Rim and South America through a network of independent
agents, including agents in Brazil, China, India, Japan, Singapore, South Korea
and Taiwan.
DTM's Sinterstation Systems typically include hardware, material handling
equipment, documentation, licenses for using DTM supplied software, licenses for
using DTM-supplied powdered sintering materials and installation. They can be
configured for use with a single sintering powder or for any combination of
thermoplastic, foundry sands or metal sintering powders. DTM typically offers
its Sinterstation Systems packaged with a 12-month warranty and preventive
maintenance contract, installation services, training services and an initial
supply of sintering materials. DTM offers a wide range of proprietary sintering
materials and software that optimizes their use in the Sinterstation System.
The total value of a packaged offering is allocated among its various
components: systems and related equipment sintering materials, immediate
services and deferred services. Revenues from the sale of products are
recognized when title has transferred to the customer, the Company's remaining
obligations are insignificant and collection of the related receivable is
probable, which, typically, is upon shipment. The Company defers from three to
six percent of the revenues, excluding certain accessories, from each
Sinterstation System sale to cover the cost of a one-year warranty period. This
deferred amount represents the Company's estimate of the cost of providing such
warranty and preventive maintenance service and is recognized ratably as service
and support revenue over the 12-month warranty period. Upon expiration of the
12-month warranty period discussed above, the Company offers for sale to its
customers an annual maintenance contract, the revenues from which are recognized
ratably as service and support revenue over the related support period.
The introduction of the new Sinterstation 2500plusTM in August of 1998 was
the culmination of a year-long project to design a system with a lower
manufactured cost that would permit the Company to be more price competitive
while improving its gross margins. Mainly as a result of the Sinterstation 2500
plus, total gross margins improved to approximately 50% beginning in the fourth
quarter of 1998. These higher gross margins allowed the Company to become
profitable beginning in the fourth quarter of 1998.
On February 12, 1999, an investment partnership of independent investors
affiliated with Proactive Finance Group, LLC ("Proactive") acquired BFGoodrich's
remaining 47.7% interest in DTM. DTM now operates as an independent company.
8
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Results Of Operations
The following table sets forth for the periods indicated certain income
statement data as a percentage of our total revenues and certain sales data.
<TABLE>
<CAPTION>
Second Second Six Six
Quarter Quarter Months Months
1999 1998 1999 1998
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Gross profit 53.3 31.6 53.5 35.9
Selling, general and administrative 38.3 34.8 39.8 40.2
Research and development 10.4 11.4 9.3 13.8
Provision for litigation settlement - 22.7 - 12.8
Operating income 4.6 (37.3) 4.4 (31.0)
Gain on sales of equipment 1.0 - 0.8 -
Interest expense (0.3) (0.2) (0.2) (0.2)
Income (loss) before income taxes 5.4 (37.5) 5.1 (31.1)
Income tax expense (1.5) - (1.4) -
Net income (loss) 3.9 (37.5) 3.7 (31.1)
Revenues components:
Product sales 87.6 88.1 87.7 86.8
Service and support revenues 12.4 11.9 12.3 13.2
Total 100.0 100.0 100.0 100.0
Gross margin details:
Products 55.4 30.3 55.4 35.0
Service and support 38.4 41.7 39.7 41.2
Total 53.33 31.6 53.5 35.9
Revenues from external customers:
North America 46.2 47.1 48.3 45.5
Europe 29.7 39.4 32.7 37.2
PacRim 24.1 13.6 19.0 17.4
Total 100.0 100.0 100.0 100.0
</TABLE>
Revenues. Revenues increased 1.6% to $7.6 million in second quarter of
1999, compared to $7.5 million in the second quarter of 1998. Revenues derived
from customers in North America in the second quarter of 1999 at $3.5 million
were flat with the second quarter of 1998. For the first six months of 1999,
revenues increased 17.0% to $15.6 million, compared to $13.3 million in the in
the first six months of 1998. Revenues derived from customers in North America
in the first half of 1999 increased by approximately 24.3% to $7.5 million,
compared to $6.1 million in the first half of 1998. The increase in revenues was
primarily due to higher unit volumes of Sinterstation Systems and powdered
materials in the first six months of 1999 over the first six months of 1998.
Revenues in past periods may not be indicative of revenues in the future,
which may be affected by other business environment and risk factors discussed
below, as well as other factors included elsewhere herein.
Gross Profit. Gross profit was $4.1 million, or 53.3% of revenues, in the
second quarter of 1999, compared to $2.4 million, or 31.6% of total revenues, in
the second quarter of 1998. The increase in gross profit and gross profit as a
percentage of revenues in the second quarter of 1999 primarily was due to the
decreased manufactured cost of the Sinterstation 2500plusTM that was introduced
in August of 1998 and replaced both previous models. For the first six months of
1999, gross profit was $8.3 million, or 53.5% of
9
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total revenues, compared to $4.8 million, or 35.9% of total revenues, in the
first six months of 1998. The increase in gross profit primarily was due to
higher unit volumes of Sinterstation Systems and sintering materials and to an
increase in services. The increase in gross margin to over 50% was primarily due
to the decreased manufactured cost of the Sinterstation 2500plusTM that was
introduced in August of 1998 and replaced both previous models.
Past gross margins are not necessarily indicative of future gross margins.
Currency changes, changes in mix and changes in material and labor costs, may
have an adverse effect on gross margins
Selling, General and Administrative Expense. Selling, general and
administrative expense was $2.9 million, or 38.3% of revenues, in the second
quarter of 1999, compared to $2.6 million, or 34.8% of revenues, in the second
quarter of 1998. Selling, general and administrative expense was $6.2 million,
or 39.8% of revenues, in the first six months of 1999, compared to $5.4 million,
or 40.2% of revenues, in the first six months of 1998. The decrease as a
percentage of total revenues during the first six months of 1999 primarily was
due to a proportionately higher growth in total revenues, while holding selling,
general and administrative expense relatively flat. Selling, general and
administrative expense may vary as a percentage of revenues in the future.
Research and Development Expense. Research and development expense was
$788,000, or 10.4% of revenues, in the second quarter of 1999, compared to
$855,000, or 11.4% of revenues, in the second quarter of 1998. Research and
development expense was $1.5 million, or 9.3% in the first six months of 1999,
compared to $1.8 million in the first six months of 1998. The higher 1998
expense levels were, primarily, due to costs associated with multiple
significant new product development projects that were commenced in 1997 and
culminated in 1998 with the introduction of several new material systems and the
new Sinterstation Model 2500plusTM. The Company plans to continue its commitment
to research and development at approximately the current level of spending, 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 already affected by other factors which are
beyond the Company's control.
Provision For Litigation Settlement. In 1998, DTM settled the shareholder
class action lawsuit pending against it. The charge to its second quarter
statement of operations in the amount of $1.7 million, consisted of $3.0
million, the proposed value of the settlement, and $200,000 in other costs, net
of the insurance recovery of $1.5 million. There was no corresponding charge in
1999.
Gain on Sale of Assets. In the second quarter of 1999, the Company
continued to sell used Sinterstation 2500 and 2000 Systems under a program
announced in the third quarter of 1998 to sell systems that had been used
internally for development and support activities or under a discontinued rental
program. The Company recognized a net gain of $79,000 on those sales in the
second quarter of 1999 and $129,000 in the first six months of 1999.
Interest Expense. Net interest expense for the second quarter of 1999 was
$21,000, compared to $14,000 for the second quarter of 1998. Net interest
expense for the first six months of 1999 was $$28,000, compared to $20,000 in
the first six months of 1998.
Income Taxes. As a result the recent change in control, utilization of net
operating loss carryforwards will be subject to additional annual limits. In the
first quarter of 1999, the Company provided for income taxes at an estimated
28% annual effective rate.
Net Income (Loss). The Company had net income of $295,000 in the second
quarter of 1999, compared to a net loss of $2.8 million in the second quarter of
1998. This $3.1 million favorable change was primarily due to substantially
improved product gross margins in 1999 and the 1998 provision for litigation of
$1.7 million. For the first six months of 1999, the Company had net income of
$569,000, compared to a net loss of $4.1 million in the first six months of
1998. This $4.7 million favorable change
10
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was primarily due to increased revenues and substantially improved gross margins
in 1999 and the 1998 provision for litigation of $1.7 million.
Liquidity and Capital Resources
During the first six months of 1999, operating activities provided $630,000
in net cash, compared to $1.2 million provided in the comparable period of 1998.
Accounts receivable, less allowance, represented approximately 73 days of
quarter sales at June 30, 1999, compared to 54 days at December 31, 1998. This
increase in days of quarter sales outstanding was primarily due to second
quarter sales heavily weighted to the end of the quarter. Inventory, less
allowance, represented approximately 70 days quarter costs on hand at June 30,
1999, compared to 75 at December 31, 1998.
