<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 27, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 0-22250
3D SYSTEMS CORPORATION
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 95-4431352
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) (Identification No.)
26081 AVENUE HALL, VALENCIA, CALIFORNIA 91355
(Address of Principal Executive Offices) (Zip Code)
(805) 295-5600
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such report(s), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
------- -------
Shares of Common Stock, par value $0.001, outstanding as of October 31, 1996:
11,342,826 shares
Page 1 0f 17
<PAGE>
3D SYSTEMS CORPORATION
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION Number
------
ITEM 1. Financial Statements
Consolidated Balance Sheets,
December 31, 1995 and September 27, 1996 . . . . . . . . . . 3
Consolidated Statements of Operations
For the Three and Nine Month Periods Ended
September 29, 1995 and September 27, 1996 . . . . . . . . . 4
Consolidated Statements of Cash Flows
for the Nine Month Periods Ended
September 29, 1995 and September 27, 1996 . . . . . . . . . 5
Notes to Consolidated Financial Statements,
December 31, 1995 and September 27, 1996 . . . . . . . . . . 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . 8
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . 16
Page 2 of 17
<PAGE>
3D SYSTEMS CORPORATION
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(Unaudited)
ASSETS December 31, 1995 September 27, 1996
----------------- ------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $38,258,927 $29,745,559
Restricted cash 766,000 722,000
Accounts receivable, less allowances for
doubtful accounts of $368,399 at December 31, 1995 and
$399,376 at September 27, 1996 14,439,863 18,006,985
Current portion of lease receivables 0 374,650
Inventories (Note 2) 6,627,317 11,763,861
Deferred tax assets 5,301,118 3,710,912
Prepaid expenses and other current assets 1,608,203 1,826,780
----------- -----------
Total current assets 67,001,428 66,150,747
Property and equipment, net (Note 3) 8,940,571 14,875,633
Licenses and patent costs, net 3,520,500 3,567,645
Deferred tax assets 1,029,000 1,029,000
Lease receivables, less current portion 0 1,352,938
Other assets 1,059,507 1,527,948
----------- -----------
$81,551,006 $88,503,911
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,305,349 $ 2,945,455
Accrued liabilities 6,672,261 6,841,064
Current portion of long-term debt (Note 5) 0 245,000
Customer deposits 1,233,305 1,239,964
Deferred revenues 3,768,121 4,660,526
----------- -----------
Total current liabilities 16,979,036 15,932,009
Other liabilities 1,621,515 1,554,593
Long-term debt, less current portion (Note 5) 0 4,655,000
----------- -----------
18,600,551 22,141,602
----------- -----------
Stockholders' equity:
Preferred stock, $.001 par value. Authorized 5,000,000
shares; none issued
Common stock, $.001 par value. Authorized 25,000,000
shares; issued and outstanding 11,279,232 at
December 31, 1995 and 11,342,826 at September 27, 1996 11,279 11,343
Capital in excess of par value 71,850,602 72,415,049
Accumulated deficit (8,907,788) (5,970,073)
Cumulative translation adjustment (3,638) (94,010)
----------- -----------
Total stockholders' equity 62,950,455 66,362,309
----------- -----------
$81,551,006 $88,503,911
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
Page 3 of 17
<PAGE>
3D SYSTEMS CORPORATION
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Month Periods Ended Nine Month Periods Ended
------------------------------------------- -----------------------------------------
September 29, 1995 September 27, 1996 September 29, 1995 September 27, 1996
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Sales:
Products $11,116,905 $12,594,576 $29,937,340 $38,194,461
Services 4,497,941 7,195,039 13,953,190 19,317,066
------------------ ------------------ ------------------ ------------------
Total sales 15,614,846 19,789,615 43,890,530 57,511,527
------------------ ------------------ ------------------ ------------------
Cost of sales:
Products 5,053,438 5,888,696 13,214,645 17,472,167
Services 2,921,374 4,403,358 8,689,420 12,071,149
------------------ ------------------ ------------------ ------------------
Total cost of sales 7,974,812 10,292,054 21,904,065 29,543,316
------------------ ------------------ ------------------ ------------------
Gross profit 7,640,034 9,497,561 21,986,465 27,968,211
------------------ ------------------ ------------------ ------------------
Operating expenses:
Selling, general and administrative 4,780,687 6,077,601 13,497,977 18,505,355
Research and development 1,404,439 2,220,936 4,257,864 5,872,443
------------------ ------------------ ------------------ ------------------
Total operating expenses 6,185,126 8,298,537 17,755,841 24,377,798
------------------ ------------------ ------------------ ------------------
Income from operations 1,454,908 1,199,024 4,230,624 3,590,413
Interest income 541,392 361,794 724,490 1,194,088
Interest expense (7,989) (34,753) (35,275) (46,251)
------------------ ------------------ ------------------ ------------------
Income before provision for
income taxes 1,988,311 1,526,065 4,919,839 4,738,250
Provision for income taxes (benefit) (2,877,394) 510,661 (2,687,394) 1,800,535
------------------ ------------------ ------------------ ------------------
Net income $ 4,865,705 $ 1,015,404 $ 7,607,233 $ 2,937,715
------------------ ------------------ ------------------ ------------------
------------------ ------------------ ------------------ ------------------
Net income per share $ .41 $ .09 $ .73 $ .25
------------------ ------------------ ------------------ ------------------
------------------ ------------------ ------------------ ------------------
Weighted average number of shares
outstanding during the period 11,728,940 11,696,778 10,351,183 11,762,742
------------------ ------------------ ------------------ ------------------
------------------ ------------------ ------------------ ------------------
</TABLE>
See accompanying notes to consolidated financial statements.
Page 4 of 17
<PAGE>
3D SYSTEMS CORPORATION
Consolidated Statements of Cash flows
For the Nine Month Periods Ended September 29, 1995 and September 27, 1996
(Unaudited)
1995 1996
----------- -----------
Cash flows from operating activities:
Net income $ 7,607,233 $ 2,937,715
Adjustments to reconcile net income
to net cash provided by (used for)
operating activities:
Deferred income taxes (3,160,000) 1,590,000
Depreciation of property and equipment 1,175,193 1,725,277
Amortization of licenses and patent costs 368,818 428,101
Amortization of software development costs 319,955 366,752
Changes in operating assets and liabilities:
Accounts receivable (5,326,206) (3,721,706)
Lease receivables 0 (1,727,588)
Inventories (1,756,497) (5,154,647)
Prepaid expenses and other current assets (21,011) (254,286)
Other assets (404,385) (863,989)
Accounts payable 534,307 (2,141,105)
Accrued liabilities 1,283,343 224,353
Customer deposits 694,661 6,251
Deferred revenues 924,797 907,513
Other liabilities (84,397) (47,565)
----------- -----------
Net cash provided by (used for)
operating activities 2,155,811 (5,724,924)
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (2,059,156) (8,882,502)
Disposition of property and equipment 115,701 1,198,316
Increase in licenses and patent costs (278,295) (476,907)
----------- -----------
Net cash used for investing activities (2,221,750) (8,161,093)
----------- -----------
Cash flows from financing activities:
Net proceeds from stock offering 31,476,933 0
Exercise of stock options and warrants 250,136 371,486
Proceeds from long-term debt 0 4,900,000
----------- -----------
Net cash provided by financing activities 31,727,069 5,271,486
Effect of exchange rate changes on cash (341,383) 101,163
----------- -----------
Net increase (decrease) in cash and
cash equivalents 31,319,747 (8,513,368)
Cash and cash equivalents at the
beginning of the period 6,423,523 38,258,927
----------- -----------
Cash and cash equivalents at the
end of the period $37,743,270 $29,745,559
----------- -----------
----------- -----------
Supplemental disclosures of cash
flow information:
Cash paid during the period for:
Interest $ 25,274 $ 37,052
----------- -----------
----------- -----------
Income taxes $ 303,014 $ 1,544,273
----------- -----------
----------- -----------
See accompanying notes to consolidated financial statement.
Page 5 of 17
<PAGE>
3D SYSTEMS CORPORATION
Notes to Consolidated Financial Statements
December 31, 1995 and September 27, 1996
(Unaudited)
(1) Basis of Presentation.
The accompanying unaudited consolidated financial statements of 3D Systems
Corporation and subsidiaries (the "Company") are prepared in accordance with
instructions to Form 10-Q and, in the opinion of management include all
material adjustments (consisting only of normal recurring accruals) which
are necessary for the fair presentation of results for the interim periods.
The Company reports its interim financial information on a 13 week basis
ending the last Friday of each quarter, and reports its annual financial
information through the calendar year ended December 31. These unaudited
consolidated financial statements should be read in conjunction with the
consolidated financial statements and the notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1995.
The results of the nine month period ended September 27, 1996 are not
necessarily indicative of the results to be expected for the full year.
Certain reclassifications have been made to the prior year consolidated
financial statements to conform to the current year presentation.
(2) Inventories.
December 31, 1995 September 27, 1996
----------------- ------------------
Raw materials $ 2,100,269 $ 6,067,342
Work in progress 2,022,565 1,795,765
Finished goods 2,504,483 3,900,754
----------------- ------------------
$ 6,627,317 $11,763,861
----------------- ------------------
----------------- ------------------
(3) Property and Equipment.
December 31, 1995 September 27, 1996
----------------- ------------------
Land $ 435,600 $ 435,600
Building --- 4,362,141
Machinery and equipment 8,829,827 12,468,768
Office furniture and equipment 1,861,702 2,040,894
Leasehold improvements 1,617,215 1,797,572
Rental equipment 622,483 727,329
Construction in progress 2,133,289 378,361
----------------- ------------------
15,500,116 22,210,665
Less accumulated depreciation
and amortization (6,559,545) (7,335,032)
----------------- ------------------
$ 8,940,571 $14,875,633
----------------- ------------------
----------------- ------------------
Page 6 of 17
<PAGE>
3D SYSTEMS CORPORATION
Notes to Consolidated Financial Statements
December 31, 1995 and September 27, 1996
(Continued)
(4) Acquisition.
On September 9, 1996, 3D Systems, Inc., an indirect wholly-owned subsidiary
of the Company, purchased substantially all of the assets and business
operations of Keltool, Inc. ("Keltool"), of St. Paul, Minnesota, a Company
which produces steel tooling for plastic injection molding machines based
on a patented process using sintered powdered steel. Acquired in-process
technology valued at $430,000 was expensed immediately. The purchase price
paid by the Company included $1,740,000 payable in cash (of which $875,000
was paid on September 9, 1996 and $865,000 paid on October 10, 1996), the
assumption of certain liabilities ($13,000) and the value of warrants to
purchase 50,000 shares at an exercise price of $14.75 per share ($193,000).
The warrants were issued at fair market value and expire on September 9,
1999.
The allocation of the purchase consideration for Keltool are as follows:
Trade receivables $ 72,000
Inventory 46,000
Equipment 505,000
In process research and development projects 430,000
Intangible assets 893,000
----------
$1,946,000
----------
----------
The results of operations relating to Keltool from September 9, 1996
through September 27, 1996 are included with those of the Company and were
not significant.
(5) Long-Term Debt.
On August 20, 1996, the Company completed a $4.9 million variable rate
industrial development bond financing of its Colorado facility. Interest
on the bonds are payable monthly (the interest rate at September 27, 1996
was 3.76%). Principal payments are payable in equal semi-annual
installments of $122,500 beginning in February 1997 through August 2016.
The bonds are collateralized by an irrevocable standby letter of credit
issued by Norwest Bank Minnesota, N.A. which is further collateralized by
the building and related machinery and equipment as well as a standby
letter of credit issued by Silicon Valley Bank in the amount of
approximately $1.3 million. The terms of the letters of credit require the
Company to maintain specific levels of minimum tangible net worth, debt to
equity ratios and quick ratio. Annual maturities of long-term debt are as
follows:
1997 $ 250,000
1998 250,000
1999 250,000
2000 250,000
2001 250,000
thereafter 3,650,000
---------
Total $4,900,000
---------
---------
Page 7 of 17
<PAGE>
3D SYSTEMS CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion contains trend analysis and other forward
looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended and Section 21A of the Securities Act of
1933, as amended. Actual results could differ from those projected in the
forward looking statements as a result of the cautionary statements and risk
factors set forth below and in Item 1 of the Company's Annual Report on Form
10-K for the year ended December 31, 1995.
RESULTS OF OPERATIONS
The Company's revenues are generated by product and services sales.
Product sales are comprised of the sale of Stereolithography Apparatus ("SLA")
systems and related equipment, resins, software, and other component parts,
as well as rentals of SLA systems. Service sales include revenues from
maintenance, services provided by the Company's Technology Centers, and
customer training.