The Company's investing activities include expenditures for patents and
licenses, capitalized software costs and furniture and equipment, principally
consisting of the Company's Sinterstation Systems built for internal use and
rental purposes. Capital expenditures for the three months ended June 30, 1999
were [less than the proceeds from fixed asset sales].
For 1999, the Company has planned for approximately $800,000 in capital
expenditures. This includes an additional Sinterstation 2500plusTM System to
support the new platform and Year 2000 compliance expenditures. The Company
intends to fund this additional investment from operations.
DTM obtained a $2.5 million credit facility with Silicon Valley Bank in the
second quarter of 1999. The one-year credit facility will accrue interest at
prime plus 2% per annum and is secured by the corporate assets of DTM. At June
30, 1999, no amounts were outstanding under this facility and approximately $2.2
million was available to be borrowed.
In the second quarter of 1999, DTM repaid a due to shareholder liability of
approximately $909,000. DTM satisfied this liability by making a payment of
$454,274 in cash borrowed under the new credit facility with Silicon Valley Bank
and by issuing 352,167 additional shares of DTM common stock. After the
transaction, DTM Acquisition Company, L.P. owns approximately 50.3% of the
outstanding capital stock of 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 and equipment through December 31, 1999. However, there can be no
assurance that this will be the case.
New Accounting Standard
In June 1998, the Accounting Standards Board issued Statement of Financial
Accounting Standards Statement No. 133, "Accounting for Derivative Instruments
and Hedging Activities", which is required to be adopted in years beginning
after June 15, 1999. The Statement permits early adoption as of the beginning of
any fiscal quarter after its issuance. Derivatives that are not hedges must be
adjusted to fair value through income. If the derivative is a hedge, depending
on the nature of the hedge, changes in the fair market value of the derivative
will either be offset against the change in fair value of the hedged assets,
liabilities, or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of the derivative's change in fair value will be immediately
recognized in earnings.
The Company has not yet determined what the effect of Statement of
Financial Accounting Standards Statement No. 133 will be on its earnings and
financial position and has not yet determined the timing or method of adoption.
However, the Statement could increase volatility in earnings and comprehensive
income.
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Year 2000 Plan
Many currently installed computer systems and software products are coded
to accept only two-digit entries in date code fields. These date code fields
will need to accept four-digit entries to distinguish 21st century dates from
20th century dates. As a result, computer systems and/or software used by many
companies may need to be upgraded to comply with such "Year 2000" requirements.
Significant uncertainty exists concerning the potential effects associated with
such compliance.
The Company has evaluated its Sinterstation Systems and believes that it
will have no exposures with respect to the Year 2000 issue.
The Company has begun to develop a plan to upgrade or replace its internal
information technology to comply with Year 2000 requirements and begun to
evaluate packaged software solutions to assess Year 2000 compliance. The Company
currently expects this compliance project to be substantially completed by
September 1999 and to cost between $90,000 and $150,000. This estimate includes
internal costs, but excludes the costs to upgrade and replace systems in the
normal course of business. The Company does not expect this project to have a
significant effect on its operations. As of June 30, 1999, approximately $90,000
has been expensed in regard to this project. Such expenses are being funded
through operating cash flows. In a worst case scenario, the Company believes its
information systems might not properly account for amounts due from customers or
due to suppliers at the end of 1999 and the preparation of its financial
statements may be delayed.
The Company has performed an evaluation of its non-information systems
(embedded technology such as microcontrollers) and does not believe that it has
material exposures in this area with respect to the Year 2000 issue.
The Company has not made inquires of its key venders as to their status
with respect to the Year 2000 compliance issues. There can be no assurance that
Year 2000 compliance issues at these venders may not cause these venders to
disrupt the Company's production plans.
Based upon available information, the Company does not believe any material
exposure to significant business interruption exists as a result of Year 2000
compliance issues, or that the cost of the remedial actions will have a material
adverse effect on its business, financial condition or results of operations of
the Company. Accordingly, the Company has not adopted any formal contingency
plan in the event its Year 2000 compliance project is not completed in a timely
manner.
The estimates and conclusions set forth herein regarding Year 2000
compliance contain certain forward-looking statements and are based on
management's estimates of future events and information provided by third
parties. There can be no assurance that such estimates and information provided
will prove to be accurate. Risks to completing the Year 2000 compliance project
include the availability of resources, the Company's ability to discover and
correct potential Year 2000 problems and the ability of suppliers and other
third parties to bring their systems into Year 2000 compliance.
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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 Profitability
The Company was incorporated in 1987 and shipped its first Sinterstation
Systems in 1992. The Company realized its first profitable quarter in the
fourth quarter of 1998. Prior to the fourth quarter of 1998, the Company had
been unprofitable from its inception; most recently recognizing net losses of
approximately $7.3 million for the year ended December 31, 1997 and $5.1 million
for the nine months ended September 30, 1998. There can be no assurance that the
Company can maintain profitability in the future.
Possible Delisting of Securities from The Nasdaq National Market; Limited
Liquidity of Trading Market
Shares of the Company's Common Stock are quoted on the National Market
System ("NMS") of The Nasdaq Stock Market ("Nasdaq"). Nasdaq has recently
promulgated new rules that make continued listing of companies on the NMS more
difficult and has significantly increased its enforcement efforts with regard to
the Nasdaq standards for such listing. The Company has been having difficulty
maintaining one such standard, the $5.0 million market value of public float
requirement. Public float is defined for purposes of this calculation as shares
that are not held directly or indirectly by any officer or director of the
Company or any person who is the beneficial owner of more than 10 percent of the
total shares outstanding. On June 30, 1999, the Company's public float was
believed to be no less than 3,464,146 shares of Common Stock and the minimum bid
price was $1.34 per share. This resulted in a market value of public float of
$4,642,000. The Company plans to seek an appeal of any attempt by Nasdaq to
delist the Company's securities. However, there can be no assurance that such an
appeal would be successful and, therefore, that the Company could avoid having
its securities delisted.
In addition, Nasdaq also requires companies whose stock is included for
quotation on the NMS maintain $4,000,000 in net tangible assets and a minimum
bid price of $1.00. As of June 30, 1999, the Company had net tangible assets of
$6,101,000, for such purpose and the minimum bid price was in excess of $1.00.
While the Company believes it is currently in compliance with these standards,
if the Company fails to continue to satisfy these requirements, its Common Stock
may be delisted from the NMS.
If the Company is delisted from the NMS, it may choose to list its Common
Stock on the Nasdaq SmallCap Market, the OTC Bulletin Board or some other
quotation medium, such as the Pink Sheets, depending on its ability to meet the
specific listing requirements. If the Company is delisted from the NMS, it is
unlikely that the Company would be able to have its Common Stock included for
quotation on the Nasdaq SmallCap Market. As a result, an investor would find it
more difficult to dispose of, or to obtain accurate quotations of the price of,
the Company's Common Stock.
Additionally, if the Company's Common Stock is not traded on a national
securities exchange or on Nasdaq, it may be subject to so-called "penny stock"
rules that impose additional sales practice and market-making requirements on
broker-dealers who sell or make a market in such securities. Consequently, the
delisting of the Company's Common Stock from the NMS could adversely affect the
ability or willingness of broker-dealers who sell or make a market in the
Company's Common Stock and the ability of investors of the Company's Common
Stock to sell their securities in the secondary market.
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<PAGE>
Such delisting may also have the adverse effect of reducing the visibility,
liquidity and prestige of the Company's Common Stock.
Future Capital Needs; Uncertainty of Additional Financing; Possibility of
Significant Dilution
The Company's future capital requirements will depend on a number of
factors, including its profitability, growth rate, working capital requirements,
expenses associated with protection of its patents and other intellectual
property and costs of future research and development activities. Developing
technology companies such as DTM typically need large amounts of capital to fund
growth. However, the Company's cash requirements may vary materially from those
now planned as a result of unforeseen changes that could consume a significant
portion of the available resources before that time.
Future operating results will depend, in part, on the Company's ability to
obtain and manage capital sufficient to finance its business. To the extent that
funds expected to be generated from the Company's operations are insufficient to
meet current or planned operating requirements or to maintain its listing on the
Nasdaq NMS, the Company will seek to obtain additional funds through bank
facilities, equity or debt financing, collaborative or other arrangements with
corporate partners and others from other sources. Additional funding may not be
available when needed or on terms acceptable to the Company, which could have a
material adverse effect on the Company's business, financial condition and
results of operations. If adequate funds are not available, the Company may be
required to delay or to eliminate certain expenditures or to license to third
parties the rights to commercialize technologies that the Company would
otherwise seek to develop itself. In addition, in the event that the Company
obtains any additional funding, such financing may have a substantially dilutive
effect on the holders of the Company's securities. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources".
Quarterly Fluctuations in Operating Results
The Company's revenues and operating results have varied substantially from
quarter to quarter and may continue to do so. DTM typically experiences a
relatively long lead-time, often from six to 24 months, to complete a
Sinterstation System sale and has historically experienced no backlog.