The following table sets forth certain operating amounts and ratios as a
percentage of total sales except as otherwise indicated:
<TABLE>
<CAPTION>
Three Month Periods Ended Nine Month Periods Ended
-------------------------------------- --------------------------------------
September 29, 1995 September 27, 1996 September 29, 1995 September 27, 1996
------------------ ------------------ ------------------ ------------------
(in thousands except percent data)
<S> <C> <C> <C> <C>
Sales:
Products $ 11,117 $ 12,595 $ 29,938 $ 38,195
Services 4,498 7,195 13,953 19,317
------------------ ------------------ ------------------ ------------------
Total sales 15,615 19,790 43,891 57,512
------------------ ------------------ ------------------ ------------------
Cost of sales:
Products 5,054 5,889 13,215 17,473
Services 2,921 4,403 8,689 12,071
------------------ ------------------ ------------------ ------------------
Total cost of sales 7,975 10,292 21,904 29,544
------------------ ------------------ ------------------ ------------------
Total gross profit 7,640 9,498 21,987 27,968
% of total sales 48.9% 48.0% 50.1% 48.6%
Gross profit - products 6,063 6,706 16,723 20,722
% of total product sales 54.5% 53.2% 55.9% 54.3%
Gross profit - services 1,577 2,792 5,264 7,246
% of total service sales 35.1% 38.8% 37.7% 37.5%
Selling, general and
administrative expenses 4,781 6,078 13,498 18,505
% of total sales 30.6% 30.7% 30.8% 32.2%
Research and development expenses 1,404 2,221 4,258 5,872
% of total sales 9.0% 11.2% 9.7% 10.2%
------------------ ------------------ ------------------ ------------------
Income from operations 1,455 1,199 4,231 3,590
% of total sales 9.3% 6.1% 9.6% 6.2%
Interest income, net 534 327 689 1,148
% of total sales 3.4% 1.6% 1.6% 2.0%
Provision for income taxes (benefit) (2,877) 511 (2,687) 1,801
% of total sales 18.5% (2.6%) 6.1% (3.1%)
------------------ ------------------ ------------------ ------------------
Net income 4,866 1,015 7,607 2,938
% of total sales 31.2% 5.1% 17.3% 5.1%
------------------ ------------------ ------------------ ------------------
------------------ ------------------ ------------------ ------------------
</TABLE>
Page 8 of 17
<PAGE>
3D SYSTEMS CORPORATION
Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
The following table sets forth for the periods indicated total revenues
attributable to each of the Company's major products and services groups, and
those revenues as a percentage of total sales:
<TABLE>
<CAPTION>
Three Month Periods Ended Nine Month Periods Ended
-------------------------------------- --------------------------------------
September 29, 1995 September 27, 1996 September 29, 1995 September 27, 1996
------------------ ------------------ ------------------ ------------------
Products: (in thousands)
<S> <C> <C> <C> <C>
SLA systems and related
equipment $ 7,794 $ 9,355 $20,840 $27,275
Resins 2,031 2,503 5,597 7,581
Software, other components
parts and rentals 1,292 737 3,501 3,339
------------------ ------------------ ------------------ ------------------
Total products 11,117 12,595 29,938 38,195
------------------ ------------------ ------------------ ------------------
Services:
Maintenance 3,258 5,808 10,513 15,482
Technology Centers 1,060 1,107 3,089 3,167
Training 180 280 351 668
------------------ ------------------ ------------------ ------------------
Total services 4,498 7,195 13,953 19,317
------------------ ------------------ ------------------ ------------------
Total sales $15,615 $19,790 $43,891 $57,512
------------------ ------------------ ------------------ ------------------
------------------ ------------------ ------------------ ------------------
Products:
SLA systems and related
equipment 49.9% 47.3% 47.5% 47.4%
Resins 13.0 12.6 12.8 13.2
Software, other components
parts and rentals 8.3 3.7 7.9 5.8
------------------ ------------------ ------------------ ------------------
Total products 71.2 63.6 68.2 66.4
------------------ ------------------ ------------------ ------------------
Services:
Maintenance 20.9 29.4 24.0 26.9
Technology 6.8 5.6 7.0 5.5
Training 1.1 1.4 .8 1.2
------------------ ------------------ ------------------ ------------------
Total services 28.8 36.4 31.8 33.6
------------------ ------------------ ------------------ ------------------
Total sales 100.0% 100.0% 100.0% 100.0%
------------------ ------------------ ------------------ ------------------
------------------ ------------------ ------------------ ------------------
</TABLE>
Page 9 of 17
<PAGE>
3D SYSTEMS CORPORATION
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
THREE MONTH PERIOD ENDED SEPTEMBER 27, 1996 COMPARED TO THE THREE MONTH
PERIOD ENDED SEPTEMBER 29, 1995.
SALES. Sales during the three month period ended September 27, 1996 (the
"third quarter of 1996") were $19.8 million, an increase of 27% over the
$15.6 million recorded during the three month period ended September 29, 1995
(the "third quarter of 1995").
Product sales during the third quarter of 1996 increased $1.5 million or 13%
to $12.6 million compared to $11.1 million during the third quarter of 1995.
The increase was primarily the result of increased shipments of SLAs in
Europe, which management believes is the result of increased sales and
marketing efforts in Europe. The Company sold a total of 34 SLA systems in
the third quarter of 1996, comprised of 1 SLA-190, 9 SLA-250's, 15
SLA-350's (the Company's newest SLA system which features the new Zephyr-TM-
recoater, a solid state laser and an automatic resin re-filling system) and 9
SLA-500's (the Company's largest and highest priced system). During the third
quarter of 1995, the Company sold 32 SLAs, comprised of 2 SLA-190's, 14
SLA-250's and 16 SLA-500's. Orders for the Company's SLA systems
significantly declined (in both the U.S. and Europe) in the third quarter of
1996 compared to the third quarter of 1995, and SLA systems backlog at the
end of the third quarter of 1996 was lower than the end of the third quarter
of 1995.
The Company believes that the decline in the U.S. orders in the third quarter
of 1996 (when compared to the third quarter of 1995) was due primarily to the
performance, and termination , of a number of the Company's independent
domestic sales representatives ("agents"), and, to a lesser extent, to
competitive pressures. The Company's domestic marketing strategy has focused
on a strong internal sales organization, as well as the utilization of agents
(primarily, independent sales representatives in the machine tools industry).
Because of a reduction in the performance of these agents, in August 1996,
the Company determined to significantly reduce its use of these agents, and
terminated its arrangements with all of them. Concurrently, the Company began
actively to recruit additional personnel to bolster its internal sales and
support organization. The Company currently plans to complete its recruiting
efforts during the fourth quarter of 1996, and has offered its agents the
opportunity to enter into new arrangements with the Company, at lower
commission rates than under their prior agreements with the Company. Because
of the long cycle for SLA systems sales, the Company does not anticipate that
the additions to its internal sales organization will significantly increase
domestic sales in the fourth quarter of 1996. While historically there has
not always been a good correlation between orders and ending backlog in one
quarter and revenues in the following quarter, the decline in U.S. orders in
the third quarter of 1996, coupled with potential inefficiencies caused by
the recent changes in the Company's domestic sales organization, could
negatively impact domestic revenues in the fourth quarter of 1996. The
Company anticipates that European orders should increase in the fourth
quarter of 1996 as compared to the third quarter of 1996.
The Company believes that SLA system sales may also fluctuate on a quarterly
basis as a result of a number of other factors, including the status of world
economic conditions, fluctuations in foreign currency exchange rates and the
timing of product shipments (the U.S. list price of an SLA-500, for example,
exceeds $400,000; thus the acceleration or delay of a small number of
shipments from one quarter to another can significantly affect the results of
operations for the quarters involved). Other factors which may impact
quarterly sales include the introduction in 1996 of one new product, the
SLA-350 Series 10, a new, advanced SLA system and the announcement of
another, the low-priced Actua 2100 office modeler (which uses a technology
completely different from stereolithography), designed for operation in
engineering and design offices. During May, the Company began commercial
shipments of the SLA-350. The Company is presently continuing its
development efforts in connection with the Actua 2100 and shipments of the
Actua will be delayed until certain technical issues have been resolved.
While shipments are currently scheduled to commence prior to the end to the
current fiscal year, the possibility exists that first shipments may be
further delayed. The possibility exists that the announcement and
introduction of these new products may have caused, and may cause in the
future, potential customers of the Company who were considering the purchase
of one of the Company's current models to defer their purchase decision until
further information is available as to the performance and reliability of the
new
Page 10 of 17
<PAGE>
3D SYSTEMS CORPORATION
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
products. Further delays in shipments of new products may also occur as a
result of unexpected problems encountered in actual use. In addition, the
Company relocated its manufacturing operations from Valencia, California to
Grand Junction, Colorado during the third quarter of 1996. If the Company
experiences problems in connection with this relocation (including
difficulties in the timely hiring and training of new employees), shipment of
certain of the Company's products may be delayed.
Service sales during the third quarter of 1996 increased $2.7 million, or
60%, compared to the third quarter of 1995, primarily as a result of
increased maintenance revenues due to the larger installed base of SLA
systems in the U.S. and Europe as well as from greater sales (approximately
$625,000) of SLA upgrades (primarily Zephyr upgrades) to existing SLA
customers. The Company anticipates that sales of Zephyr upgrades in future
quarters should be lower than the amount recorded in the third quarter of
1996.
COST OF SALES. Cost of sales increased to $10.3 million or 52% of sales in
the third quarter of 1996 from $8.0 million or 51% of sales in the third
quarter of 1995.
Product cost of sales as a percentage of product sales increased to 47%
during the third quarter of 1996 compared to 45% during the third quarter of
1995. The increase in 1996 was primarily the result of the stronger dollar
in the third quarter of 1996, as compared to the third quarter of 1995;
greater discounting of European SLA system sales in 1996 due to competition;
and increased manufacturing expenses as a result of certain inefficiences
caused by the transition of the Company's manufacturing activities from
Valencia, California to its new manufacturing facility in Grand Junction,
Colorado. These factors were partially offset by lower commission payments to
domestic agents as a result of fewer domestic sales of SLAs during the third
quarter of 1996, as compared to the third quarter of 1995, and by the
termination of the agent relationships described above. The Company's gross
profit margins on product sales are affected by several factors including,
among others, sales mix, distribution channels and fluctuations in foreign
currency exchange rates and, therefore, may vary in future periods from those
experienced during the third quarter of 1996. Additionally, the Company
anticipates that the gross margins related to the Actua 2100 system (which
are not currently expected to constitute a material portion of the Company's
sales in the current fiscal year) will be lower than margins on its SLA
systems, and, if revenues from the sales of Actua 2100 represent a material
portion of the Company's product sales, gross margins from product sales
would be reduced. The Company also anticipates that gross margins related to
the Actua 2100 will be lower during the initial phases of production as a
result of certain inefficiencies and anticipates, in the event of increased
production, that Actua 2100 gross margins could increase as a result of lower
per unit material costs (due to greater purchasing economies) and increased
manufacturing efficiencies.
Service cost of sales as a percentage of service sales decreased to 61%
during the third quarter of 1996 compared to 65% during the third quarter of
1995, primarily as a result of the more profitable Zephyr upgrades delivered
in 1996 compared to those upgrades offered in the third quarter of 1995. The
improved margins from field service operations were partially offset,
however, by lower margins from the Company's U.S. Technology Center due to
the Technology Center's testing of both new hardware and software products as
well as the increased use of outside vendors for certain rapid prototyping
applications in 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("S,G&A") expenses increased $1.3 million or 27 % in the
third quarter of 1996 compared to the third quarter of 1995, primarily as a
result of expanded sales and marketing programs in both Europe and the U.S.
The Company currently anticipates that S,G&A expenses for the fourth quarter
of 1996 will be slightly higher than the third quarter of 1996 due primarily
to the expansion of the Company's U.S. direct sales distribution channel.
The Company currently anticipates that if its revenues continue to grow,
S,G&A expenses as a percentage of total sales in future quarters should begin
to decline, primarily as a result of economies of scale. However, these are
forward looking statements and as with other such statements are subject to
uncertainties. For example, if sales do not continue to grow over the
period, it is less likely that S,G&A expenses as a percentage of total sales
would decline.
Page 11 of 17
<PAGE>
3D SYSTEMS CORPORATION
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
RESEARCH AND DEVELOPMENT EXPENSES. Research and development ("R&D") expenses
during the third quarter of 1996 increased approximately $816,000 or 58%
compared to the third quarter of 1995. The increase in R&D expenses in 1996
was primarily the result of the write-off during the third quarter of 1996 of
acquired in-process technology valued at $430,000 in connection with the
Keltool acquistion (see Note 4 of Notes to Consolidated Financial Statements)
as well as the Company's efforts towards the development of the Actua
2100 and certain other development projects. Based on the Company's
historical expenditures related to research and development and its current
development goals, the Company anticipates for the foreseeable future,
research and development expenses will be equal to approximately ten percent
of sales. However, this is a forward-looking statements and, as with any
such statement , is subject to uncertainties. For example, if total sales of
the Company for any particular period do not meet the anticipated sales of
the Company for that period, research and development expenses as a
percentage of sales may exceed 10%.
OPERATING INCOME. Operating income for the third quarter of 1996 was 6.1% of
total sales compared to 9.3% of total sales in the third quarter of 1995.
The decrease in the percentage of operating income to total sales in 1996 was
primarily attributable to the increases in product cost of sales and R&D
expenses in 1996, as described above.
OTHER INCOME AND EXPENSES. Interest income decreased to $361,794 during the
third quarter of 1996 from $541,392 during the third quarter of 1995,
primarily as a result of the lower investment balances due to cash used for
operating activities in 1996.
Interest expense increased to $34,753 during the third quarter of 1996 from
$7,989 in the third quarter of 1995 primarily as a result of the Company's
financing of its Colorado facilty which was effected August 20, 1996 (see
Note 5 of Notes to Consolidated Financial Statements).
PROVISION FOR INCOME TAXES (BENEFITS). For the third quarter of 1996, the
Company's tax expense was $510,661 or 33% of pre-tax income, compared to a
tax benefit of $2.9 million for the third quarter of 1995, which included a
deferred tax benefit resulting from the recognition of deferred tax assets of
$3.0 million (related primarily to net operating loss carryforwards
attributable to the Company's domestic operations).
Page 12 of 17
<PAGE>
3D SYSTEMS CORPORATION
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
NINE MONTH PERIOD ENDED SEPTEMBER 27, 1996 COMPARED TO THE NINE MONTH PERIOD
ENDED SEPTEMBER 29, 1995.
SALES. Sales during the nine month period ended September 27, 1996 (the
"first nine months of 1996") were $57.5 million, an increase of 31%
over the $43.9 million recorded during the nine month period ended September
29, 1995 (the "first nine months of 1995").
Product sales during the first nine months of 1996 increased $8.3 million to
$38.2 million, compared to $29.9 million during the first nine months of
1995, an increase of 28%. The increase was primarily the result of
increased shipments of SLA systems in both the U.S. and Europe, which
management believes is the result of increased acceptance by industry of
rapid prototyping equipment and technology as well as increased sales and
marketing efforts in Europe. The Company sold a total of 107 SLA systems in
the first nine months of 1996 which were comprised of 5 SLA-190's, 38
SLA-250's, 25 SLA-350's and 39 SLA-500's. During the first nine months of
1995, the Company sold 84 SLAs which were comprised of 3 SLA-190's, 46
SLA-250's and 35 SLA-500's.
Service sales during the first nine months of 1996 increased $5.4 million or
38% compared to the first nine months of 1995, primarily as a result of
increased maintenance revenues due to the larger installed base of SLA
systems in the U.S. and Europe.
COST OF SALES. Cost of sales increased to $29.5 million or 51% of sales in
the first nine months of 1996 from $21.9 million or 50% in the first nine
months of 1995.
Product cost of sales as a percentage of product sales increased to 46%
during the first nine months of 1996 compared to 44% during the
first nine months of 1995. The increase in 1996 was primarily the result of
an increase in commission payments to independent sales agents in 1996, as
compared to the first nine months of 1995 (see discussion above), as well as
the stronger U.S. dollar in the first nine months of 1996, as compared to the
first nine months of 1995. This increase was partially offset, however, by
the increase in SLA system sales during the first nine months of 1996. Profit
margins on SLA systems and related software are typically greater than
margins achieved on other product sales (related hardware, parts and
polymers).
Service cost of sales as a percentage of service sales was 62% for both the
first nine months of 1996 and 1995. Although service margins were equal, the
Company did experience improved field service margins which was due to the
more profitable Zephyr upgrades delivered in 1996 compared to those upgrades
offered in 1995. The improved margins from field service operations were
completely offset, however, by lower margins from the Company's U.S.
Technology Center as a result of the Technology Center's testing of both new
hardware and software products and the increased use of outside vendors for
certain rapid prototyping applications in 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. S,G&A expenses for the first
nine months of 1996 were 32% of sales compared to 31% in the first nine
months of 1995. S,G&A expenses increased $5.0 million or 37% in 1996
compared to the first nine months of 1995, primarily as a result of expanded
sales and marketing programs in both the U.S. and Europe.
RESEARCH AND DEVELOPMENT EXPENSES. R&D expenses during the first nine months
of 1996 increased approximately $1.6 million or 38% compared to the first
nine months of 1995. The increase in R&D expenses in 1996 was primarily the
result of the Company's efforts towards the development of the Actua 2100,
the SLA-350 and certain other development projects as well as the write-off
during the third quarter of 1996 of acquired in-process technology valued at
$430,000 in connection with the Keltool acquisition.
OPERATING INCOME. Operating income for the first nine months of 1996 was
6.2% of total sales compared to 9.6% of total sales in the first nine months
of 1995. The decrease in the percentage of operating income to total sales in
1996 was
Page 13 of 17
<PAGE>
3D SYSTEMS CORPORATION
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
primarily attributable to the lower product gross margins in 1996, increased
S,G&A expenses in 1996 and increased R&D expenses in 1996, as described
above.
OTHER INCOME AND EXPENSES. Interest income increased to $1.2 million during
the first nine months of 1996 compared to $724,490 during the first nine
months of 1995, primarily as a result of the investment of funds from the
Company's stock offering which was completed in June 1995.
Interest expense increased to $46,251 during the first nine months of 1996
from $35,275 in the first nine months of 1995 primarily as a result of the
Company's financing of its Colorado facility which was effected August 20,
1996.
PROVISION FOR INCOME TAXES. For the first nine months of 1996, the Company's
tax rate was 38% of pre-tax income compared to a tax benefit of $2.7 million
for the first nine months of 1995. During the third quarter of 1995, the
Company realized a net income tax benefit of $2.9 million which included a
deferred tax benefit resulting from the recognition of deferred tax assets of
$3.0 million (related primarily to net operating loss carryforwards
attributable to the Company's domestic operations).
Page 14 of 17
<PAGE>
3D SYSTEMS CORPORATION
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
LIQUIDITY AND CAPITAL RESOURCES
December 31, 1995 September 27, 1996
----------------- ------------------
Cash and cash equivalents(1) $39,024,927 $30,467,559
Working capital(1) 50,022,392 50,218,738
Nine Month Periods Ended
--------------------------------------------
September 29, 1995 September 27, 1996
------------------ ------------------
Cash provided by (used for)
operating activities $ 2,155,811 $ (5,724,924)
Cash used for investing
activities (2,221,750) (8,161,093)
Cash provided by financing
activities 31,727,069 5,271,486
- -----------------------------
(1) Includes $766,000 and $722,000 of restricted cash at December 31, 1995
and September 27, 1996, respectively.
Net cash used for operating activities during the first nine months of 1996
was $5.7 million. The negative cash flow from operations during the first
nine months of 1996, comprised primarily of an increase in inventory ($5.1
million) as a result of a higher level of production and build-up of
inventory components to facilitate the move of manufacturing operations to
Colorado, an increase in accounts receivable ($3.6 million) as a result of
the increase in sales during the third quarter of 1996 and a decrease in
accounts payable ($2.4 million), was partially offset by net income ($2.9
million), non cash depreciation and amortization ($2.5 million), and a
decrease in deferred tax assets ($1.6 million).
Net cash used for investing activities during the first nine months of 1996
totaled $8.2 million and was primarily the result of construction
expenditures related to the Company's Grand Junction, Colorado facility ($3.9
million), SLA equipment manufactured for use as demonstration equipment ($1.1
million), and the purchase of computers and manufacturing equipment due to an
increase in personnel and increased production capacity.
Net cash provided by financing activities during the first nine months of
1996 was the result of the Company's financing of its Colorado facility
through the issuance of $4.9 million in tax-exempt industrial revenue
development bonds and by the exercise of stock options by employees.
In July 1996, the Company extended its credit facility with Silicon Valley
Bank ("SVB") (the "Credit Facility"). Under the terms of the agreement,
which remains in effect through July 5, 1997, the Company can borrow from SVB
up to $4,000,000, at prime. The Credit Facility, which is unsecured,
contains certain financial covenants including the maintenance of certain
financial ratios, working capital, tangible net worth as well as covenants
limiting mergers, acquisitions, recapitalizations, dividends, loans to
others, and hypothecation of assets or corporate guarantees. Since inception
of the Credit Facility (June 1993) and at all times through September 27,
1996, the Company has not utilized the facility.
The Company believes that funds generated from operations, existing working
capital and its current line of credit will be sufficient to satisfy its
anticipated operating requirements for at least the next twelve months.
Page 15 of 17
<PAGE>
3D SYSTEMS CORPORATION
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
PART II - OTHER INFORMATION
ITEM 2. Changes in Securities.
On September 9, 1996, the Company issued to Wayne O. Deuscher
warrants to purchase up to 50,000 shares of the Common Stock, par
value $0.001 per share, of the Company. The warrants are exercisable
at any time, and from time to time, prior to September 9, 1999 at a
cash exercise price of $14.75 per share, the fair market value at the
date of issuance. The warrants were issued in connection with the
acquisition by the Company of Keltool, Inc. (see Note 4 of Notes to
Consolidated Financial Statements). No underwriter was involved in the
transaction. The issuance of the warrants was exempt from the
registration and prospectus delivery requirements of the Securities
Act of 1933, as amended, pursuant to Section 4 (2) thereof, as a
transaction not involving any public offering.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Asset Purchase Agreement dated as of August 30, 1996 by and between
3D Systems, Inc., a California corporation, Keltool, Inc. a Minnesota
corporation and Wayne Duescher.
10.2 Warrant Agreement dated September 9, 1996 by and between 3D Systems,
Inc., a California corporation and Keltool, Inc., a Minnesota
corporation.
10.3 Non-Competition Agreement dated September 9, 1996 by and between 3D
Systems, Inc., a California corporation and Wayne O. Duescher.
11. Computation of per share earnings.
(b) Reports on Form 8-K
None
Page 16 of 17
<PAGE>
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.
/s/ Gordon L. Almquist 11/1/96
- ------------------------------------------ -----------
Gordon L. Almquist Date
Vice President, Finance and
Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
(Duly authorized to sign on behalf of Registrant)
Page 17 of 17
<PAGE>
EXHIBIT 10.1
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (this "Agreement") is made and entered into
as of the 30th day of August, 1996, by and among 3D SYSTEMS, INC., a California
corporation ("Buyer"), KELTOOL, INC., a Minnesota corporation ("Seller"), and
WAYNE DUESCHER, an individual ("Duescher"), on the following terms and
conditions:
1. DEFINITIONS.
(a) 3M PATENTS. "3M Patents" shall have the meaning set forth in
Paragraph 7(s)(ii).
(b) ADJUSTED BOOK VALUE. "Adjusted Book Value" shall mean the
aggregate book value of all Purchased Assets on the Asset list which would, in
accordance with generally accepted accounting principles ("GAAP"), be classified
as assets on financial statements of the Seller prepared on a basis and recorded
in a manner consistent with the June 30, 1996 balance sheet of Seller, decreased
by any amounts reflected on the June 30, 1996 balance sheet with respect to
goodwill, contracts, trade secrets, patents, trademarks or service marks and
other Intangible Property and assets.
(c) ASSET LIST. "Asset List" shall mean the list setting forth the
categories and book values of the Purchased Assets, in form and substance
reasonably satisfactory to Buyer, dated as of June 30, 1996.
(d) ASSUMED LIABILITIES. "Assumed Liabilities" shall mean only those
liabilities of Seller assumed by Buyer as identified on SCHEDULE 3(b) hereto.
(e) CLOSING. "Closing" shall mean the purchase and sale of the
Assets on the Closing Date.
(f) CLOSING ASSET LIST. "Closing Asset List" shall mean the revised
list setting forth the categories and book values of the Purchased Assets,
consistent in all respects in form and substance with the Asset List, adjusted
to reflect changes in the values of the items set forth on the Asset List
through the Closing, which shall include a deduction for a fixed monthly
depreciation for fixed assets (which shall be in the amount of $1,800 per month
for production equipment and $114 per month for office equipment) and
adjustments to reflect all inventory and/or equipment acquired or sold between
the date of the Asset List through the Closing.
<PAGE>
(g) CLOSING DEDUCTION LIST. "Closing Deduction List" shall mean the
revised list setting forth the categories and book values of the Deduction
Items, consistent in all respects in form and substance with the Deduction List,
adjusted to reflect changes in the values of the items set forth on the
Deduction List through the Closing.
(h) CLOSING DATE. "Closing Date" shall mean September 9, 1996.
(i) EMPLOYEES. "Employees" shall mean the current employees of
Seller.
(j) ERISA. "ERISA" shall mean the Employee Retirement Income
Security Act of 1974.
(k) EVALUATOR. "Evaluator" shall have the meaning set forth in
Section 4(d).
(l) EXCLUDED ASSETS. "Excluded Assets" shall have the meaning set
forth in Section 2.
(m) FINANCIAL STATEMENTS. "Financial Statements" shall mean and
include both the unaudited financial statements reflecting the results of
operations and financial positions of Seller at and for the fiscal year ended
December 31, 1995, and the unaudited financial statements and for the 6-month
period ended June 30, 1996, which financial statements shall include balance
sheets and statements of income and expenses.
(n) HAZARDOUS MATERIAL. "Hazardous Material" shall mean any
flammables, asbestos, explosives, radioactive materials, hazardous wastes, toxic
substances or related materials, including without limitation of any substances
defined as or included in the definition of "hazardous substances," "hazardous
wastes," "hazardous materials," "toxic substances" under any applicable federal,
state, or local laws, rules, regulations or orders or which federal, state or
local laws, rules, regulations or orders designate as potentially dangerous to
public health and/or safety when present in the environment.
(o) INTELLECTUAL PROPERTY. "Intellectual Property" shall mean any
and all information, trademarks (including the name "KELTOOL", but excluding the
name "KELTECH"), trade names, service marks, patents, patent rights, licenses
(United States or foreign), copyrights (including any registrations,
applications, licenses or rights relating to any of the foregoing), software,
programs, proprietary rights, proprietary processes, technology, trade secrets,
inventions, know-how, designs, computer programs, franchises, certificates of
public convenience and necessity, and all other intangible assets, properties
and rights.
(p) KELTOOL PROCESS. "Keltool Process" shall mean a tooling process
used to make durable composite metal parts, which process was originally
developed by 3M, and was licensed by 3M to Seller in 1991 pursuant to the
License Agreement.
2
<PAGE>
(q) LEASE. "Lease" shall have the meaning as set forth in Section
10(f).
(r) LICENSE AGREEMENT. "License Agreement" shall mean, collectively,
that certain License Agreement entered into by and between Seller and 3M dated
January 25, 1991, that certain Addendum of License Agreement dated February 18,
1992, and that certain Second Addendum of License Agreement dated February 18,
1992.
(s) NON-COMPETITION AGREEMENT. "Non-Competition Agreement" shall
have the meaning set forth in Section 10(f).
(t) OTHER AGREEMENTS. "Other Agreements" shall mean the
Non-Competition Agreement, the Warrant Agreement, and the Lease.
(u) PREMISES. "Premises" shall mean Seller's facility located at 561
Shoreview Park Road, St. Paul, MN 55126.
(v) PURCHASED ASSETS. "Purchased Assets" shall have the meaning set
forth in Section 2.
(w) SECOND PAYMENT. "Second Payment" shall mean that portion of the
Purchase Price described in Section 3(a)(ii), to be adjusted pursuant to the
provisions of Section 4.
(x) WARRANT AGREEMENT. "Warrant Agreement" shall have the meaning
set forth in Section 11(b).
2. PURCHASE AND SALE OF ASSETS. On the terms and subject to the
conditions set forth in this Agreement, Seller agrees to sell and deliver to
Buyer, and Buyer agrees to purchase and acquire from Seller, free and clear of
any and all liens, claims and encumbrances of any kind, other than those set
forth on SCHEDULE 7(c) to this Agreement, all of the business, assets,
properties, goodwill and rights of Seller as a going concern of every nature,
kind and description, tangible or intangible, wherever located and whether or
not carried or reflected on the books and records of Seller (the "Purchased
Assets"), including without limitation, as shall exist at the date hereof, the
following business assets: equipment; supplies; software (including the furnace
profiling program on disk (exclusive of the LOTUS software used to run such
program), and excluding any accounting software packages owned and operated by
Keltech, but including floppy disks which contain all databases of such
accounting software packages); fixtures; inventories; personal property and
other goods; accounts receivable; notes; drafts and other documents; leasehold
improvements; customer lists; internet addresses and domain names to the extent
existing; patents; permits; trademarks, trade names and service marks, including
the name "KELTOOL"; inventions, patents, patent applications, contract rights,
including rights to license patents, "know-how" and trade secrets Seller has
under the License Agreement, and Seller's rights
3
<PAGE>
under Non-Disclosure Agreements, and any and all rights under any and all
insurance policies ever purchased by Sellers, whether in effect at the
Closing or not; goodwill and other general intangibles of whatever kind or
nature, including all Intellectual Property. The Purchased Assets shall not
include, and Seller shall retain for its own use and benefit, the assets of
Seller listed on SCHEDULE 2 attached hereto (the "Excluded Assets"), which
Excluded Assets include only cash, and certain personal, non-business related
assets owned by Seller and the name "KELTECH".
3. PURCHASE PRICE. The Purchased Assets shall be purchased by Buyer from
Seller for a purchase price consisting of:
(a) $1,737,000, payable as follows:
(i) a fixed amount of $875,000 to Seller on the Closing Date by
wire transfer, and
(ii) an amount equal to $862,000, subject to adjustment as set
forth in Section 4 hereof, to Seller on the last to occur of (a) expiration of
30 days after the Closing Date, or (b) resolution of any dispute as to the
amount of any adjustment required pursuant to Section 4 below, by wire transfer;
(b) the assumption of only those current liabilities of Seller set
forth on SCHEDULE 3(b) hereto (the "Assumed Liabilities"); and
(c) Warrants to purchase 50,000 shares of Buyer's Common Stock,
pursuant to the Warrant Agreement (collectively, the "Purchase Price").
The Purchase Price shall be allocated among the Purchased Assets as set
forth in SCHEDULE 3(c) to this Agreement, and such allocation shall be used
for federal and state tax purposes; provided, however, that Buyer may modify
and amend the allocation set forth on SCHEDULE 3(c) prior to the Closing.
With respect to the allocation of the purchase price to the noncompetition
covenant of Duescher as set forth in the Non-Competition Agreement, in the
event such allocation causes Duescher to incur an amount of combined federal
and state income taxes higher than he would incur if there were no such
allocation of the Purchase Price to the Non-Competition Agreement, Buyer
shall reimburse Duescher such premium over Duescher's resulting tax liability
as if there had been no such allocation. In addition, in the event Buyer
allocates a portion of the Purchase Price to any purchased depreciable
equipment which results in the recapture of such depreciation, Seller shall
reimburse Duescher such amount as is necessary to make Duescher "tax
neutral," i.e., Seller shall reimburse Duescher the incremental increase in
combined federal and state tax liabilities due to such recapture (at ordinary
income tax rates) over the combined federal and state income tax liabilities
Duescher would incur if an allocation causing such recapture were not made
(at capital gains tax rates).