Furthermore, new product introductions, seasonality of customer buying patterns
and other factors can cause fluctuations in quarterly results. These
fluctuations have precluded, and may continue to preclude, the Company from
managing its inventories effectively from quarter to quarter. Further, a
majority of the sales of the Company's Sinterstation Systems occur at the end of
the quarter, often in the last weeks of the quarter. Accordingly, the Company's
ability to forecast the timing and amount of specific sales is limited, and the
deferral or loss of one or more significant sales could materially adversely
affect operating results in a particular quarter. The current 12-week
manufacturing cycle of the new Sinterstation System Model 2500plusTM negatively
impacts the Company's ability to control its inventories. The failure of the
Company to complete a particular Sinterstation System sale in any given quarter
can have a material adverse effect on the Company's business and financial
performance for that quarter and quarterly fluctuations could cause a material
adverse effect on the price at which the Company's Common Stock trades. The
tendency for a large number of the Company's sales made during a quarter to be
completed at or near the end of the quarter also hinders the Company's ability
to predict sales, control sales prices and enforce its standard terms.
Emerging Rapid Prototyping Market
The market for rapid prototyping products and services, such as those
marketed by the Company, is in an early stage of development and includes
multiple, competing technologies, many of which are not yet fully developed.
Participants in this market are moving to address new applications, many of
which may not yet be known or accepted by potential users. Rapid prototyping
requires that a CAD file describe a design and organizations who are not
currently using CAD are not, generally, potential customers for rapid
prototyping products and services. Significant education of the end user in both
CAD modeling and rapid prototyping in general has in some cases been a
prerequisite to product acceptance. It is not clear at this time which one or
more technologies will gain broad market acceptance. There can be no assurance
that DTM will emerge as a market leader, or even a major market participant, as
the market evolves and matures.
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Emerging Rapid Tooling Market
The market for rapid tooling products and services, such as those marketed
by the Company, is in an even earlier stage of development than rapid
prototyping. Participants in this market, including the Company, are moving to
address new applications, many of which may not yet be known or accepted by
potential users. The companies who use traditional-machining methods to make
tooling have made large capital investments in traditional equipment and have
mature infrastructures for doing so. They may be highly resistant both on
financial and cultural bases to adopting new technologies. There can be no
assurance that rapid tooling technologies will evolve to the point that the
perceived value will overcome those obstacles. There can be no assurance that
DTM will emerge as a market leader, or even a major market participant, as the
market evolves and matures.
Competition
The market for rapid prototyping systems is intensely competitive. In
marketing its Sinterstation Systems, the Company experiences competition from
many sources. Certain of the Company's competitors are better known and have
greater financial, research and development, production and marketing resources
than DTM. The principal worldwide competitors are 3D Systems Corporation and
Stratasys, Inc. EOS GmbH is a significant competitor outside of North America.
Competition has increased as a result of the introduction of new products or
product enhancements by these competitors and the entry into the industry by
other companies. Increased competition has in the past resulted, and may in the
future continue to result, in price reductions, reduced margins and loss of
market share, all of which have materially adversely affected the Company's
business and financial results.
Limited Product Company
The Company currently offers one model of Sinterstation Systems for sale.
The sale of Sinterstation Systems comprised 61% of revenues in the year ended
December 31, 1998 and 66% of revenues in each of the years ended December 31,
1997 and 1996. The remaining revenues were comprised of sales of powdered
sintering materials, spare parts and services to the installed base of
Sinterstation owners. Sinterstation Systems are priced at the premium end of the
range of today's rapid prototyping products and are sold on the basis of
performance and suitability to specific applications. In a downturn or a soft
market, the Company's dependence upon a limited range of products, as opposed to
a wide range of products at different price points, has caused the Company's
financial performance to be adversely affected and may continue to do so.
Intellectual Property And Proprietary Rights
In pursuing protection for its proprietary rights in its Sinterstation
Systems, materials and related technology, the Company currently relies on a
combination of patent, copyright, trademark and trade secret rights, as well as
contractual provisions. The Company typically seeks patent protection for its
selective laser sintering technology, including, where deemed appropriate, the
selective laser sintering process, its Sinterstation Systems and the materials
used in its Sinterstation Systems. However, patent protection may not always be
available. There can be no assurance that patents will be issued under any or
all of the patent applications to which the Company has rights. In addition, the
laws of various countries in which the Company's products may be sold may not
protect the Company's products and intellectual property rights to the same
extent as the laws of the United States.
In addition, the Company can give no assurance that the issued patents to
which it holds rights will be adequate to protect its interests or, if
challenged, held valid. The Company's competitors could develop non-infringing
systems, materials or technologies that are equivalent or superior to those of
the Company. A competitors currently does and others also may practice
technology covered by DTM's patents or other legal or contractual protections
regardless of the fact that it is legally protected. Any litigation to enforce
the Company's intellectual property rights would be expensive, time-consuming,
may divert management resources and may not be adequate to protect the Company's
business. While DTM defends its intellectual property vigorously, there can be
no assurance that it will be successful in its various litigation in many
countries. If the Company were unsuccessful in enforcing its intellectual
property rights or other
15
<PAGE>
contractual rights in the context of third-party offers to sell selective laser
sintering systems or sintering powders or if the Company were found to have
violated state or federal antitrust laws, the Company's future revenues might be
adversely affected. For example, a court granted a temporary summary judgment
against the Company in 1997, ruling that a customer had been given an implied
personal license by DTM to one of DTM's patented sintering materials. Although
the summary judgment was stayed in connection with a settlement agreement in
this case, there can be no assurance that intellectual property claims against
the Company in the future will not have a material adverse effect on the
Company's business, financial performance and results of operations.
Furthermore, unrelated third parties hold many patents and pending patent
applications under which the Company is not a licensee that relate to the design
and manufacture of rapid prototyping systems and materials. If such a third
party brought infringement litigation against the Company, and if the Company
was not successful in defending such litigation or in obtaining a license, the
Company's business and financial performance could be materially adversely
affected. The Company has been threatened with such litigation by a competitor.
Certain key intellectual property used in the selective laser sintering
process is licensed to the Company by The University of Texas System. As a
licensee, the Company's rights to practice the technology are not absolute. The
University of Texas could terminate, attempt to terminate or amend the license
if the Company could be shown to be in material default of the terms of the
license. Even if DTM has a basis for objection, defense of its rights as a
licensee could be costly and the outcome would be uncertain. Loss of significant
rights as a licensee under this license could have a material adverse effect on
the Company's business and financial performance.
Dependence on Key Personnel
The Company's success depends to a substantial extent on a relatively few
key management employees. Losing the services of one or more key employees could
have a material adverse effect on the Company's business and financial
performance. The Company's success also depends on its ability to continue to
attract highly talented technical personnel. Candidates with appropriate
training and expertise may be in short supply in the geographic areas where the
Company is attempting to recruit personnel. The Company has put in place
incentive compensation plans intended to provide motivation for continued
employment of key employees. The Company can give no assurance that it will be
able to retain employees or continue to attract, assimilate and retain other
skilled personnel.
Dependence on Third Party Suppliers
The Company subcontracts for manufacture of Sinterstation System
components, powdered sintering materials and accessories from single-source,
third-party suppliers. A disruption in supply or failure of a supplier to remain
competitive in functionality or price could have a material adverse effect on
the Company's sales or reputation for timely delivery, and, hence, on the
Company's business, financial performance and results of operations.
International Operations
Revenues from customers located outside the U.S. represented 53%, 60% and
50% of the Company's total revenues in 1998, 1997 and 1996, respectively. The
Company believes that continued growth and profitability will require expansion
of its sales in international markets. This expansion may be costly and time-
consuming and may not generate returns for a significant period of time, if at
all.
Fluctuations in exchange rates as well as interest rates have significantly
affected DTM's sales in foreign markets. In particular, a strengthening U.S.
dollar has adversely affected the price competitiveness of DTM's products and
services in the international markets. A significant and increasing portion of
international sales are denominated in currencies other than U.S. dollars,
thereby exposing the Company to gains and losses on non-U.S. currency
transactions. There can be no assurance that any hedging activity by the Company
to limit currency exchange risk will be successful in avoiding exchange-related
losses. Nor can there be assurance that the Company's exposure to risks
associated with international operations will not continue to have a material
adverse effect on its liquidity, capital resources and results of operations.
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<PAGE>
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
Proactive currently controls approximately 50.3% of the outstanding Common
Stock. At this percentage, Proactive could control elections of the Company's
Board of Directors and could control or substantially affect the outcome of most
matters submitted to the Company's shareholders for their vote or consent.
Proactive could also cause, prevent or delay a change in control of the Company.
Product Liability
Products as complex as those offered by the Company may contain undetected
defects or errors when first introduced or as enhancements are released that,
despite testing by the Company, are not discovered until after the product has
been installed and used by customers, which could result in delayed market
acceptance of the product or damage to the Company's reputation and business.
The Company attempts to include provisions in its agreements with customers that
are designed to limit the Company's exposure to potential liability for damages
arising out of defects or errors in the Company's products. However, the nature
and extent of such limitations vary from customer to customer and it is possible
that such limitations may not be effective as a result of unfavorable judicial
decisions or laws enacted in the future. The sale and support of the Company's
products entails the risk of product liability claims. Any such claim brought
against the Company, regardless of its merit, could result in material expense
to the Company, diversion of management time and attention, and damage to the
Company's business reputation and its ability to retain existing customers or
attract new customers.
Year 2000 Compliance
The Company has begun an evaluation of its internal information technology
and non-information systems to assess Year 2000 compliance and has a plan to
bring all such systems into compliance by September 1999. There can be no
assurance that the project will identify and address all significant Year 2000
problems in a prompt and cost-effective manner. Furthermore, the Company has not
adopted any formal contingency plan in the event its Year 2000 project is not
completed in a timely manner. A delay in completion of the Company's compliance
project or any unforeseen Year 2000 problems, if not fixed, could have a
material adverse effect on the Company's business financial condition and
results of operations. Please see "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Year 2000."
Possible Issuance of Preferred Stock
The Company's Articles of Incorporation authorize the issuance of up to
3,000,000 shares of Preferred Stock, $0.001 par value ("Preferred Stock"), the
terms of which would be determined by the Board of Directors at the time of
issuance, without further shareholder approval. The Board of Directors would
determine whether these shares would carry voting rights, preferences in the
payment of dividends, sinking fund provisions and liquidation, redemption or
conversion rights, if any. The Company has no current plans to issue Preferred
Stock. However, if such stock is issued in the future, the rights of the 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.
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Shares Eligible for Future Sale; Probable Resale of Common Stock Issued in
connection with Settlement of Shareholder Class Action Litigation
Sales of shares of Common Stock into the market by Proactive, employees
exercising options or recipients of shares to be distributed in settlement of
the Company's shareholder class action litigation escrow could cause a decline
in the price of such stock. The shares of the Common Stock owned by Proactive
will be freely tradable, subject to the resale limitations of Rule 144, as
promulgated by the U.S. Securities and Exchange Commission, that are applicable
to an affiliate of the Company, after a minimum of one year has elapsed from the
date on which Proactive acquired such shares. In addition, if the Company
proposes to register any of its securities under the Securities Act of 1933,
whether for its own account, for the account of other shareholders or for both,
Proactive is entitled to notice of such registration and is entitled to include
its shares of the Company's Common Stock in the registration.
DTM employees hold immediately exercisable options to purchase 455,964
shares of Common Stock. The Company registered the issuance and the sale of the
shares of Common Stock that would be issued upon exercise of options under the
stock option plans on a Form S-8 Registration Statements. As a result, the
Common Stock acquired by employees of DTM upon exercise of options outstanding
under the stock option plans will be freely tradeable (subject to compliance
with certain provisions of Rule 144, in the case of affiliates of the Company).
The non-cash component of the settlement of the shareholder class action
resulted in the issuance of 334,485 shares of the Company's Common Stock into a
settlement escrow on February 4, 1999. Such shares are freely tradable. The
escrow agent has advised the Company, that the escrow agent intends to sell such
shares prior to the distribution to the recipients of the settlement. Sales of
Common Stock into the market by the escrow agent or, if distributed, the
recipients of the settlement could cause a decline in the price of such stock.
Market Volatility
The Company's Common Stock is listed on the Nasdaq National Market System.
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 Management's 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.
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PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At the 1999 Annual Meeting of the Shareholders of DTM the following matters were
voted as follows:
Proposal 1: To elect five directors to the Company's Board of Directors to
serve until the next annual meeting or until their respective
successors are duly elected and qualified as follows:
# of Shares # of Shares
------------ ------------
Lawrence Goldstein For 6,440,783 Withheld Authority 32,150
Anthony Mariotti For 6,440,783 Withheld Authority 32,150
John S. Murchison, III For 6,415,078 Withheld Authority 57,855
Thomas G. Ricks For 6,440,733 Withheld Authority 32,200
James B. Skaggs For 6,440,783 Withheld Authority 32,150
Proposal 2: To approve the adoption of the DTM Corporation 1999 Stock Option
Plan:
# of Shares # of Shares # of Shares
----------- ----------- -----------
For 3,962,637 Against 125,200 Abstain 55,075
Proposal 3: To ratify the appointment of Ernst & Young LLP as independent
auditors of DTM Corporation for the fiscal year ending December
31, 1999:
# of Shares # of Shares # of Shares
----------- ----------- -----------
For 6,436,313 Against 10,100 Abstain 26,520
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit 4.2 Registration rights agreement with DTM Acquisition
Company, L.P., dated June 11, 1999
Exhibit 10.21 Debt Repayment Agreement, dated as of April 12,
1999, between DTM and DTM Acquisition Company, L.P.
Exhibit 10.22 1999 Management Incentive Plan adopted March 17,
1999
Exhibit 27.1 - Current Financial Data Schedule for the quarter
ended June 30, 1999
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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: August 13, 1999
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
Vice President of Finance, Treasurer
and Secretary
<PAGE>
Index to Exhibits
-----------------
Number Description
- ------ -----------
4.2 Registration rights agreement with DTM Acquisition Company, L.P.,
dated June 11, 1999
10.21 Debt Repayment Agreement, dated as of April 12, 1999
10.22 1999 Management Incentive Plan adopted March 17, 1999
27.1 Current Financial Data Schedule for the quarter ended June 30, 1999
<PAGE>
Exhibit 4.2
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is entered into
as of the 11th day of June, 1999, by and between DTM Corporation, a Texas
corporation the "Company"), and DTM Acquisition Company, L.P., a Texas limited
partnership ("DTMAC").
RECITALS:
WHEREAS, the Company and DTMAC are parties to that certain Amended and
Restated Shareholders' Agreement dated April 30, 1996 (the "Prior Agreement");
WHEREAS, the Company and DTMAC desire to amend certain of the rights,
privileges, restrictions and obligations set forth in the Prior Agreement
pertaining to the registration rights of DTMAC; and
WHEREAS, the execution and delivery of this Agreement by the Company
and DTMAC is a condition to the closing of the transactions contemplated by the
that certain Debt Repayment Agreement.
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree to terminate the Prior Agreement in its
entirety, and further agree as follows:
1. Definitions. For purposes of this Agreement, the following terms
-----------
shall have the meanings indicated:
"Commission" means the United States Securities and Exchange
Commission.
"Common Stock" means the Company's Common Stock, par value $0.0002 per
share.
"Debt Repayment Agreement" means the Debt Repayment Agreement by and
between the Company and DTMAC dated as of April 12, 1999.
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Registrable Stock" means the 3,157,190 shares of Common Stock
currently held by DTMAC plus the 352,167 shares of Common Stock acquired by
DTMAC pursuant to the Debt Repayment Agreement.
"Securities Act" means the Securities Act of 1933, as amended.
2. Demand Registrations.
--------------------
2.1 Requests for Registration.
-------------------------
(a) At any time and from time to time, DTMAC may request
registration under the Securities Act of the offering of all or any part of
the Registrable Stock held by DTMAC (each, a "Demand Registration"),
subject to the terms and conditions of this Agreement. Any request (a
"Registration Request") for a Demand Registration shall specify (a) the
approximate number of shares of Registrable Stock requested to be
registered (but not less than 20% of the total number of shares of
Registrable Stock then held by DTMAC), and (b) the intended method of
distribution of such shares.
<PAGE>
(b) Subject to paragraph 4, DTMAC will be entitled to request one
Demand Registration.
(c) The Company will not include in any Demand Registration the
offering of any securities other than shares of Registrable Stock and
securities to be registered for offering and sale on behalf of the Company
without the prior written consent of DTMAC. If the managing underwriter(s)
of any such offering advise the Company in writing that in their opinion
the number of shares of Registrable Stock and, if permitted hereunder,
other securities in such offering, exceeds the number of shares of
Registrable Stock and other securities, if any, which can be sold in an
orderly manner in such offering within a price range acceptable to DTMAC,
the Company will include in such registration, prior to the inclusion of
any securities which are not shares of Registrable Stock subject to a
Registration Request, the number of shares requested to be included which
in the opinion of such underwriters can be sold in an orderly manner within
the price range of such offering, in the following order of priority: (i)
first, shares of Registrable Stock that DTMAC requested be included in the
registration, (ii) second, the securities proposed be sold by the Company,
and (iii) third, pro rata among the holders of the other securities, if
any, requested to be included in such registration on the basis of the
number of shares that such holders have requested be included in the
registration.
2.2 Registrations on Form S-3. The Company shall use its
-------------------------
reasonable best efforts to qualify for registration on Form S-3 or any
comparable or successor form or forms. After the Company has qualified for the
use of Form S-3, in addition to the rights contained in Subsection 2.1, DTMAC
shall have the right at any time and from time to time to request a total of
three registrations on Form S-3, provided that each such registration must have
aggregate proceeds of more than $500,000 and only one such registration shall be
effected during any six-month period. Such requests shall be in writing and
shall state the number of shares of Registrable Stock proposed to be disposed of
and the intended method of distribution of such shares by DTMAC.