4
<PAGE>
4. ADJUSTMENT TO PURCHASE PRICE.
(a) ADJUSTMENT BASED ON ADJUSTED BOOK VALUE OF PURCHASED ASSETS.
The Second Payment shall be adjusted based upon the Adjusted Book Value of
the Purchased Assets listed on the Asset List as of the Closing Date, as
follows: (i) if the Adjusted Book Value of the Purchased Assets as of the
Closing Date is less than $243,000, then the Second Payment shall be
decreased by the amount by which the Adjusted Book Value is less than
$243,000, and (ii) if the Adjusted Book Value of the Purchased Assets as of
such date is greater than $243,000, the Second Payment shall be increased by
the amount by which the Adjusted Book Value of the Purchased Assets as of the
Closing Date exceeds $243,000.
(b) PROCEDURES FOR ADJUSTMENTS TO THE SECOND PAYMENT. The Purchase
Price shall be adjusted as follows (the "Adjusted Purchase Price"): Attached
hereto as SCHEDULE 4(b) is the Asset List. Not later than five (5) days
following the Closing Date, Seller shall deliver to Buyer (i) the Closing
Asset List, and (ii) the Closing Deduction List. The parties hereto hereby
covenant and agree that no adjustment shall be made to the Purchase Price in
respect of the Closing Asset List unless (i) the value of the assets as set
forth on the Asset List is greater than the value of the assets set forth on
the Closing Asset List by an amount of $5,000 or more, or (ii) the value of
the assets as set forth on the Asset List is less than the value of the
assets set forth on the Closing Asset List by an amount of $5,000 or more, in
which case the Purchase Price shall be reduced or increased, as the case may
be, on a dollar-for-dollar basis in an amount equal to the entire difference.
Each of the Asset List, the Closing Asset List and the Closing Deduction
List shall be prepared by Seller from Seller's books and records, consistent
with Seller's past accounting practices consistently applied, and, so
prepared, shall be presumptively valid unless Buyer shall give written notice
to Seller of any disagreement or disagreements with the Closing Asset List or
the Closing Deduction List within ten (10) days following its receipt of the
Closing Asset List and Closing Deduction List, specifying in reasonable
detail the nature and extent of such disagreement.
(c) MANNER OF AJUSTMENTS. The Second Payment shall be reduced to
reflect customer deposits made to Seller for orders which have not been
delivered by the Seller prior to the Closing. In addition, it is
acknowledged and agreed that (1) with respect to production and office
equipment, the value of such assets in the Closing Asset List shall be
determined by adding to the value of such assets on the Asset List the cost
of any acquisitions between June 30, 1996 and the Closing Date and
subtracting from the value of the Assets on the Asset List depreciation at a
monthly rate of $1,800 and $114 for production and office equipment,
respectively, and (2) with respect to inventory, the value of such asset on
the Closing Asset List shall be determined by adding acquisitions to
inventory and subtracting cost of sales from the value of the inventory on
the Asset List, and (3) with respect to accounts receivable and prepaid
expenses, the value on the Closing Asset List shall be the value of such
assets on the Closing Date.
5
<PAGE>
(d) DISAGREEMENT OVER ADJUSTED PURCHASE PRICE. If Seller and Buyer
are unable to resolve any disagreement with respect to the Closing Asset List
which would result in an adjustment to the Purchase Price or with respect to
the Closing Deduction List within five (5) days following receipt by Seller
of the notice referred to in Section 4(b) above, the disagreement shall be
submitted for resolution to Coopers & Lybrand LLP (the "Evaluator");
provided, however, that all undisputed amounts will be paid within two (2)
business days after that portion of the adjustment to the Second Payment is
determined hereunder. The Evaluator shall act as an arbitrator to determine
and resolve such disputes, based solely on presentations by Buyer and Seller
and not by independent review. The Evaluator's resolution shall be made
within fifteen (15) business days of the submission of the dispute, shall be
in accordance with this Agreement, shall be set forth in a written statement
delivered to Seller and Buyer and shall be final, binding and conclusive.
Seller and Buyer shall each pay one half of all fees, costs and expenses of
the Evaluator incurred in connection with the resolution of any dispute.
5. THE CLOSING. The Closing shall take place on the Closing Date and may
be effected by means of facsimile transmissions (with same day delivery of
executed counterparts among all parties) and wire transfer of the Purchase Price
and shall, unless otherwise agreed to by the parties hereto, take place on
September 9, 1996. If all conditions to the Closing have not been satisfied or
waived on or prior to September 9, 1996, the Closing shall take place on that
date which is five business days following the date on which all conditions to
the Closing have been satisfied or waived. In the event the Closing does not
occur on or prior to October 15, 1996 (the "Drop Dead Date"), the parties'
rights and duties with respect to the transaction contemplated in this Agreement
and the other Agreements shall cease.
6. NO ASSUMPTION OF LIABILITIES.
(a) LIABILITIES NOT ASSUMED. Buyer shall not and does not assume
any liabilities, obligations or commitments of Seller of any kind, known or
unknown, contingent or otherwise, of whatsoever kind or nature, other than
those Assumed Liabilities specifically identified on SCHEDULE 3(b) hereto,
which Schedule shall include only (a) the obligation of Seller under the
License Agreement to pay royalties to 3M (as to which Seller is responsible
for all obligations incurred by Seller prior to Closing); (b) the obligation
to pay 3M the balloon payment in the amount of Eleven Thousand Seven Hundred
Seventy-Nine Dollars and Seventy-Nine cents ($11,779.79) on January 25, 1998;
(c) the assumption of up to $1,000 for accrued sick leave and vacation
payable to employees of Seller who Buyer may employ following the Closing;
and (d) any open purchase and/or sales orders of Seller as set forth on
SCHEDULE 3(b). Any obligations or commitments of Seller not identified on
SCHEDULE 3(b) shall remain the sole responsibility of Seller and Seller and
Duescher will jointly and severally indemnify and hold Buyer, its officers,
directors and shareholders, and each of them, harmless from and against any
and all such liabilities, expenses or obligations, including, but not limited
to, (i) deferred expenses, trade account liabilities and capitalized lease;
(ii) product liability claims; (iii) liabilities in respect of salaries,
employee benefit plans, including obligations to employees for bonus and/or
severance
6
<PAGE>
payments upon the sale of the Purchased Assets; (iv) income, sales, transfer
or other taxes, including taxes arising out of the transactions contemplated
by this Agreement; (v) any claims related to environmental matters; or (vi)
legal expenses or other transaction costs associated with the transactions
contemplated by this Agreement. Buyer may offer to hire, on its customary
basis, any or all of the Employees (defined herein), but Buyer shall not
assume or be bound by any of Seller's employment contracts or other
obligations with respect to such Employees. Buyer shall have no obligation
whatsoever to hire or otherwise employ any or all of the Employees.
(b) CLAIMS BROUGHT AGAINST BUYER. From and after the Closing Date,
Buyer shall notify Seller promptly of any claim made upon Buyer with respect to
any liabilities, obligations or commitments of Seller and Buyer shall have no
obligation to make any payment of, settle or offer to settle, or otherwise
satisfy such claim.
7. REPRESENTATIONS AND WARRANTIES OF SELLER AND DUESCHER. As a material
inducement to Buyer to enter into this Agreement and the Other Agreements to
which it is a party, and to perform its obligations hereunder and thereunder,
Seller and Duescher jointly and severally represent, warrant, and covenant to
Buyer as follows:
(a) ORGANIZATION AND STANDING; ARTICLES AND BY-LAWS. Seller is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Minnesota. Copies of the Articles of Incorporation (as
certified by the Secretary of State of the State of Minnesota) and Bylaws of
Seller have been delivered to Buyer and are accurate and complete as of the
date of this Agreement.
(b) AUTHORIZATION OF SELLER AND DUESCHER. Seller has all requisite
corporate power and authority to enter into and carry out the terms and
conditions of this Agreement and the Other Agreements to which it is a party
and all the transactions contemplated hereunder and thereunder. All
proceedings have been taken and all authorizations have been secured which
are necessary to authorize the execution, delivery and performance by Seller
of this Agreement and each of the Other Agreements to be executed by Seller.
Duescher has the legal capacity to enter into this Agreement and each Other
Agreement to which Duescher is a party in any capacity. This Agreement has
been duly and validly executed and delivered by Seller and by Duescher and
constitutes, and the Other Agreements to which Seller or Duescher is a party,
when executed and delivered by them will constitute, the valid and binding
obligations of Seller and Duescher, as the case may be, enforceable in
accordance with their respective terms, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws relating to or affecting creditors' rights generally.
(c) TITLE TO THE PURCHASED ASSETS. Seller has, and will transfer to
Buyer at the Closing, good and marketable title to all of the Purchased Assets,
free and clear of all mortgages, pledges, liens (including, without limitation,
tax liens), charges, security interests, claims, conditions, restrictions,
encumbrances and obligations, of any type, kind or nature whatsoever
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other than those specifically described on SCHEDULE 7(c) hereto. Seller and
Duescher are not parties to, nor are any of the Purchased Assets bound by or
subject to, any leases or other agreements or instruments except as may be
referred to herein or set forth on SCHEDULE 7(c) to this Agreement.
(d) FINANCIAL STATEMENTS. Seller has delivered to Buyer the
Financial Statements. The Financial Statements are true, complete and
accurate in all material respects, present fairly the financial condition of
Seller for the periods therein specified, and were prepared in accordance
with GAAP consistently applied throughout the periods involved, subject to
year-end adjustments which will not be materially adverse, and except that
the unaudited financial statements may not contain all footnotes required by
GAAP. Except as set forth in the June 30, 1996 balance sheet of Seller
included in the Financial Statements or on SCHEDULE 7(d), there are no
liabilities, debts, claims or obligations, whether accrued, absolute,
contingent or otherwise, whether due or to become due, which could materially
and adversely affect the Purchased Assets or the rights of Seller therein and
thereto.
(e) ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the date of the June
30, 1996 balance sheet, there has not been any change in, or event affecting,
the business condition, properties, assets, liabilities, operations or prospects
of Seller's business other than changes in the ordinary course of its business,
none of which has (either when taken by itself or when taken in conjunction with
any other or all such other changes) been materially adverse to Seller's
business. Except as set forth in SCHEDULE 7(e), since the date of the June 30,
1996 balance sheet, Seller's business has not suffered any adverse change in,
and no events have occurred which, individually or in the aggregate, have had,
or may have, any material adverse effect on, the financial condition, results of
operations, business or prospects of Seller's business other than as reflected
in the June 30, 1996 balance sheet and statements of income and expenses.
(f) EFFECT OF AGREEMENT. The execution and delivery by each of
Seller and Duescher of this Agreement and the agreements referred to herein, the
sale by Seller of the Purchased Assets to Buyer, the performance by each of
Seller and Duescher of their respective obligations pursuant to the terms of
this Agreement and the Other Agreements, and the consummation of the
transactions contemplated hereby and under such Other Agreements, do not and
will not, with or without the giving of notice or lapse of time, or both:
(i) violate any judgment, order, writ or decree of any court of
administrative body applicable to Seller;
(ii) accelerate or constitute an event entitling the holder of
any indebtedness of Seller or Duescher to accelerate the maturity of such
indebtedness or to increase the rate of interest presently in effect with
respect to such indebtedness; or
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(iii) result in the breach of (with the exception of the License
Agreement), constitute a default under, constitute an event which with notice
or lapse of time, or both, would become a default under, or result in the
creation of any lien, security interest, charge or encumbrance upon any of
the Purchased Assets or other properties of Seller or Duescher under any
agreement, commitment, contract (written or oral) or other instrument to
which Seller or Duescher is a party, or by which the Purchased Assets or
other properties of Seller or Duescher are bound or affected.
(g) LITIGATION. Except as set forth on SCHEDULE 7(g) to this
Agreement, there is no claim, legal action, suit, arbitration, investigation
or hearing of which Seller or Duescher has received notice, notice of claim
or other legal, administrative or governmental proceedings pending or, to
Seller's or Duescher's best knowledge, threatened against Seller or Duescher
(or in which Seller is a plaintiff or otherwise a party thereto) relating to
the Purchased Assets or the Keltool Process.
(h) ACCOUNTS RECEIVABLE. The accounts receivable reflected in the
1995 Financial Statements and subsequently arising arose from valid sales and
transactions in the ordinary course of business and represent valid
obligations due Seller, and have been collected or are collectible in the
ordinary course of business consistent with past practice. Within one year
from the Closing, at Buyer's request and upon 30 days written demand, Seller
agrees to purchase from Buyer all materially delinquent accounts receivable,
defined as those accounts for which credit was extended by Seller prior to
the Closing and are more than 180 days past due (applying any payment made by
a debtor to such debtor's invoices on a first-in first out basis), and for
which Buyer has made reasonable collection attempts from the debtor.
(i) EMPLOYEES. SCHEDULE 7(i) contains a true and complete list of
all current employees (the "Employees") of Seller and all written or oral
employment contracts and collective bargaining agreements and all other
agreements or arrangements providing for employee compensation, to which
Seller is a party or by which Seller is bound. Seller is not delinquent in
payments to any of its directors or employees or former directors or
employees for any wages, salaries, commissions, bonuses or other direct
compensation for any services performed by them or amounts required to be
reimbursed to such directors or employees. There are no labor disputes,
troubles or controversies of any type or character between Seller and any of
its Employees or former employees.
(j) EMPLOYEE BENEFIT PLANS, ETC. Except as set forth on SCHEDULE
7(j), with respect to Employees or former employees of Seller, Seller does
not maintain or contribute to any (i) nonqualified deferred compensation,
bonus or retirement plans or arrangements, (ii) qualified defined
contribution or defined benefit plans or arrangements which are employee
pension benefit plans (as defined in Section 3(2) of ERISA, or (iii) employee
welfare benefit plans, (as defined in Section 3(1) ERISA), or material fringe
benefit plans or programs (the "Plans"). Seller does not and has not within
the last five years contributed to any defined benefit plan (as defined in
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Section 3(35) of ERISA) or multiemployer pension plan (as defined in Section
3(37) of ERISA). Seller does not maintain or contribute to any employee
welfare benefit plan which provides health, accident or life insurance
benefits to former employees, their spouses or dependents, other than in
accordance with Section 4980B of the Internal Revenue Code of 1986, as
amended.