2.3 Right to Defer Registration. The Company may postpone for up
---------------------------
to six months the filing or the effectiveness of a registration statement for a
Demand Registration set forth above if (i) the Company determines that such
registration might have an adverse effect on any proposal or plan by the Company
to engage in any acquisition of assets (other than in the ordinary course) or
any merger, consolidation, tender offer or similar transaction or (ii) any other
material, nonpublic development or transaction is pending; provided that the
--------
Company may not postpone the filing or effectiveness of a registration statement
pursuant to this sentence more frequently than once during any period of 12
consecutive months.
3. Piggyback Registrations.
-----------------------
3.1 Right to Piggyback. If the Company proposes to register any
------------------
offering of its securities under the Securities Act (other than pursuant to a
Demand Registration or registration on Form S-4 or Form S-8 or any successor
form) and the registration form to be used may be used for the registration of
Registrable Stock (a "Piggyback Registration"), the Company will give prompt
written notice to DTMAC of its intention to effect such a registration (a
"Piggyback Notice"). Subject to subparagraph 3B below, the Company will include
in such registration all shares of Registrable Stock which DTMAC requests the
Company to include in such registration by written notice given to the Company
within 15 days after the date of sending of the Company's notice.
3.2 Priority on Primary Registrations. If a Piggyback Registration
---------------------------------
relates to an underwritten public offering of equity securities by the Company
and the managing underwriter(s) of such offering advise the Company in writing
that in their opinion the number of securities requested to be included in such
registration exceeds the number which can be sold in an orderly manner in such
offering within a price range acceptable to the Company, the Company will
include in such registration (i) first, the securities proposed to be sold by
the Company, (ii) second, the securities requested by holders of contractual
registration rights (including Registrable Stock) to be included in such
registration, pro rata among the holders of such securities in proportion to the
number of shares each such holder requested to be included in the registration
and (iii) third, other securities requested to be included in such registration.
4. Registration Procedures. Whenever DTMAC has requested that any
-----------------------
Registrable Stock be registered pursuant to this Agreement, the Company will use
its best efforts to effect the registration and the sale of
2
<PAGE>
such Registrable Stock in accordance with the intended method of distribution
thereof and will as expeditiously as possible:
(a) use its best efforts to prepare and file with the Commission
a registration statement with respect to such Registrable Stock within 45
days of receiving a Registration Request and use its best efforts to cause
such registration statement to become effective within 90 days of receiving
such request, provided, that before filing a registration statement or
--------
prospectus or any amendments or supplements thereto, the Company will
furnish to the counsel selected by DTMAC copies of all such documents
proposed to be filed, which documents will be subject to the review of such
counsel;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective until the earlier of 120 days or until all shares of
Registrable Stock subject to such registration are sold, and comply with
the provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement during such period in
accordance with the intended methods of distribution by the sellers thereof
set forth in such registration statement;
(c) furnish to DTMAC such number of copies of such registration
statement, each amendment and supplement thereto, the prospectus included
in such registration statement (including each preliminary prospectus) and
such other documents as such seller may reasonably request in order to
facilitate the disposition of the Registrable Stock owned by DTMAC;
(d) use its best efforts to register or qualify such Registrable
Stock under such other securities or blue sky laws of such jurisdictions as
DTMAC reasonably requests and do any and all other acts and things which
may be reasonably necessary or advisable to enable DTMAC to consummate the
disposition in such jurisdictions of the Registrable Stock owned by DTMAC,
provided, that the Company will not be required (i) to qualify generally to
--------
do business in any jurisdiction where it would not otherwise be required to
qualify but for this subparagraph, (ii) to subject itself to taxation in
any such jurisdiction or (iii) to consent to general service of process in
any such jurisdiction;
(e) notify DTMAC, at any time when a prospectus relating thereto
is required to be delivered under the Securities Act, of the happening of
any event as a result of which the prospectus included in such registration
statement contains an untrue statement of a material fact or omits any fact
necessary to make the statements therein not misleading and, at the request
of DTMAC, the Company will prepare a supplement or amendment to such
prospectus so that, as thereafter delivered to the purchasers of such
Registrable Stock, such prospectus will not contain an untrue statement of
a material fact or omit to state any fact necessary to make the statements
therein, in light of the circumstances under which such statements are
made, not misleading;
(f) use its best efforts to cause all such Registrable Stock to
be listed on each securities exchange on which similar securities issued by
the Company are then listed and to be qualified for trading on each system
on which similar securities issued by the Company are from time to time
qualified;
(g) provide a transfer agent and registrar for all such
Registrable Stock not later than the effective date of such registration
statement and thereafter maintain such a transfer agent and registrar;
(h) enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the
underwriters, if any, reasonably request in order to expedite or facilitate
the disposition of such Registrable Stock;
(i) make available for inspection by any underwriter
participating in any disposition pursuant to such registration statement
and any attorney, accountant or other agent retained by any such
underwriter, all financial and other records, pertinent corporate documents
and properties of the Company, and cause the Company's officers, directors,
employees and independent accountants to supply all
3
<PAGE>
information reasonably requested by any such underwriter, attorney,
accountant or agent in connection with such registration statement;
(j) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its security
holders, as soon as reasonably practicable, an earnings statement covering
the period of at least 12 months beginning with the first day of the
Company's first full calendar quarter after the effective date of the
registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act;
(k) in the event of the issuance of any stop order suspending the
effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the
qualification of any Registrable Stock included in such registration
statement for sale in any jurisdiction, the Company will use its reasonable
best efforts promptly to obtain the withdrawal of such order; and
(l) cooperate in all reasonably necessary respects (A) with
counsel in preparation of the customary legal opinion and (B) with
accountants in preparation of the customary comfort letter.
If any such registration or comparable statement refers to DTMAC by name or
otherwise as the holder of any securities of the Company and if, in DTMAC's sole
and exclusive judgment, DTMAC is or might be deemed to be a controlling person
of the Company, DTMAC shall have the right to require (a) the inclusion in such
registration statement of language, in form and substance reasonably
satisfactory to DTMAC, to the effect that the holding of such securities by
DTMAC is not to be construed as a recommendation by DTMAC of the investment
quality of the Company's securities covered thereby and that such holding does
not imply that DTMAC will assist in meeting any future financial requirements of
the Company, or (b) in the event that such reference to DTMAC by name or
otherwise is not required by the Securities Act or any similar federal statute
then in force, the deletion of the reference to DTMAC; provided, that with
--------
respect to this clause (b) DTMAC shall furnish to the Company an opinion of
counsel to such effect, which opinion and counsel shall be reasonably
satisfactory to the Company.
5. Registration Expenses.
---------------------
5.1 Definitions. The term "Registration Expenses" means all
-----------
expenses incident to the Company's performance of or compliance with this
Agreement, including without limitation all registration and filing fees, fees
and expenses of compliance with securities or blue sky laws, printing expenses,
messenger and delivery expenses, and fees and expenses of counsel for the
Company, one counsel for DTMAC and all independent certified public accountants,
underwriters (excluding underwriting and brokerage discounts and commissions
relating to sales by DTMAC, which shall be paid by DTMAC) and other Persons
retained by the Company.
5.2 Payment. The Company shall pay the Registration Expenses in
-------
connection with one Demand Registration requested by DTMAC and any and all
Piggyback Registrations and registrations on Form S-3. All expenses of
registered offerings other than Registration Expenses shall be borne by DTMAC.
6. Indemnification.
6.1 Indemnification by the Company. The Company agrees to
------------------------------
indemnify, to the extent permitted by law, DTMAC, its officers and directors and
each Person who controls DTMAC (within the meaning of the Securities Act)
against any losses, claims, damages, liabilities and expenses under the
Securities Act, the Securities Exchange Act of 1934 and any applicable state
securities law or otherwise caused by any untrue or alleged untrue statement of
material fact contained in any registration statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto or any omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading, except insofar as the same are
caused by or contained in any information furnished in writing to the Company by
DTMAC expressly for use therein; provided, however, that the indemnity provided
-------- -------
hereby shall not apply to amounts paid in settlement of any such losses, claims,
damages, liabilities or expenses if such settlement is effected without the
consent of the Company (which consent shall not be unreasonably withheld,
delayed or conditioned). In connection with an
4
<PAGE>
underwritten offering, the Company will indemnify such underwriters, their
officers and directors and each Person who controls such underwriters (within
the meaning of the Securities Act) to the same extent as provided above with
respect to the indemnification of DTMAC.
6.2 Indemnification by DTMAC. In connection with any registration
------------------------
statement in which DTMAC is participating, DTMAC will furnish to the Company in
writing such information and affidavits as the Company reasonably requests for
use in connection with any such registration statement or prospectus and, to the
extent permitted by law, will indemnify the Company, its directors and officers
and each Person who controls the Company (within the meaning of the Securities
Act) against any losses, claims, damages, liabilities and expenses under the
Securities Act, the Securities Exchange Act of 1934 and any applicable state
securities law or otherwise resulting from any untrue or alleged untrue
statement of material fact contained in the registration statement, prospectus
or preliminary prospectus or any amendment thereof or supplement thereto or any
omission or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading (but only to the extent
that such untrue statement or omission is contained in any information or
affidavit so furnished in writing by DTMAC) and any failure by DTMAC to deliver
a copy of the registration statement or prospectus or any amendments or
supplements thereto after the Company has furnished DTMAC with a sufficient
number of copies of the same; provided, however, that the indemnity provided
-------- -------
hereby shall not apply to amounts paid in settlement of any such losses, claims,
damages, liabilities or expenses if such settlement is effected without the
consent of DTMAC (which consent shall not be unreasonably withheld, delayed or
conditioned).
6.3 Notice: Defense of Claims. Any Person entitled to
-------------------------
indemnification hereunder will (i) give prompt written notice to the
indemnifying party of any claim with respect to which it seeks indemnification
and (ii) unless in such indemnified party's reasonable judgment a conflict of
interest between such indemnified and indemnifying parties may exist with
respect to such claim, permit such indemnifying party to assume the defense of
such claim with counsel reasonably satisfactory to the indemnified party. If
such defense is assumed, the indemnifying party will not be subject to any
liability for any settlement made by the indemnified party without its consent
(but such consent will not be unreasonably withheld, delayed or conditioned).
An indemnifying party who is not entitled to, or elects not to, assume the
defense of a claim will not be obligated to pay the fees and expenses of more
than one counsel for all parties indemnified by such indemnifying party with
respect to such claim, unless in the reasonable judgment of any indemnified
party a conflict of interest may exist between such indemnified party and any
other of such indemnified parties with respect to such claim.
6.4 Contribution. If the indemnification provided for in this
------------
Section 6 is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, liability, claim, damage or expense
referred to herein, then the indemnifying party, in lieu of indemnifying such
indemnified party hereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such loss, liability, claim, damage, or
expense in such proportion as is appropriate to reflect the relative fault of
the indemnifying party, on the one hand, and of the indemnified party, on the
other, in connection with the statements or omissions that resulted in such
loss, liability, claim, damage, or expense, as well as any other relevant
equitable considerations. The relative fault of the indemnifying party and of
the indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
6.5 Survival. The indemnification provided for under this
--------
Agreement will remain in full force and effect regardless of any investigation
made by or on behalf of the indemnified party or any officer, director or
controlling Person of such indemnified party and will survive the transfer of
securities.
6.6 Underwriting Agreement. To the extent that the provisions on
----------------------
indemnification and contribution contained in any underwriting agreement entered
into in connection with an underwritten public offering are in conflict with the
provisions of this Section 6, the provisions contained in the underwriting
agreement shall control.
6.7 "Market Stand-Off" Agreement. DTMAC hereby agrees that, during
----------------------------
the period of duration specified by the Company and an underwriter of Common
Stock or other securities of the Company, following the effective date of a
registration statement of the Company filed under the Securities Act, it shall
not, to
5
<PAGE>
the extent requested by the Company and such underwriter, directly or indirectly
sell, offer to sell, contract to sell (including, without limitation, any short
sale), grant any option to purchase or otherwise transfer or dispose of (other
than to donees who agree to be similarly bound) any securities of the Company
held by it at any time during such period except Common Stock included in such
registration; provided, however, that:
(a) all executive officers and directors of the Company and all
other persons holding at least 1% of the outstanding Common Stock or at
least 5% of the outstanding Registrable Stock enter into similar
agreements; and
(b) such market stand-off time period shall not exceed 180 days.
In order to enforce the foregoing covenant, the Company may impose stop-transfer
instructions with respect to the Registrable Stock of DTMAC (and the shares or
securities of every other person subject to the foregoing restriction) until the
end of such period.
Notwithstanding the foregoing, the obligations described in this Subsection 6.7
shall not apply to a registration relating solely to employee benefit plans on
Form S-l or Form S-8 or similar forms which may be promulgated in the future.
7. Participation in Underwritten Registrations. No Person may
-------------------------------------------
participate in any registration hereunder which is underwritten unless such
Person (i) agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Person or Persons entitled hereunder
to approve such arrangements and (ii) completes and executes all questionnaires,
powers of attorney, indemnities, standstill or holdback agreements, underwriting
agreements and other documents required under the terms of such underwriting
arrangements, provided, that DTMAC shall not be required to make any
--------
representations or warranties to the Company or the underwriters other than
representations and warranties regarding DTMAC and DTMAC's intended method of
distribution.
8. Miscellaneous.
-------------
8.1 Successors and Assigns. Except as otherwise provided herein,
----------------------
the terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any Common Stock purchased hereunder). Nothing in this
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
8.2 Governing Law. The construction, validity and interpretation
-------------
of this Agreement will be governed by the internal laws of the State of Texas
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of Texas or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of Texas.
8.3 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
shall be one and the same document.
8.4 Termination. The rights granted under Sections 2 and 3 of this
-----------
Agreement shall terminate upon the earlier of (i) such time when DTMAC is
eligible to sell its Registrable Stock in accordance with Rule 144(k) of the
Securities Act or (ii) four years from the date hereof.
8.5 Headings. The headings of this Agreement are for convenience
--------
only and do not constitute a part of this Agreement.
8.6 Notices. All notices, requests, consents, and other
-------
communications under this Agreement shall be in writing and shall be delivered
personally or by facsimile transmission or by overnight delivery service or
mailed by first class certified or registered U.S. mail, return receipt
requested, postage prepaid:
6
<PAGE>
If to the Company, at DTM Corporation, 1611 Headway Circle, Building
2, Austin, Texas 78754, Attention: John S. Murchison, III, President and Chief
Executive Officer (fax (512) 339-0634), or at such other address or addresses as
may have been furnished in writing by the Company to DTMAC, with a copy to
Brobeck, Phleger & Harrison LLP, 301 Congress Avenue, Suite 1200, Austin, Texas
78701, Attention: J. Matthew Lyons, Esq. (fax (512) 477-5813); and
If to DTMAC, at DTM Acquisition Company, L.P., 221 West 6th Street,
Suite 1520, Austin, Texas 78701, Attention: Anthony Mariotti (fax (512) 320-
8940), or at such other address or addresses as may have been furnished to the
Company in writing by DTMAC, with a copy to Locke Liddell & Sapp LLP, 100
Congress, Suite 300, Austin, Texas 78701, Attention: Curtis R. Ashmos, Esq.
(fax (512) 305-4800).
Notices provided in accordance with this Subsection 8.6 shall be
deemed delivered upon personal delivery or three business days after deposit in
the mail.
8.7 Amendments and Waivers. Any term of this Agreement may be
----------------------
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and DTMAC. Any
amendment or waiver effected in accordance with this paragraph shall be binding
upon each holder of any securities purchased under this Agreement at the time
outstanding (including securities into which such securities are convertible),
each future holder of all such securities, and the Company.
8.8 Severability. The invalidity or unenforceability of any
------------
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
8.9 Entire Agreement. This Agreement embodies the entire agreement
----------------
and understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements and understandings relating to such
subject matter, including the Prior Agreement.
8.10 Further Assurances. Each party to this Agreement hereby
------------------
covenants and agrees, without the necessity of any further consideration, to
execute and deliver any and all such further documents and take any and all such
other actions as may be necessary to appropriately carry out the intent and
purposes of this Agreement and to consummate the transactions contemplated
hereby.
[Remainder of page intentionally left blank.]
7
<PAGE>
IN WITNESS WHEREOF, this Registration Rights Agreement has been
executed by the parties hereto as of the date first written above.
DTM CORPORATION
By: s/s JOHN MURCHISON, III
---------------------------
John S. Murchison, III
President and Chief Executive
Officer
DTM ACQUISITION COMPANY, L.P.
BY: PROACTIVE-DTM, L.P.
BY: PROACTIVE FINANCE GROUP, LLC
BY: s/s ANTHONY MARIOTTI
---------------------------
Anthony Mariotti
8
<PAGE>
Exhibit 10.21
DEBT REPAYMENT AGREEMENT
THIS DEBT REPAYMENT AGREEMENT (this "Agreement") is entered into as of
the 12th day of April, 1999, by and between DTM Corporation, a Texas corporation
(the "Company"), and DTM Acquisition Company, L.P., a Texas limited partnership
("DTMAC").
RECITALS:
WHEREAS, DTMAC holds all right, title and interest in and to a
$909,273.63 receivable (the "Debt") owed by the Company;
WHEREAS, the Company and DTMAC desire to formalize the terms and
conditions pursuant to which the Debt will be repaid to DTMAC by the Company
partially for cash and partially for shares of the Company's Common Stock, par
value $0.0002 per share (the "Common Stock"); and
WHEREAS, DTM's Board of Directors, including each director not
affiliated with or with any interest in DTMAC or its affiliates, after due
consideration of all factors it deems relevant, has approved the terms of the
transactions hereunder as being fair and in the best interest of the Company's
shareholders.