(k) CUSTOMERS AND SUPPLIERS. SCHEDULE 7(k) contains a correct and
complete list of each of the 20 largest customers of Seller's business who have
purchased from the Seller goods and/or services during the twelve months prior
to the date hereof and indicates the dollar value of goods and/or services
purchased by, and the pricing to, each such customer. SCHEDULE 7(k) also
contains a list of each of the 10 top suppliers of the Seller who have supplied
goods and/or services to Seller's business and indicates the dollar value and
pricing of the goods and/or services supplied by each such supplier during such
calendar year. Except as set forth on SCHEDULE 7(k), to Seller's and Duescher's
best knowledge, no such customer or supplier, or any other person or entity
having material business dealings with the Seller, will or may cease to continue
such relationship with the Buyer, or will or may substantially reduce the extent
of such relationship, at any time from or after the Closing Date. To the best
knowledge of the Seller and Duescher, (a) there is no other existing or
contemplated material modification or change in the business relationship of the
Seller with, nor (b) any existing condition or state of facts or circumstances,
which has materially affected adversely, or will materially adversely affect,
the relationship of Seller's business after it is acquired by Buyer with, the
Seller's customers or suppliers or which has prevented or will prevent such
business from being carried on by the Purchaser after the Closing in essentially
the same manner as it is currently carried on.
(l) ENVIRONMENTAL COMPLIANCE MATTERS. Neither Seller nor Duescher
has received any notice of any claim, proceeding or investigation under
federal, state or local law relating to air, soil, subsurface and water
pollution, soil monitoring and the storage, treatment, disposal, removal,
remediation, release, discharge or emission or any Hazardous Material with
respect to the Premises or the processes used in Seller's business. To the
best knowledge of Seller and Duescher, neither Seller nor any predecessor
entity operating or controlling Seller's business, has ever owned, leased or
operated or otherwise controlled any real property at which a claim or
proceeding is presently pending or threatened, nor is there any condition on
any such property which would give rise to any such claim or proceeding under
federal, state or local law relating to air, soil, subsurface, water
pollution, soil monitoring and the storage, treatment, disposal, removal,
remediation, release, discharge or emission of any Hazardous Material. To
the best of Seller's knowledge, Seller has operated Seller's business in
compliance with all federal, state and local laws relating to air, soil,
subsurface and water pollution, soil monitoring and the storage, treatment,
disposal, removal, remediation, release, discharge or emission or any
Hazardous Material, and to the best knowledge of Seller and Duescher, there
has been no release of Hazardous Material from the operation of Seller's
business at the Premises or anywhere Seller has operated Seller's business.
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(m) CONTRACTS. The contracts listed in SCHEDULE 7(m) constitute all
contracts, purchase orders, agreements, licenses, and other commitments and
arrangements in effect as of the Closing Date that either (1) involve
expenditure by Seller of more than $500 or (2) require performance by any
party to the contract thereto more than six (6) months after the Closing
Date. All such contracts are valid, binding, and enforceable in accordance
with their terms and are in full force and effect. There are no existing
defaults by Seller under any such contracts and no act, event, or omission
has occurred that, whether with or without notice, lapse of time, or both,
would constitute a default thereunder.
(n) THIRD-PARTY INTERESTS IN PURCHASED ASSETS. Seller has not
granted, transferred, or assigned any right or interest in the Purchased Assets
to any person or entity, except pursuant to the contracts identified in SCHEDULE
7(n). There are no contracts, agreements, licenses, and other commitments and
arrangements in effect with respect to the marketing, distribution, licensing,
or promotion of the Keltool Process or the Purchased Assets, including the
Intellectual Property, by any independent salesperson, distributor, sublicensor,
or other remarketer or sales organization, except pursuant to the contracts
identified in SCHEDULE 7(n).
(o) CONDITION OF SELLER'S PURCHASED ASSETS. The Purchased Assets
constitute all of the assets used in and required for the conduct of the
business of Seller, except for the Excluded Assets listed on SCHEDULE 2 attached
hereto. All machinery and equipment included in the Purchased Assets is being
delivered "as is", except as to the eight working furnaces of Seller, which are,
and as of the Closing Date shall be, in good operating condition and repair
(with the exception of normal wear and tear) free from defects. All inventory
included in the Purchased Assets is merchantable and useable in the ordinary
course of the operation of Seller's business.
(p) COMPLIANCE WITH THE LAW AND OTHER INSTRUMENTS. Seller's operation
of Seller's business has been and is being conducted in accordance with all
applicable laws, ordinances, rules and regulations, judgments and decrees of all
federal, state, county, municipal and local authorities applicable to Seller's
business. No investigations by any governmental authorities asserting or
alleging any violation of or noncompliance with any such laws, ordinances, rules
and regulations, judgments and decrees are pending or, to the best knowledge of
Seller and Duescher, threatened. To the best knowledge of Seller and Duescher,
SCHEDULE 7(p) sets forth a true and complete list of all federal, state, local
or other governmental licenses, permits, orders and approvals of any federal,
state or local regulatory body (collectively, the "Permits") necessary to the
conduct of Seller's business. Seller has obtained all of such Permits, each of
which is in full force and effect. As of the date hereof, and during the 36
month period ending on the date hereof, no violation of any Permit shall have
occurred and no proceeding shall be pending or threatened to revoke or limit any
such Permit. The Seller is not in breach of or in default under any
indebtedness or any mortgage, contract, lease or other agreement or commitment
relating to any of the Purchased Assets or to Seller's business.
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(q) CONSENTS OR WAIVERS. Seller has delivered to Buyer any and all
consents or waivers of other parties required in order to permit the
continuation of the contracts included as part of the Purchased Assets upon
the same terms and conditions as are contained in such contracts upon
consummation of the transactions contemplated by this Agreement, including,
but not limited to, consents by 3M to assignments of the License Agreement.
A list of such consents and waivers is set forth on SCHEDULE 7(o) to this
Agreement.
(r) INSURANCE POLICIES. Seller has kept all property, liability,
accident, fire, and any other insurance policies on the Premises, or with
respect to Seller's business operations in effect through the Closing Date.
(s) INTELLECTUAL PROPERTY.
(i) TITLE TO INTELLECTUAL PROPERTY. To Seller's and/or
Duescher's present knowledge, Seller owns, possesses, or has the right to use,
free and clear of all liens, claims and restrictions of any kind or nature, or
where necessary, has made timely and proper application for, any and all
Intellectual Property, and all governmental approvals, authorizations, consents,
licenses and permits necessary for the conduct of the business of Seller as
presently conducted where failure to file or apply, as applicable, would be
materially adverse to the operation of the business of the Seller as a whole.
Immediately following the Closing, with the exception of the 3M Patents, to
Seller's and/or Duescher's present knowledge, Buyer shall own, possess, and have
the right to use, free and clear of all liens, claims and restrictions of any
kind or nature (other than the obligation of Buyer to pay royalties under the
License Agreement), or where necessary, make application for, any and all
Intellectual Property necessary or required for Buyer to operate the Purchased
Assets and use and exploit the Intellectual Property necessary or required for
Buyer to operate the Purchased Assets and use and exploit the Intellectual
Property and Keltool Process included therein where failure to file or apply, as
applicable, would be materially adverse to the operation of the business of the
Seller as a whole. With respect to the 3M Patents and modifying the foregoing,
immediately following the Closing, Buyer shall, to the present knowledge of
Seller and Duescher, own, possess, and have the right to use, free and clear of
all liens, claims and restrictions of any kind or nature (other than the
obligations of Buyer to pay royaltides un the License Agreement) and subject to
3M's rights pursuant to the License Agreement, have the right to bring actions
for infringement of, or where necessary, make application for, such 3M Patents.
With respect to each service mark, trademark or trade name used by Seller,
Seller owns the goodwill identified by each such mark or name and has the
exclusive right to use all such marks and names in commerce. SCHEDULE 7(s)(i)
sets forth all registered trademarks and service marks, all reserved trade
names, all registered copyrights, and all filed patent applications and issued
patents used in the Keltool process or otherwise necessary for the conduct of
Seller's business as now conducted. Notwithstanding the foregoing, Seller and
Duescher are not making any representations that Seller's technology is
patentable.
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(ii) 3M PATENTS. Pursuant to the License Agreement, Seller has
validly obtained an exclusive license from 3M to make, use and sell the mold
inserts and EDM electrodes on which 3M holds the patents referred to in the
License Agreement (the "3M Patents") in the United States, and has validly
obtained a nonexclusive license from 3M to make, use and sell the intricately
shaped parts. Seller and Duescher know of no other agreements under which
any third party may claim superior, joint, or common ownership, including any
right to license, to Seller with respect to the 3M Patents.
(iii) OTHER PATENTS. At the Closing, Seller will separately
assign to Buyer any and all patents issued to or held by or for the benefit of
Seller or rights under any patent application and will file the appropriate
documentation with the United States Patent and Trademark Office to effectuate
such assignments.
(iv) NO TRANSFERS. Except as set forth on SCHEDULE 7(s)(iv)
hereto, Seller has not sold, transferred, assigned, licensed or subjected to any
Lien, any Intellectual Property, trade secret, know-how, invention, design,
process, computer program or technical data, or any interest therein, necessary
or useful for the development, manufacture, use, operation, marketing or sale of
the Keltool Process or any Asset used in the Keltool Process.
(v) NO OTHER RIGHTS IN INTELLECTUAL PROPERTY. Except as set
forth on SCHEDULE 7(s)(v) hereto, no director, officer, employee, agent,
shareholder or former shareholder of Seller owns or has any right in or to the
Intellectual Property of Seller, or any patents, trademarks, service marks,
trade names, copyrights, licenses or rights with respect to the foregoing, or
any inventions, developments or discoveries used in or necessary for the conduct
of Seller's business as now conducted.
(vi) NO INFRINGEMENT. Except as set forth on SCHEDULE 7(s)(vi)
hereto, neither Seller nor Duescher has received any communication alleging or
stating that Seller or any employee has violated or infringed, or by conducting
business as proposed, would violate or infringe, any patent, trademark, service
mark, trade name, copyright, trade secret, proprietary right, process or other
Intellectual Property of any other person. Neither Seller nor Duescher has
received any notice that any product designed and/or manufactured and/or
marketed or sold or proposed to be manufactured and/or marketed or sold by
Seller violates any license or infringes any patent, service mark, trademark,
trade name, know-how, proprietary process, formula, assumed name or copyright of
another and there is no pending or threatened claim or litigation against Seller
contesting the validity or right to use of any of the foregoing, nor has Seller
received any notice that any of said copyrights, trademarks, trade names,
franchises, certificates of public convenience and necessity, patent, patent
rights, licenses, permits, software, programs, proprietary rights or
Intellectual Property or the operation or proposed operation of the business of
Seller conflicts with the asserted rights of others, nor is there any reason to
believe that such conflict will, or may, exist.
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(vii) NO ROYALTIES. Except under the License Agreement, no
royalties, honorariums or fees are payable by Seller to other Persons by
reason of the ownership or use of said copyrights, trademarks, trade names,
franchises, certificates of public convenience and necessity, patents, patent
rights, licenses, software, programs, proprietary rights, proprietary
processes or Intellectual Property.
(viii) PERSONNEL AND THIRD PARTY AGREEMENTS. All personnel,
including Employees and former employees, agents, consultants, and contractors,
who have contributed to or participated in the conception and development of the
Keltool Process or who have conceived, developed, invented, discovered, derived,
programmed or designed Intellectual Property on behalf of Seller either (1) have
been party to a "work-for-hire" arrangement or agreement with Seller, in
accordance with applicable federal and state law, that has accorded Seller full,
effective, exclusive, and original ownership of all tangible and intangible
property thereby arising, or (2) have executed appropriate instruments of
assignment in favor of Seller as assignee that have conveyed to Seller full,
effective, and exclusive ownership of all tangible and intangible property
thereby arising. All personnel, including Employees and former employees,
agents, consultants, and contractors, who have contributed to or participated in
the conception and development of the Keltool Process or Intellectual Property
on behalf of Seller, and all third parties who have knowledge of the trade
secrets, know-how, and technology with respect to the Keltool Process have
executed Non-Disclosure Agreements with Seller with respect to their knowledge,
with the exception of Kenneth Dillon. Other than those agreements set forth on
SCHEDULE 7(s)(viii), Seller has not entered into any agreements with respect to
protecting the secrecy, confidentiality and value of its Intellectual Property.
Insofar as Seller and Duescher know, there has been no material violation of any
such agreements by any person or entity.
(t) DISCLOSURE. No representation or warranty made by Seller or
Duescher in this Agreement or in any writing furnished or to be furnished
pursuant to or in connection with this Agreement knowingly contains or will
contain any untrue statement of a material fact, or omits or will omit to
state any material fact required to make the statements herein or therein
contained not misleading. Seller and Duescher have disclosed to Buyer all
material information known to them related to the business of Seller, the
Premises, its condition, operations and prospects.
8. REPRESENTATIONS AND WARRANTIES OF BUYER.
(a) ORGANIZATION, STANDING AND CORPORATE POWER. Buyer is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware, with adequate corporate power and authority to
own its properties and carry on its business as presently conducted. Buyer
has the corporate power to enter into, execute and deliver this Agreement and
the Other Agreements and to consummate the transactions contemplated hereby
and thereby.
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(b) EXECUTION, DELIVERY AND PERFORMANCE. The execution, delivery
and performance of this Agreement and the Other Agreements and the
consummation of the transactions contemplated hereby and thereby have been or
will prior to the Closing be duly authorized by the Board of Directors of
Buyer, and Buyer has taken all other actions required by law, its Certificate
of Incorporation and its Bylaws in order to consummate the transactions
contemplated by this Agreement and the Other Agreements. This Agreement and
the Other Agreements referred to herein constitute the valid and binding
obligations of Buyer and are enforceable in accordance with their respective
terms, except as enforceability may be subject to or limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally.
(c) NO VIOLATION. The execution and delivery of this Agreement by
Buyer and the consummation of the transactions contemplated herein do not and
will not violate or result in a default under the charter or bylaws of Buyer
or any judgment, order, decree, law, rule or regulation applicable to Buyer,
except for violations or defaults which would not prevent the consummation of
the transactions contemplated by this Agreement.
(d) DISCLOSURE. No representation or warranty made by Buyer in this
Agreement or in any writing furnished or to be furnished in connection with this
Agreement contains or will contain any untrue statement of a material fact or
omits or will omit to state any material fact required to make the statements
herein or therein contained not misleading.
9. CONDUCT AND TRANSACTIONS PRIOR TO CLOSING.
(a)INVESTIGATIONS. Between the date of this Agreement and the
Closing Date, Seller shall give to Buyer and its representatives full access
to all of Seller's premises, books, records, employees, bankers, independent
public accounts and other agents possessing any information relating in any
manner to Seller's business or the Purchased Assets, and to furnish Buyer
with such financial and operating data and other information with respect to
the business and properties of Seller's business as Buyer shall from time to
time request; PROVIDED, HOWEVER, that any such investigation shall not affect
any of the representations and warranties hereunder; and PROVIDED, FURTHER,
that any such investigation shall be conducted in such manner as not to
interfere unreasonably with the operation of Seller's business. If this
Agreement is terminated without the transactions contemplated hereby having
been effected, Buyer and Seller shall each return to the other all documents,
working papers and other materials obtained from the other party pursuant to
this Agreement, and the confidentiality provisions of Section 13(c) of this
Agreement shall continue to apply.