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing, the representations
and warranties, mutual covenants and agreements hereinafter set forth and
certain other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, it is hereby agreed between the Company and DTMAC
as follows:
1. Repayment of the Debt.
---------------------
Cash Repayment. Subject to the terms and conditions of this Agreement, the
Company shall deliver to DTMAC at the Closing repayment of $454,273.63 by check,
wire transfer or any combination thereof. Upon receipt of this repayment, DTMAC
agrees to execute the Release, in substantially the form attached hereto as
Exhibit A.
- ---------
Issuance of Common Stock. Subject to the terms and conditions of this
Agreement, DTMAC agrees to purchase at the Closing, and the Company agrees to
sell and issue to DTMAC at the Closing, 352,167 shares of the Common Stock.
Closing. The closing of the transactions contemplated hereby shall take
place at the offices of Brobeck, Phleger & Harrison LLP, 301 Congress Avenue,
Suite 1200, Austin, Texas at 10:00 a.m., on June 11, 1999, or at such other time
and place as the Company and DTMAC mutually agree orally or in writing (which
time and place are designated as the "Closing"). At the Closing the Company
shall deliver to DTMAC a certificate representing the Common Stock that DTMAC is
purchasing against payment of the purchase price therefor by cancellation of
indebtedness. DTMAC shall execute an instrument of cancellation and release, in
substantially the form attached hereto as Exhibit A.
---------
2. Representations and Warranties of the Company. The Company hereby
---------------------------------------------
represents and warrants to DTMAC that:
<PAGE>
Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Texas. The Company is duly qualified to transact business and is
in good standing in each jurisdiction in which the failure to so qualify would
have a material adverse effect on its business or properties.
Authorization. All corporate action on the part of the Company, its
officers, directors and shareholders necessary for the authorization, execution
and delivery of this Agreement and the Registration Rights Agreement, the
performance of all obligations of the Company under such agreements, and the
authorization, issuance (or reservation for issuance), sale and delivery of the
Common Stock being sold hereunder has been taken or will be taken prior to the
Closing, and this Agreement and the Registration Rights Agreement constitute
valid and legally binding obligations of the Company, enforceable in accordance
with their respective terms, except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting enforcement of creditors' rights generally and (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or other
equitable remedies.
Valid Issuance of Common Stock. The Common Stock that is being purchased
by DTMAC hereunder, when issued, sold and delivered in accordance with the terms
of this Agreement for the consideration expressed herein, will be validly
issued, fully paid and nonassessable, free of preemptive rights, and will be
free of restrictions on transfer other than restrictions on transfer under this
Agreement and under applicable state and federal securities laws.
Offering. Subject in part to the truth and accuracy of DTMAC's
representations set forth in Section 3 of this Agreement, the offer, sale and
issuance of the Common Stock as contemplated by this Agreement are exempt from
the registration requirements of the Act, and neither the Company nor any
authorized agent acting on its behalf will take any action hereafter that would
cause the loss of such exemption.
Disclosure. The Company has fully provided DTMAC with all the information
that it has requested for deciding whether to purchase the Common Stock and all
information that the Company believes is reasonably necessary to enable it to
make such decision. To the best of the Company's knowledge, neither this
Agreement nor any other written statements or certificates made or delivered in
connection herewith or therewith contains any untrue statement of a material
fact or omits to state a material fact necessary to make the statements herein
or therein not misleading.
3. Representations and Warranties of DTMAC. DTMAC hereby represents and
---------------------------------------
warrants that:
Authorization. DTMAC has full power and authority to enter into this
Agreement, the Release and the Registration Rights Agreement and such Agreements
constitute their respective valid and legally binding obligations of DTMAC,
enforceable in accordance with their respective terms.
Purchase Entirely for Own Account. This Agreement is made with DTMAC in
reliance upon its representation to the Company, which by DTMAC's execution of
this Agreement DTMAC hereby confirms, that the Common Stock to be received by
DTMAC will be acquired for investment for DTMAC's own account, not as a nominee
or agent, and not with a view to the resale or distribution of any part thereof,
and that DTMAC has no present intention of selling, granting any participation
in, or otherwise distributing the same. By executing this Agreement, DTMAC
further represents that it does not have any contract, undertaking, agreement or
arrangement with any person to sell, transfer or grant participations to such
person or to any third person, with respect to any of the Common Stock.
Disclosure of Information. DTMAC believes it has received all the
information it considers necessary or appropriate for deciding whether to
purchase the Common Stock. DTMAC further represents that it has had an
opportunity to ask questions and receive answers from the Company regarding the
terms and conditions of the offering of the Common Stock and the business,
properties, prospects and financial condition of the Company. The
2
<PAGE>
foregoing, however, does not limit or modify the representations and warranties
of the Company in Section 2 of this Agreement or the right of DTMAC to rely
thereon.
Investment Experience. DTMAC is, or has been, an investor in securities of
companies in the development stage and acknowledges that it is able to fend for
itself, can bear the economic risk of its investment, and has such knowledge and
experience in financial or business matters that it is capable of evaluating the
merits and risks of the investment in the Common Stock.
Restricted Securities. DTMAC understands that the shares of Common Stock
it is purchasing are characterized as "restricted securities" under the federal
securities laws inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Act only in certain limited circumstances. In this connection, DTMAC
represents that it is familiar with SEC Rule 144, as presently in effect, and
understands the resale limitations imposed thereby and by the Act.
DTMAC is aware of the fact the sale of these securities in the State
of Texas may be made in reliance upon exemptions provided under the Securities
Act of Texas.
Legend. It is understood that the certificates evidencing the Common Stock
may bear the following legend:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH
RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR
UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT."
3
<PAGE>
4. Conditions of DTMAC's Obligations at Closing. The obligations of DTMAC
under Subsection 1.1 of this Agreement are subject to the fulfillment on or
before the Closing of each of the following conditions:
Representations and Warranties. The representations and warranties of the
Company contained in Section 2 shall be true on and as of the Closing with the
same effect as though such representations and warranties had been made on and
as of the date of such Closing.
Performance. The Company shall have performed and complied with all
agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing.
Qualifications. All authorizations, approvals, or permits, if any, of any
governmental authority or regulatory body of the United States or of any state
that are required in connection with the lawful issuance and sale of the Common
Stock pursuant to this Agreement shall be duly obtained and effective as of the
Closing.
Registration Rights Agreement. The Registration Rights Agreement, in
substantially the form attached hereto as Exhibit B, shall have been executed
---------
and delivered by the Company and DTMAC, and shall be in full force and effect.
Working Capital Line of Credit. The Company shall have obtained from a
bank a working capital line of credit in the amount of at least $2.0 million by
June 11, 1999.
4.1 Filing of a Notification of Issuance of Additional Shares with
Nasdaq. The Company shall have provided evidence of its filing of a
Notification of Issuance of Additional Shares with The Nasdaq Stock Market.
5. Conditions of the Company's Obligations at Closing. The obligations of
--------------------------------------------------
the Company to DTMAC under this Agreement are subject to the fulfillment on or
before the Closing of each of the following conditions:
Representations and Warranties. The representations and warranties of
DTMAC contained in section 3 shall be true on and as of the Closing with the
same effect as though such representations and warranties had been made on and
as of the Closing.
Performance. DTMAC shall have performed and complied with all agreements,
obligations and conditions contained in this Agreement that are required to be
performed or complied with by it on or before the Closing.
Qualifications. All authorizations, approvals, or permits, if any, of any
governmental authority or regulatory body of the United States or of any state
that are required in connection with the lawful issuance and sale of the Common
Stock pursuant to this Agreement shall be duly obtained and effective as of the
Closing.
Delivery of Release. DTMAC shall have delivered the Release attached
hereto as Exhibit A.
---------
Registration Rights Agreement. The Registration Rights Agreement, in
substantially the form attached hereto as Exhibit B, shall have been executed
---------
and delivered by the Company and DTMAC, and shall be in full force and effect.
Working Capital Line of Credit. The Company shall have obtained from a
bank a working capital line of credit in the amount of at least $2.0 million by
June 11, 1999.
4
<PAGE>
6. Miscellaneous.
-------------
Survival of Warranties. The warranties, representations and covenants of
the Company and DTMAC contained in or made pursuant to this Agreement shall
survive the execution and delivery of this Agreement and the Closing for a
period of six months.
Successors and Assigns. Except as otherwise provided herein, the terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the respective successors and assigns of the parties (including transferees of
any Common Stock purchased hereunder). Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
Governing Law. The construction, validity and interpretation of this
Agreement will be governed by the internal laws of the State of Texas without
giving effect to any choice of law or conflict of law provision or rule (whether
of the State of Texas or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of Texas.
Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same document.
Headings. The headings of this Agreement are for convenience only and do
not constitute a part of this Agreement.
Notices. All notices, requests, consents, and other communications under
this Agreement shall be in writing and shall be delivered personally or by
facsimile transmission or by overnight delivery service or mailed by first class
certified or registered U.S. mail, return receipt requested, postage prepaid:
If to the Company, at DTM Corporation, 1611 Headway Circle, Building
2, Austin, Texas 78754, Attention: John S. Murchison, III, President and Chief
Executive Officer (fax (512) 339-0634), or at such other address or addresses as
may have been furnished in writing by the Company to DTMAC, with a copy to
Brobeck, Phleger & Harrison LLP, 301 Congress Avenue, Suite 1200, Austin, Texas
78701, Attention: J. Matthew Lyons, Esq. (fax (512) 477-5813); and
If to DTMAC, at DTM Acquisition Company, L.P., 221 West 6th Street,
Suite 1520, Austin, Texas 78701, Attention: Anthony Mariotti (fax (512) 320-
8940), or at such other address or addresses as may have been furnished to the
Company in writing by DTMAC, with a copy to Locke Liddell & Sapp LLP, 100
Congress, Suite 300, Austin, Texas 78701, Attention: Curtis R. Ashmos, Esq.
(fax (512) 305-4800).
Notices provided in accordance with this Subsection 6.6 shall be
deemed delivered upon personal delivery or three business days after deposit in
the mail.
Finder's Fee. Each party represents that it neither is nor will be
obligated for any finder's fee or commission in connection with this
transaction. DTMAC agrees to indemnify and to hold harmless the Company from any
liability for any commission or compensation in the nature of a finder's fee
(and the costs and expenses of defending against such liability or asserted
liability) for which DTMAC or any of its officers, partners, employees, or
representatives is responsible. The Company agrees to indemnify and hold
harmless DTMAC from any liability for any commission or compensation in the
nature of a finder's fee (and the costs and expenses of defending against such
liability or asserted liability) for which the Company or any of its officers,
employees or representatives is responsible.
Expenses. Each of the Company and DTMAC shall bear their own expenses
incurred with respect to this Agreement and the transactions contemplated
hereby.
Amendments and Waivers. Any term of this Agreement may be amended and the
observance of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or
5
<PAGE>
prospectively), only with the written consent of the Company and DTMAC. Any
amendment or waiver effected in accordance with this paragraph shall be binding
upon each holder of any securities purchased under this Agreement at the time
outstanding (including securities into which such securities are convertible),
each future holder of all such securities, and the Company.
Severability. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
Entire Agreement. This Agreement and the documents referred to herein
constitute the entire agreement among the parties and no party shall be liable
or bound to any other party in any manner by any warranties, representations, or
covenants except as specifically set forth herein or therein.
[Remainder of page intentionally left blank.]
6
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Debt Repayment
Agreement as of the date first above written.
DTM CORPORATION
By: s/s JOHN S. MURCHISON, III
---------------------------
John S. Murchison, III
President and Chief
Executive Officer
DTM ACQUISITION COMPANY, L.P.
BY: PROACTIVE-DTM, L.P.
BY: PROACTIVE FINANCE GROUP, LLC
By: s/s ANTHONY MARIOTTI
---------------------------
Anthony Mariotti
Managing Member
7
<PAGE>
Exhibit 10.22
THE DTM CORPORATION
1999 MANAGEMENT INCENTIVE PLAN
PURPOSE
- -------
The DTM Management Incentive Plan (the Plan) has been established to provide
opportunities to certain key management personnel to receive incentive
compensation as a reward for high levels of performance above the ordinary
performance standards compensated by base salary. The Plan is designed to
provide a competitive level of rewards when all relevant performance objectives
are achieved.
ELIGIBILITY
- -----------
Participation in the Plan will be limited to those key executives and employees
that have the potential to influence significantly and positively the
performance of the Company. Participants will be selected by the Compensation
Committee annually. Inclusion of a key manager as a participant does not,
however, assure that an incentive award will be paid to the participant for the
year since actual awards are determined at the sole discretion the Compensation
Committee.
To be eligible for participation in a particular year, a key manager must have
assumed the duties of an incentive-eligible position and have been selected for
participation in the Plan by the date, which is at least one month prior to the
beginning of the Plan Year. Incentive awards for participants who become
eligible for the Plan, other than at the beginning of the Plan Year, will be
paid pro rata based on a fraction, the numerator of which is the number of full
and partial months of the Plan Year during which the person was a Participant in
the Plan, and the denominator of which is the total number of months in the Plan
Year.
PARTICIPANT CATEGORIES
- ----------------------
Each participant will be assigned each year to an incentive category based on
organizational level and potential impact on important company results. The
participant categories define the target level of incentive opportunity, stated
as a percentage of base salary that will be available to the participant.
Category assignments are approved annually by the Compensation Committee.
PARTICIPANT INCENTIVE CATEGORIES
- --------------------------------
The participant incentive categories and the respective target bonus percentage
for each such category so established shall be determined by the Compensation
Committee.
PARTICIPANT TARGET BONUS
- ------------------------
The target bonus is the dollar amount of target level incentive opportunity for
each participant. It is the product of the participant's annual base salary and
the target bonus percentage determined by his or her incentive category
designation.
PERFORMANCE MEASURES
- --------------------
Performance measures are to be determined annually by the Compensation Committee
and may include Revenue, Net Income, Pretax Income, Consolidated Operating
Income, Operating Income Return on Net Capital Employed, Cash Flow, Working
Capital, Return on Equity, Return on Assets, and Earnings per Share of Common
Stock of the Company for the Plan Year.
PARTIAL PLAN YEAR PARTICIPATION
- -------------------------------
Subject to Compensation Committee approval, incentive awards to participants who
terminate during the plan Year for reasons of death, disability, or normal or
early retirement will be calculated as specified
1
<PAGE>
herein and will be paid pro rata based on a fraction, the numerator of which is
the number of full and partial months of the Plan Year during which the
participant was employed by the Company, and the denominator of which is the
total number of months in the Plan Year. These payments will be made at the time
that award payments are made to all other participants.
Subject to the sole discretion of the Compensation Committee, participants who
terminate during the Plan Year for reasons other than death, disability, or
normal or early retirement may receive incentive award payments for such Plan
Year on a pro rata basis as described above
PERFORMANCE GOALS
- -----------------
The Compensation committee will designate for each Plan Year:
. The performance measures to be used for the Plan Year;
. A schedule for each performance measure relating achievement levels
for the performance measure to incentive award levels as a percentage
of participants' target awards, and
. The relative weightings of the performance measures for the Plan year.
INCENTIVE POOLS
- ---------------
The total target incentive pool for DTM is equal to the sum of the individual
target bonuses for all DTM participants. The total target incentive pool is
divided into generator pools - - one generator pool for each performance
measure. The weightings for each performance measure determine the target
dollar amount for each generator pool. The Compensation Committee may establish
additional conditions and limitations on the computation of the target incentive
pool or any generator pool.
POOL GENERATION
- ---------------
Each generator pool will be funded according to performance against goals based
on criteria established by the Compensation Committee. The sum of the dollar
amounts from each generator pool provides the total dollar amount from which
participant bonus payments will be made.
DETERMINATION OF PARTICIPANT BONUS AWARDS
- -----------------------------------------
The participant bonuses earned based on each generator pool will be summed to
arrive at the participant's total bonus payment for the Plan year. A
participant's total bonus payment may be further adjusted either up or down by
the Compensation Committee, in its sole discretion.
PROVISIONS
- ----------
The Management Incentive Plan is a discretionary compensation plan. While
performance is an important element in determining incentive under the Plan,
actual payments, if any, are made at the sole discretion of the Compensation
committee. No awards under the Plan are to be considered earned until received.
PLAN YEAR
- ---------
The Plan Year shall be the fiscal year of the Company.
PLAN ADMINISTRATION
- -------------------
The Plan will be administered by the Committee. The Committee is empowered to
set pre-established performance targets, measure the results and determine the
amounts payable.
2
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<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS OF THIS QUARTERLY 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-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 489
<SECURITIES> 0
<RECEIVABLES> 6,539
<ALLOWANCES> 412
<INVENTORY> 2,757
<CURRENT-ASSETS> 9,762
<PP&E> 8,320
<DEPRECIATION> 7,364
<TOTAL-ASSETS> 12,063
<CURRENT-LIABILITIES> 6,028
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 54,022
<TOTAL-LIABILITY-AND-EQUITY> 12,063
<SALES> 6,657
<TOTAL-REVENUES> 7,599
<CGS> 2,967
<TOTAL-COSTS> 3,547
<OTHER-EXPENSES> 3,701
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21
<INCOME-PRETAX> 409
<INCOME-TAX> 114
<INCOME-CONTINUING> 295
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 295
<EPS-BASIC> 0.04
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</TABLE>