(b) CONDUCT. Except as permitted or required hereby or as Buyer may
otherwise consent in writing, Seller shall conduct its business only in the
ordinary and normal course of business in a manner consistent with past practice
and shall not enter into any transaction or take any action which would result
in any of the representations and warranties of
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Seller or Duescher contained in this Agreement or in the Other Agreements not
being true and correct at and as of both the time immediately after such
transaction has been entered into or such event has occurred and on the
Closing Date, and shall use its best efforts to maintain good employee
relations. It is understood that Teddy Mueller shall continue to be employed
by Keltech Engineering after the Closing, but that she shall be available to
perform services for Buyer after the Closing, as needed, on a part-time basis
equal to one-half of her working hours, and at Buyer's expense.
10. CONDITIONS TO OBLIGATIONS OF BUYER. Unless waived, in whole or in
part, in writing by Buyer, the obligations of Buyer to effect the
transactions contemplated hereby and in the other agreements referred to
herein shall be subject to the satisfaction at or prior to the Closing Date
of each of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES OF SELLER AND DUESCHER TO BE TRUE.
The representations and warranties of Seller and Duescher contained in this
Agreement shall be true and correct in all material respects on the Closing Date
with the same force and effect as though made on and as of the Closing Date.
Seller and Duescher shall have performed all obligations and complied with all
covenants required by this Agreement and the Other Agreements to be performed or
complied with by it or him on or prior to the Closing Date.
(b) NO PROCEEDINGS. No action, suit or proceeding before any court
or any governmental body or authority pertaining to the transactions
contemplated by this Agreement or the Other Agreements or to their consummation
shall have been instituted or threatened on or prior to the Closing Date.
(c) NO ADVERSE CHANGE. Since the date of this Agreement there shall
not have been any material adverse change in the properties, prospects, results
of operation or condition of the Seller's business.
(d) CONSENTS. Seller shall have obtained and delivered to Buyer all
written consents of the other party to all contracts which by their terms or
otherwise require the consent of such party to the transfer thereof by Buyer,
including consents from 3M to the assignment to Buyer of the License Agreement.
(e) DUE DILIGENCE. Buyer shall have completed and approved to its
sole satisfaction customary business and legal due diligence with respect to
Seller and Seller's business.
(f) CLOSING TRANSACTIONS. At the Closing, the following documents
must be executed and delivered by Seller and/or Duescher to Buyer:
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(i) Duescher shall have executed and delivered to Buyer the
Non-Competition Agreement in the form attached hereto as EXHIBIT 1 (the
"Non-Competition Agreement"); and
(ii) Duescher and Seller shall have executed and delivered to
Buyer a sublease for the Premises in the form attached hereto as EXHIBIT 2 (the
"Lease").
(iii) Seller shall have received and delivered to Buyer an
assignment from Kenneth Dillon to Seller of any rights Kenneth Dillon may
currently have or acquire to any of the Intellectual Property or the Keltool
Process, in the form attached hereto as EXHIBIT 4 (the "Intellectual Property
Assignment").
(g) 3D BOARD APPROVAL. The Board of Directors of Buyer shall have
approved this Agreement and the Other Agreements and the consummation of the
transactions contemplated hereby and thereby prior to October 15, 1996.
11. CONDITIONS TO OBLIGATIONS OF SELLER. Unless waived, in whole or in
part, in writing by Seller, the obligations of Seller to effect the consummation
of the transactions contemplated by this Agreement shall be subject to the
fulfillment prior to or at the Closing of each of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES OF BUYER TO BE TRUE. The
representations and warranties of Buyer contained in this Agreement shall be
true and correct in all material respects on the Closing Date with the same
effect as though made at such time. Buyer shall have performed all obligations
and complied with all covenants required by this Agreement and the other
agreements referred to herein to be performed or complied with by it prior to
the Closing Date.
(b) CLOSING TRANSACTIONS. At the Closing, Buyer shall have executed
and delivered to Seller a certified bank check in the amount of $875,000, and
Buyer and Duescher shall have entered into a warrant agreement in the form
attached hereto as Exhibit 3 (the "Warrant Agreement").
12. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNITY.
(a) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of Seller's and
Duescher's representations and warranties herein shall survive the consummation
of the transactions hereunder and any and all inspections, examinations or
audits on behalf of Buyer, and shall be binding upon the parties to this
Agreement, their successors and assigns for a period of eighteen months; except,
however, that the representations and warranties contained in Paragraph 7(l)
("Environmental Compliance Matters") shall survive the consummation of the
transactions
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hereunder and any and all inspections, examinations or audits on behalf of
Buyer, and shall be binding upon the parties to this Agreement, their
successors and assigns, until the expiration of each respective statute of
limitations applicable to a breach of each such representation and warranty,
and the representations and warranties contained in Paragraph 7(g)
("Litigation") and Paragraph 7(s) ("Intellectual Property") shall survive the
consummation of the transactions hereunder and any and all inspections,
examinations or audits on behalf of Buyer, and shall be binding upon the
parties to this Agreement, their successors and assigns, for a period of
three years.
(b) INDEMNIFICATION BY SELLER. Seller and Duescher hereby covenant
and agree with Buyer, regardless of any investigation made at any time by or
on behalf of Buyer or any information Buyer may have and regardless of the
Closing of the purchase of the Purchased Assets hereunder, each of Seller and
Duescher shall jointly and severally indemnify Buyer and its directors,
officers, shareholders and affiliates, and each of their successors and
assigns (individually, a "Buyer Indemnified Party") and hold them harmless
from, against and in respect of any and all actual costs, losses, claims,
liabilities, fines, or penalties (including interest which may be imposed in
connection therewith and court costs and reasonable fees and disbursements of
counsel):
(i) all liabilities of or claims against the Buyer Indemnified
Parties of any nature, whether accrued, absolute, contingent or otherwise,
arising out of the business of Seller or the Premises (whether known or
unknown to Seller, the Buyer Indemnified Parties or any of them), to the
extent arising out of the operation of the business of Seller or the Premises
or incurred by Seller on or prior to the Closing Date;
(ii) any breach of, or any inaccuracy in any of the
representations, warranties, covenants or agreements made by Seller in this
Agreement, any other agreement referred to herein, any Exhibit or Schedule to
this Agreement or any certificate, instrument or writing delivered in
connection therewith;
(iii) any attempt (whether or not successful) by any person
to cause or require a Buyer Indemnified Party to pay or discharge any debt,
obligation, liability or commitment of any of Seller or Duescher;
(iv) any damages or out of pocket expenses incurred by Buyer from
an action by a third party successfully asserting (or alleging, but only where
Duescher has actual knowledge of any specific actual or threatened claim), that
the Intellectual Property, including without limitation, the Keltool Process
infringes a patent, copyright, trademark, service mark or any trade secret or
other intangible property right of a third party where such damage is due to the
breach of the representations made in Section 7(s) by the Seller or Duescher; or
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(v) any action, suit, proceeding, compromise, settlement,
assessment or judgment arising out of or incidental to any of the matters
indemnified against in this Paragraph; provided, HOWEVER, that neither Seller
nor Duescher shall be obligated to indemnify a Buyer Indemnified Party and
hold it harmless under this Section 12(b) with respect to any settlement of a
claim to which Seller has not consented, which consent shall not unreasonably
be withheld.
Notwithstanding anything contained in Section 12(b) above to the contrary, a
Buyer Indemnified Party shall not be entitled to assert any claim for
indemnification contained in Section 12(b) unless and until such time as the
claims of all Buyer Indemnified Parties, in the aggregate, pursuant to
Section 12(b) exceed $25,000 (exclusive of all tax savings and insurance
proceeds received) and at which time all claims of any one or more Buyer
Indemnified Party for indemnification pursuant to Section 12(b) above may be
asserted in full. The remedies of Buyer set forth in this Section 12 are the
exclusive remedies of Buyer and the Buyer Indemnified Parties under this
Agreement, at law or in equity in the event of any breach of, or any
inaccuracy in any of the representations, warranties, covenants or agreements
made by Seller in this Agreement, any Exhibit or Schedule to this Agreement
or any certificate, instrument or writing delivered in connection therewith;
except, however, that in the event of an intentional breach, fraud, or
reckless misrepresentation, Buyer's remedies against Seller shall not be
limited by this provision and Buyer shall have all remedies against Seller
available under applicable law. It is expressly understood that any
adjustment to the Second Payment pursuant to the provisions of Section 4(b)
shall not constitute a claim of a Buyer Indemnified Party for purposes of
this provision.
(c) INDEMNIFICATION BY BUYER. Buyer hereby covenants and agrees
with Seller that, regardless of any investigation made at any time by or on
behalf of Seller or any information Seller may have and regardless of the
consummation of the transactions hereunder, Buyer shall indemnify Seller and
Duescher and Seller's directors, officers, shareholders and affiliates
(individually, a "Seller Indemnified Party"), and hold them harmless from,
against and in respect of any and all costs, losses, claims, liabilities,
fines, penalties, damages and expenses (including interest which may be
imposed in connection therewith and court costs and reasonable fees and
disbursements of counsel) incurred by any of them in connection with:
(i) all liabilities of or claims against Seller Indemnified
Parties of any nature, whether accrued, absolute, contingent or otherwise
attributable to any event occurring after the Closing Date (whether known or
unknown to Seller, or Buyer), relating to the operation by Buyer of the
Purchased Assets from and after the Closing Date, except if (x) such
liability results from or arises in connection with the breach of any of the
representations, warranties, covenants or agreements made by Seller and/or
Duescher in this Agreement, any other agreement referred to herein, any
Schedule or Exhibit hereto or any certificate or instrument delivered in
connection herewith or therewith, or (y) such liability is included under
Section 12(b) above;
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(ii) any breach of, or any inaccuracy in any of the
representations, warranties, covenants or agreements made by Buyer in this
Agreement, any other agreement referred to herein, any Exhibit or Schedule
hereto or any certificate or instrument delivered in connection herewith or
therewith;
(iii) any attempt (whether or not successful) by any person to
cause or require a Seller Indemnified Party to pay or discharge any debt,
obligations, liability or commitment included in the Assumed Liabilities; or
(iv) any action, suit, proceeding, compromise, settlement,
assessment or judgment arising out of or incidental to any of the matters
indemnified against in this Paragraph; provided, HOWEVER, that Buyer shall not
be obligated to indemnify a Seller Indemnified Party under this Paragraph with
respect to any settlement of a claim to which Buyer has not consented, which
consent shall not unreasonably be withheld.
(d) RIGHT TO DEFEND, ETC. If the facts giving rise to any claim
for indemnification hereunder shall involve any actual claim or demand by any
third person against a Buyer Indemnified Party or a Seller Indemnified Party
(who are referred to hereinafter as an "Indemnified Party"), the indemnifying
party shall be entitled to notice of and entitled (without prejudice to the
right of any Indemnified Party to participate at its own expense with counsel
of its own choosing) to defend or prosecute such claim at its own expense and
through counsel of its own choosing if it gives written notice of its
intention to do so no later than the time by which the interests of the
Indemnified Party would be materially prejudiced as a result of its failure
to have received such notice; provided, however, that if the defendants in
any action shall include both the indemnifying party and the Indemnified
Party and the Indemnified Party shall have reasonably concluded that counsel
selected by the indemnifying party has a conflict of interest because of the
availability of different or additional defenses to the Indemnified Party,
the Indemnified Party shall have the right to select separate counsel to
participate in the defense of such action on its behalf, at the expense of
the indemnifying party. The Indemnified Party shall cooperate fully in the
defense of such claim and shall make available to the indemnifying party
pertinent information under its control relating thereto, but shall be
entitled to be reimbursed, as provided in this Section 12, for all costs and
expenses incurred by it in connection therewith.
13. POST-CLOSING COVENANTS.
(a) CONSULTING SERVICES. Duescher hereby covenants and agrees to
perform on a part-time basis for a maximum total of 80 hours, and without
additional compensation (other than reimbursement for reasonable expenses
incurred on behalf of Buyer and at Buyer's direction), such consulting services
as may be requested by Buyer with respect to the transfer of Seller's business,
the Purchased Assets, the Intellectual Property and the Keltool Process, for a
period of 30 days after the Closing Date, which period shall terminate earlier
after 80 hours of consulting services have been provided. After 30 days,
Duescher shall continue to perform a reasonable
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amount of consulting to Buyer with respect to Seller's business, the
Purchased Assets, the Intellectual Property and the Keltool Process, by
telephone, at reasonable hours and as needed for the operation of the
Purchased Assets, for an additional 180 day period. Buyer expressly
acknowledges that Duescher will be performing services for Keltech and with
respect to other business endeavors.
(b) FURTHER ASSURANCES; RECORDS; AUDIT. Each of the parties shall
cooperate and take such actions, and execute all such further instruments and
documents, at or subsequent to the Closing, as either may reasonably request
in order to convey title to the Purchased Assets to Buyer, effect the
assumption by Buyer of the Assumed Liabilities and to otherwise effectuate
the terms and purposes of this Agreement. Each party shall provide the other
party or parties with access to all relevant documents and other information
pertaining to the Purchased Assets and Seller's business which are needed by
such other party or parties for the purposes of preparing tax returns or
responding to an audit by any governmental agency, to permit Buyer's auditors
(at the expense of Buyer) to prepare audited financial statements of Seller
and the Seller's business for the three year period ended June 30, 1996, or
for any other reasonable purpose. Such access will be during normal business
hours and not subject to time limitations.
(c) CONFIDENTIALITY OBLIGATIONS. Seller and Duescher hereby
covenant and agree that any and all information which has been disclosed to
Seller, its employees, consultants, agents and, if applicable, stockholders
during the discussions and negotiations leading to the execution of this
Agreement, and all information to be disclosed to Seller, its employees,
consultants and agents and, if applicable, stockholders, during the period
commencing on the date of execution of this Agreement through the Closing or
termination of this Agreement, shall constitute confidential information and
trade secrets of Buyer, and as such are secret, confidential and unique and
constitute the exclusive trade secrets and property of such party. Such
information has been made known and available to Seller and its respective
employees, consultants and agents strictly in connection with the negotiation
and execution of this Agreement and the consummation of the transactions
provided for herein. Seller and Duescher hereby acknowledge and agree that
any use or disclosure of any such confidential information or trade secrets,
other than pursuant to this Agreement, would be wrongful and would cause
irreparable injury to Buyer. Accordingly, Seller and Duescher hereby
expressly agree, for Seller and on behalf of Seller's stockholders and
directors, if any, and its principal officers, managers, employees, agents,
consultants and representatives, that they will not at any time prior to the
Closing or at any time thereafter, use or disclose, other than in accordance
with the terms and provisions of this Agreement, any of such confidential
information or trade secrets including without limitation, all confidential
information included in the Intellectual Property of Seller. Seller and
Duescher acknowledge that, in the event of a violation of the terms and
provisions of this SECTION 13(c), the remedies at law would not be adequate;
and accordingly, in such event Buyer may proceed to protect and enforce its
rights under this SECTION 13(c) by a suit in equity for specific performance
hereof, or for an injunction against the violation hereof.
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(d) APPLICATIONS AND ASSIGNMENTS. At the request of Buyer,
Duescher shall assist Buyer and shall cause employees of Seller to assist and
cooperate with Buyer in applying for and obtaining both domestic and foreign
patents, or copyrights, as the case may be, on all Intellectual Property
devised, discovered, developed, invented or authored by Duescher or any other
employee of Seller prior to the Closing (or in which Duescher or such
employees of Seller may otherwise obtain, or have otherwise obtained, any
rights, while in the employ of the Seller) which relates to or was developed
in connection with the Keltool Process or the business of Seller, that the
Buyer deems to be patentable or copyrightable, and Duescher shall execute and
shall cause all employees of Seller to execute at any time or times any and
all documents and perform all acts reasonably requested by Buyer which Buyer
deems to be necessary or desirable in order to obtain such patents or
copyrights or otherwise to vest in Buyer full and exclusive title and
interest in and to all such Intellectual Property, to protect the same
against infringement by others and otherwise to aid the Buyer in connection
with any continuations, renewals or reissues of any patents or copyrights, or
in the conduct of any proceedings or litigation in regard thereto. Buyer
shall pay Duescher and the employees of Seller for their services in
connection with the applications made pursuant to this Paragraph on an hourly
basis, which hourly rate shall be agreed upon by the parties at that time and
shall in all events be reasonable under the circumstances. All filing fees
and documentation expenses incurred in procuring any patent or copyright
shall be born by the Buyer.
(e) REFERRAL. Duescher and Seller shall refer all purchase order
inquiries concerning the Purchased Assets and the purchased business to Buyer
for a period of 12 months following the Closing.
14. TAXES.
(a) PAYMENT OF TAXES, FILING OF RETURNS. Seller shall remain
liable for the filing of all tax returns and reports and for the payment of
all federal, state and local taxes of Seller relating to the operation of the
Premises or to the Purchased Assets for any period ending on or prior to the
Closing Date and Seller shall remain so liable for the payment of all of his
taxes attributable to or relating to the consummation of the transactions
contemplated herein, and shall indemnify and hold Buyer harmless from and
against all liability in connection therewith.
(b) SALES TAXES. It is understood that the consideration payable by
Buyer as specified herein does not include any applicable sales, use or other
taxes imposed upon the transfer of Purchased Assets under this Agreement and
that Seller shall bear the responsibility for any state sales, use or other
similar taxes, if any, arising out of the consummation of the transactions
herein provided for and shall be liable for the filing of all necessary tax
returns and reports with respect to such taxes.
15. NONCOMPETITION. Seller hereby agrees that Seller shall not for a
period of five years from and after the Closing Date, directly or indirectly,
and whether as a principal or
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agent or otherwise, or alone or in association with any individual or any
other entity, carry on, be engaged or take part in, consult or advise, or
own, share in the earnings of, or invest in the stock, bonds or other
securities of (except to the extent such investment does not exceed two
percent (2%) of the total outstanding stock, bonds or other securities), any
other entity which is engaged in a business which is in any other manner
competitive with the business of Buyer, as conducted during the one year
period prior to the date hereof (a "Competing Activity"); provided however,
that Seller may engage in the business of Keltech Engineering as currently
conducted (the "Keltech Business"). It is agreed that the Keltech Business
as currently conducted does not involve the manufacture of, sale of, or
provision of services to enable or facilitate the manufacture or creation of,
any hard tools or molds for hard tools. Seller covenants and agrees to
change the name of its corporation with the Secretary of State of the State
of Minnesota, which new name shall not include the word "Keltool."
16. MISCELLANEOUS.
(a) FURTHER ASSURANCES. Each of Seller, Duescher and Buyer agree to
execute such further documents or instruments and to take such other actions as
are necessary to otherwise carry out the transactions contemplated by this
Agreement and the Other Agreements.
(b) NOTICES. All notices and other communications given or made
pursuant to this Agreement shall be in writing and shall be deemed to have
been duly given if sent by telex or by registered or certified mail, return
receipt requested, postage and fees prepaid, or otherwise actually delivered
to the address of the party to whom the notice is addressed as set forth at
the end of this Agreement. Any of the parties to this Agreement may from
time to time change its address for receiving notice by giving written notice
thereof in the manner set forth above. For any notices or other
communications given or made pursuant to this Agreement to Seller, in
addition to such notice or communication being sent to the address set forth
below, a copy should be sent to:
Winthrop & Weinstine
3000 Dain Bosworth Plaza
60 South Sixth Street
Minneapolis, MN 55402
Attn: Richard A. Hoel, Esq.
(c) AMENDMENT; WAIVER. This Agreement shall be binding upon and
inure to the benefit of the parties to this Agreement and their respective
successors, heirs and personal representatives. No provision of this Agreement
may be waived unless in writing signed by all of the parties to this Agreement,
and waiver of any one provision of this Agreement shall not be deemed to be a
waiver of any other provision.
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(d) GOVERNING LAW. This Agreement shall be governed by and construed
both as to validity and performance and enforced in accordance with the laws of
the State of California, without giving effect to the choice of law principles
thereof. Jurisdiction and venue over any legal action brought hereunder shall
reside exclusively in the County of Los Angeles, State of California. Each of
the parties hereto hereby waive their right to a jury trial with respect to any
such legal actions.
(e) ATTORNEYS' FEES. If any action, suit or other proceeding is
instituted to remedy, prevent or obtain relief from a default in the performance
by any party of its obligations under this Agreement, the prevailing party shall
recover all of such party's costs and reasonable attorneys' fees incurred in
each and every such action, suit or other proceeding, including any and all
appeals or petitions therefrom.
(f) NO FINDERS. The parties each agree to indemnify and hold
harmless the other against any expense incurred by reason of any consulting,
brokerage commission or finder's fee alleged to be payable to any person in
connection with the transactions contemplated hereby because of any act,
omission or statement of indemnifying party or any dealings by the indemnifying
party with any consultant, broker or finder.
(g) EXPENSES. Each of the parties shall pay its own expenses
incurred in connection with the preparation of this agreement and the
consummation of the transactions contemplated hereby.
(h) SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such a manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be or become
prohibited or invalid under applicable law, such provision shall be ineffective
to the extent of such prohibition or invalidity without invalidating the
remainder of such provision or the remaining provisions of this Agreement.
(i) SPECIFIC PERFORMANCE. Seller acknowledges that the Purchased
Assets are unique and that Buyer will have no adequate remedy at law if Seller
shall fail to perform any of its obligations hereunder. In such event, Buyer
shall have the right, in addition to any other rights it may have, to specific
performance of this Agreement.
(j) RIGHTS CUMULATIVE. No right granted to the parties under this
Agreement on default or breach is intended to be in full or complete
satisfaction of any damages arising out of such default or breach, and each
and every right under this Agreement, or under any other document or
instrument delivered hereunder, or allowed by law or equity, shall be
cumulative and may be exercised from time to time.
(k) INTERPRETATION. This Agreement and all of the provisions of this
Agreement shall be deemed drafted by all of the parties hereto. This Agreement
shall not be interpreted
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strictly for or against any party, but solely in accordance with the fair
meaning of the provisions hereof to effectuate the purpose and intent of this
Agreement.
(l) HEADINGS. The section and subsection headings contained in this
Agreement are included for convenience only and form no part of the agreement
between the parties.
(m) ENTIRE AGREEMENT. This Agreement constitutes and embodies the
entire understanding and agreement of the parties hereto relating to the subject
matter hereof and there are no other agreements or understandings, written or
oral, in effect between the parties relating to such subject matter except as
expressly referred to herein.
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IN WITNESS WHEREOF, this Agreement has been executed as of the date first
set forth above.
3D SYSTEMS, INC. KELTOOL, INC.
c/o A. Sidney Alpert c/o Wayne Duescher
26081 Avenue Hall 561 Shoreview Park Road
Valencia, California 91355 St. Paul, MN 55126
By: By:
------------------------- -----------------------
Its: Its:
------------------------- -----------------------
- ------------------------------
WAYNE DUESCHER
c/o Keltool, Inc.
561 Shoreview Park Road
St. Paul, MN 55126
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EXHIBITS
EXHIBIT 1 The Non-Competition Agreement
EXHIBIT 2 The Lease
EXHIBIT 3 The Warrant Agreement
EXHIBIT 4 The Intellectual Property Assignment
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SCHEDULES
Schedule 2 - Excluded Assets
Schedule 3(b) - Assumed Liaiblities
Schedule 3(c) - Allocation of Purchase Price
Schedule 4(b) - Asset List
Schedule 7(c) - Title Exceptions
Schedule 7(d) - Undisclosed Liabilities
Schedule 7(e) - Material Adverse Changes
Schedule 7(f)(iii) - Effect of Agreement
Schedule 7(g) - Litigation
Schedule 7(i) - List of Employees
Schedule 7(j) - Employee benefits
Schedule 7(k) - Customers and Supplies
Schedule 7(m) - Contracts
Schedule 7(n) - Third Party Interests
Schedule 7(p) - Compliance with Law
Schedule 7(q) - Consents or Waivers
Schedule 7(s)(i) - Title to Intellectual Property
Schedule 7(s)(iv) - No Transfers
Schedule 7(s)(v) - No Other Rights in Intellectual Property
Schedule 7(s)(vi) - Infringements
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Schedule 7(s)(viii) - Personnel and Third Party Agreement
29
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EXHIBIT 10.2
THE SECURITIES EVIDENCED BY THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, HAVE BEEN TAKEN FOR INVESTMENT AND MAY
NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE
DISPOSED OF EXCEPT IN ACCORDANCE WITH THE TERMS OF THIS AGREEMENT.
WARRANT AGREEMENT
This Warrant Agreement (the "Agreement") is made and entered into this
9th day of September, 1996 by and between 3D Systems Corporation, a Delaware
corporation (the "Company"), and Keltool, Inc., a Minnesota corporation (the
"Holder").
In consideration of the premises and mutual covenants contained herein, the
Holder and the Company hereby agree as follows:
1. GRANT OF WARRANT. In consideration of the sum of $100.00 and other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the Company hereby grants to the Holder the right and option (the
"Warrant"), upon the terms and subject to the conditions set forth in this
Agreement, to purchase an aggregate of 50,000 shares of Common Stock, par value
$0.001 per share, (as from time to time adjusted pursuant to Section 4 below,
the "Shares") of the Company for $14.75 per share (the "Exercise Price"). The
number of Shares and the Exercise Price shall be subject to adjustment as set
forth in Section 4 hereof.
2. TERM OF WARRANT. The Warrant shall terminate and expire at 5:00 p.m.
(Los Angeles Time) on September 9, 1999.
3. EXERCISE OF WARRANT. There is no obligation to exercise all or any
portion of the Warrant. The Warrant may be exercised, in whole or in minimum
increments of 10,000 Shares, at any time after the date hereof only by delivery
to the Company of:
3.1 Written notice of exercise in form and substance identical to
Exhibit "A" attached to this Agreement; and
3.2 Payment of the Exercise Price of the Shares being exercised (the
"Purchased Shares"), by (a) wire transfer in immediately available Federal
funds, or (b) in the manner set forth in Section 3.5 below.
3.3 Upon receipt of the Exercise Price therefor, the Company shall
promptly issue in the name of the Holder a certificate evidencing the Purchased
Shares being purchased by such exercise and deliver such certificate to the
address requested in the notice of exercise.
<PAGE>
3.4 No fractional shares or scrip representing fractional shares
shall be issued upon the exercise of this Warrant. In lieu of any fractional
share to which the Holder would otherwise be entitled, the Company shall make a
cash payment equal to the Exercise Price multiplied by such fraction.
3.5 Notwithstanding any provisions herein to the contrary, if the
fair market value of one share of Common Stock is greater than the Exercise
Price (at the date of calculation as set forth below), in lieu of exercising
this Warrant for cash, the Holder may elect to receive shares equal to the value
(as determined below) of this Warrant (or the portion thereof being canceled) by
surrender of this Warrant at the principal office of the Company, together with
the properly endorsed Notice of Exercise and notice of such election, in which
event the Company shall issue to the Holder a number of shares of Common Stock
computed using the following formula:
Y (A-B)
-------
X = A
Where X = the number of shares of Common Stock to be issued to the Holder
Y = the number of shares of Common Stock purchasable under the
Warrant or, if only a portion of the Warrant is being exercised,
the portion of the Warrant being canceled (at the date of such
calculation)
A = the fair market value of one share of the Company's Common Stock
(at the date of such calculation)
B = Exercise Price (as adjusted to the date of such calculation)
For purposes of the above calculation, fair market value of one share of
Common Stock shall be determined by the Company's Board of Directors in
good faith; provided, however, that where there exists a public market for
the Company's Common Stock at the time of such exercise, the fair market
value per share shall be the average of the closing bid and asked prices of
the Common Stock quoted in the Over-The-Counter Market Summary or the last
reported sale price of the Common Stock or the closing price quoted on the
Nasdaq National Market or on any exchange on which the Common Stock is
listed, whichever is applicable, as published in the Western Edition of The
Wall Street Journal for the five (5) trading days prior to the date of
determination of fair market value.
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4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF HOLDER. The Holder makes
the following representations, warranties and covenants:
4.1 Holder is acquiring the Warrants for its own account with the
present intention of holding such securities for investment purposes only and
not with a view to, or for sale in connection with, any distribution of such
securities (other than a distribution in compliance with all applicable federal
and state securities laws).
4.2 Holder is an experienced and sophisticated investor and has such
knowledge and experience in financial and business matters that it is capable of
evaluating the relative merits and the risks of an investment in the Warrants
and in the Shares and of protecting its own interests in connection with this
transaction.
4.3 Holder is willing to bear and is capable of bearing the economic
risk of an investment in the Warrants and the Shares.
4.4 The Company has made available, prior to the date of this
Agreement, to Holder the opportunity to ask questions of the Company and its
officers, and to receive from the Company and its officers information
concerning the terms and conditions of the Warrants and this Agreement and to
obtain any additional information with respect to the Company, its business,
operations and prospects, as reasonably requested by the Holder.
4.5 Holder is an "accredited investor" as that term is defined under
Rule 501(a)(8) of Regulation D promulgated by the Securities and Exchange
Commission under the Act.
4.6 For purposes of the application of federal and state securities
laws, Holder acknowledges that the offer and sale of the Warrants to such Holder
occurred in the State of Minnesota and that Holder is a resident of the State of
Minnesota.
5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
5.1 The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware. The Company has the
requisite corporate power and authority to carry on its business as now being
conducted and to execute, deliver and perform this Agreement and to consummate
the transactions contemplated hereby.
5.2 All corporate action on the part of the Company, its directors
and shareholders necessary for the authorization, execution, delivery and
performance by the Company of this Agreement and the consummation of the
transactions contemplated hereby, has been taken. This Agreement constitutes
the valid and binding obligation of the Company, enforceable in accordance with
its terms, subject to laws of general application relating to
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bankruptcy, insolvency and the relief of debtors and rules of law governing
specific performance, injunctive relief or other equitable remedies.
5.3 The execution and delivery of this Agreement by the Company does
not, and the consummation by the Company of the transactions contemplated by
this Agreement will not, constitute or result in a breach or violation of, or
(with or without the giving of notice or the lapse of time) a default under,
(i) the Certificate of Incorporation or By-laws of the Company or (ii) any law
to which the Company is subject.
5.4 The Purchased Shares, when issued in accordance with the terms of
this Warrant, will be duly authorized, issued and nonassessable shares of the
Common Stock of the Company, free and clear of any liens, claims or restrictions
imposed by or through the Company other than as set forth in this Agreement.
5.5 The Company covenants that it will at all times reserve and keep
available out of its authorized but unissued shares of Common Stock, solely for
the purpose of effecting the issuance of the Purchased Shares upon exercise of
all or part of the Warrants, such number of shares of Common Stock as shall then
be issuable upon the exercise of all of the Warrants.
5.6 The Company covenants that the Company currently meets the
eligibility requirements for use of Form S-3 for transactions involving
secondary offerings.
6. RESTRICTIONS ON TRANSFER OR EXERCISE OF THE WARRANTS AND SHARES.
Holder shall not sell, transfer (with or without consideration), assign,
pledge, hypothecate or otherwise dispose of (collectively, "Transfer") any of
the Purchased Shares unless the Purchased Shares are disposed of pursuant to
and in conformity with an effective registration statement filed with the
Securities and Exchange Commission (the "Commission") pursuant to the
Securities Act of 1933, as amended (the "Act"), or pursuant to an available
exemption from the registration and prospectus delivery requirements of the
Act, and the proposed disposition will not result in a violation of the
securities laws of any state of the United States.
If requested by the Company, Holder shall, prior to the transfer of such
Purchased Shares, deliver to the Company a written opinion of counsel,
satisfactory to the Company and its counsel, that the proposed disposition
will comply with the requirements set forth in this Section 6.
Any attempted Transfer which is not in full compliance with this Section 6
shall be null and void AB INITIO, and of no force or effect.
The Holder further agrees that any certificate evidencing the Purchased
Shares shall bear the following legend:
4
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THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
HAVE BEEN TAKEN FOR INVESTMENT, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE
DISPOSED OF EXCEPT IN ACCORDANCE WITH THE TERMS OF AN
AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED HOLDER
HEREOF, A COPY OF WHICH AGREEMENT IS ON FILE AT THE
PRINCIPAL OFFICES OF THE COMPANY.
The Holder further acknowledges and agrees that the Company may, at its
option, place notations evidencing the foregoing restrictions on transfer in its
shareholders register, and may place appropriate "stop transfer" instructions
with its transfer agent, if any.
7. COVENANTS OF HOLDER AND THE COMPANY.
7.1 DEMAND REGISTRATION.
(a) As soon as practical following receipt by the Company of a
written request executed by the Holder and requesting registration of the resale
by Holder of all of the Purchased Shares, the Company shall at its sole cost and
expense file a registration statement with the Commission on Form S-3 or any
successor form, under the Securities Act, covering the issuance of the Shares
issuable to the Holder upon exercise of the Warrant or the resale of the Shares
issuable upon exercise of the Warrant by the Holder. The Company will use its
best efforts to have such registration statement declared effective as soon as
possible thereafter, and shall keep such registration statement current and
effective until such time as the Shares issuable upon exercise of the Warrant
may be sold by the Holder at any time without restriction or pursuant to the
provisions of Rule 144(k) of the Commission or until such earlier date as all of
the Purchased Shares registered pursuant to such registration statement shall
have been sold or otherwise transferred by the Holder to a third party. The
Company shall also 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 update and keep such registration
statement (and the prospectus used in connection therewith) current and
effective for such three-year period and to comply with the provisions of the
Securities Act with respect to the sale of all securities covered by such
registration statement.
(b) The Company shall not be required to effect a registration
pursuant to this Section 7.1: (i) after the Company has effected one (1)
registration pursuant to this Section 7.1, and such registration has either (A)
been declared or ordered effective or (B) the request for such registrations has
been subsequently withdrawn by the Holder (and such withdrawal is not based on
materially adverse information concerning the Company of which the Holder was
not
5
<PAGE>
reasonably aware at the time of such request), in which case Company shall be
required to effect a registration pursuant to this Section 7.1 upon a
subsequent request of the Holder, but only at the Holder's expense; or (ii)
if the Shares issuable upon exercise of the Warrant may be sold by the Holder
at any time without restriction or pursuant to the provisions of Rule 144(k);
or (iii) if Form S-3 (or a successor or similar form) is not available for
such offering by the Holder; or (iv) if the Company shall furnish to the
Holder following receipt of its written request for registration, a
certificate signed on behalf of the Board of Directors by the Chairman of the
Board stating that in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company and its
shareholders for such registration statement to be filed and it is therefore
essential to defer the filing of such registration statement, in which event
the Company shall have the right to defer such filing for a period of not
more than one hundred eighty (180) days after receipt of the Holder's request
for registration.
7.2 PIGGYBACK REGISTRATION.
(a) The Company shall notify the Holder in writing at least fifteen
(15) days prior to the filing of any registration statement under the Securities
Act for purposes of a public offering of securities of the Company (excluding
registration statements relating to employee benefit plans, business
acquisitions, and corporate reorganizations) and will afford the Holder an
opportunity to include in such registration statement all or part of the
Purchased Shares held by the Holder. If the Holder desires to include in any
such registration statement all or any part of the Purchased Shares held by it,
it shall, within ten (10) days after the above-described notice from the
Company, so notify the Company in writing. Such notice shall state the intended
method of disposition of the Purchased Shares by the Holder. If the Holder
decides not to include all of its Purchased Shares in any registration statement
thereafter filed by the Company, the Holder shall nevertheless continue to have
the right to include any Purchased Shares in any subsequent registration
statement or registration statements as may be filed by the Company with respect
to offerings of its securities, all upon the terms and conditions set forth
herein.
(b) If the registration statement under which the Company gives
notice under this Section 7.2 is for an underwritten offering, the Company
shall so advise the Holder. In such event, the right of the Holder to be
included in a registration pursuant to this Section 7.2 shall be conditioned
upon the Holder's participation in such underwriting and the inclusion of the
Holder's Purchased Shares in the underwriting to the extent provided herein;
and in such case, the Holder shall enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting. Notwithstanding any other provision of the Agreement, if the
underwriter determines in good faith that marketing factors make advisable a
limitation of the number of shares to be underwritten, the number of shares
that may be included in the underwriting shall be allocated, first, to the
Company; second, to all holders (including Holder) entitled pursuant to
written agreements with the Company to register their securities on a pro
rata basis based on the total number of registrable shares of Common Stock
held by all such holders;
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<PAGE>
and third, to any shareholder of the Company on a pro rata basis. No such
reduction shall reduce the securities being offered by the Company for its
own account to be included in the registration.
(c) The Company shall have the right to terminate or withdraw any
registration initiated by it under this Section 7.2 prior to the effectiveness
of such registration whether or not the Holder has elected to include securities
in such registration. The expenses of such withdrawn registration shall be
borne by the Company in accordance with Section 7.3 hereof.
(d) The Company shall not be required to effect a registration
pursuant to this Section 7.2 if the Shares issuable upon exercise of the Warrant
may be sold by the Holder at any time without restriction or pursuant to the
provisions of Rule 144(k).
7.3 REGISTRATION PROCEDURES. The following provisions shall also be
applicable at the sole cost and expense of the Company:
(a) Following the effective date of a registration statement
registering the resale of Holder's Purchases Shares pursuant to Section 7.1 or
7.2 above, the Company shall, upon the request of the Holder, forthwith supply
such number of prospectuses meeting the requirements of the Securities Act as
shall be requested by the Holder to permit the Holder to make a public
distribution of all of its Purchased Shares, provided that the Holder shall from
time to time furnish the Company with such appropriate information (relating to
the intentions of the Holder) in connection therewith as the Company shall
request in writing.
(b) The Company shall use its best efforts to register or qualify the
Purchased Shares for sale in such states as the Holder reasonably requests.
(c) The Company shall bear the entire cost and expense of the
registration of securities provided for in this Section (but not the selling
expenses of the Holder).
(d) The Company shall indemnify and hold harmless the Holder from and
against any and all losses, claims, damages and liabilities (including
reasonable fees and expenses of counsel) arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in any
registration statement or any prospectus included therein required to be filed
or furnished by reason of this Section 7 or otherwise or in any application or
other filing under, the Securities Act or any other applicable Federal or state
securities law, or arising out of or based upon any omission or alleged omission
to state therein a material fact required to be stated therein (i.e., in any
such registration statement, prospectus, application or other filing) or
necessary to make the statements therein not misleading, to which such person
may become subject, or any violation or alleged violation by the Company to
which such Person may become subject, under the Securities Act, the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), or other Federal or state
laws or regulations, at common law or otherwise, except to the extent that as
such losses, claims, damages or liabilities are caused by any such
7
<PAGE>
untrue statement or alleged untrue statement or omission or alleged omission
based upon written information furnished to the Company by or on behalf of
the Holder expressly for use therein; PROVIDED HOWEVER, that the Holder shall
at the same time indemnify the Company, its directors, each officer signing
the related registration statement, and each person, if any, who controls the
Company within the meaning of the Securities Act, from and against any and
all losses, claims, damages and liabilities (including reasonable fees and
expenses of counsel) arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in any registration
statement or any prospectus included therein required to be filed or
furnished by reason of this Section, or otherwise or in any application or
other filing under, the Securities Act or any other applicable Federal or
state securities law, or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein
(i.e., in any such registration statement, prospectus, application or other
filing) or necessary to make the statements therein not misleading, to which
such person may become subject, or any violation or alleged violation by the
Holder to which the Company, its directors, each officer signing the related
registration statement, and each person, if any, who controls the Company
within the meaning of the Securities Act, may become subject, under the
Securities Act, the Exchange Act, or other Federal or state laws or
regulations, at common law or otherwise, to the extent that as such losses,
claims, damages or liabilities are caused by any such untrue statement or
alleged untrue statement or omission or alleged omission based upon written
information furnished to the Company by or on behalf of the Holder expressly
for use therein.
(e) In the event any person entitled to indemnification hereunder
receives in writing a complaint, claim or other written notice of any loss,
claim, damage, liability or action giving rise to a claim for indemnification
under Section 7.3(d), the person claiming indemnification under Section
7.3(d) shall promptly notify the person or persons against whom
indemnification is sought (the "Indemnitor") of such complaint, notice, claim
or action, and the Indemnitor shall have the right to investigate and defend
any such loss, claim, damage, liability or action. The person claiming
indemnification shall have the right to employ separate counsel in any such
action and to participate in the defense thereof but the fees and expenses of
such counsel shall not be at the expense of the Indemnitor. In no event
shall the Indemnitor be obligated to indemnify any person for any settlement
of any claim or action effected without the Indemnitor's consent, which
consent shall not be unreasonably withheld.
8. DISPUTES.
8.1 ARBITRATION.
(a) Except as otherwise expressly provided for in Section 8.3
below, all disputes arising in connection with this Agreement shall be finally
settled by arbitration in Los Angeles County, California, in accordance with the
rules of the American Arbitration Association (the "Rules of Arbitration") and
judgment on the award rendered by the arbitration panel (the "Arbitration
Panel") may be entered in any court or tribunal of competent jurisdiction.
8
<PAGE>
(b) Any party which desires to initiate arbitration proceedings
as provided in Section 8.1(a) above may do so by delivering written notice to
the other party (the "Arbitration Notice") specifying (A) the nature of the
dispute or controversy to be arbitrated, (B) the name and address of the
arbitrator appointed by the party initiating such arbitration and (C) such other
matters as may be required by the Rules of Arbitration.
(c) The party who receives an Arbitration Notice shall appoint
an arbitrator and notify the initiating party of such arbitrator's name and
address within 30 days after delivery of the Arbitration Notice; otherwise, a
second arbitrator shall be appointed at the request of the party who delivered
the Arbitration Notice as provided in the Rules of Arbitration. The two
arbitrators so appointed shall appoint a third arbitrator who shall be the
chairman or the Arbitration Panel and who shall be of American nationality.
Should the arbitrators appointed by the parties not agree upon the appointment
of the third arbitrator within 30 days of their appointment, the third shall be
appointed in accordance with the Rules of Arbitration.
(d) In any arbitration proceeding conducted pursuant to the
provisions of this Section 8, both parties shall have the right to discovery, to
call witnesses and to cross-examine the opposing party's witnesses, either
through legal counsel, expert witnesses or both, and such proceedings shall be
conducted in the English language.
8.2 FINALITY OF DECISION. All decisions of the Arbitration Panel
shall be final, conclusive and binding on all parties and shall not be subject
to judicial review. The arbitrator shall divide all costs (other than fees of
counsel) incurred in conducting the arbitration proceeding and the final award
in accordance with what they deem just and equitable under the circumstances.
8.3 LIMITATIONS. Notwithstanding anything to the contrary contained
in Sections 8.1 and 8.2 above, any claim by either party for injunctive or other
equitable relief, including specific performance, may be brought in any court of
competent jurisdiction and any judgment, order or decree relating thereto shall
have precedence over any arbitral award or proceeding.
9. MISCELLANEOUS PROVISIONS.
9.1 FURTHER ASSURANCES. The Company and the Holder agree to execute
such further documents or instruments and to take such other actions as are
necessary to carry out the transactions contemplated by this Agreement and the
other agreements referred to herein.
9.2 NOTICES. Any and all notices and other communications to be
served hereunder shall be either delivered (i) by hand; (ii) by prepaid
overnight delivery service; or (iii) by certified or registered mail, postage
pre-paid, in each case, addressed as follows:
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<PAGE>
If to the Holder:
Keltool, Inc.
c/o Wayne O. Duescher
561 Shoreview Park Road
St. Paul, MN 55126
With a copy to:
Winthrop & Weinstine
3000 Dain Bosworth Plaza
60 South Sixth Street
Minneapolis, MN 55402
Attn: Richard A. Hoel, Esq.
If to the Company:
3D Systems Corporation
26081 Avenue Hall
Valencia, California 91355
Attention: A. Sidney Alpert, Esq.
with a copy to:
Troop Meisinger Steuber & Pasich
10940 Wilshire Blvd., Suite 800
Los Angeles, CA 90024
Attn: Murray Markiles, Esq.
or at such other address and to the attention of such other person as any party
hereto may designate by written notice to the other in accordance with the terms
hereof.
Any such notice shall be effective (i) if delivered by hand, when
personally delivered; (ii) if given by overnight delivery service, on the
business day following deposit with such service addressed as aforesaid; or
(iii) if given by registered or certified mail, 72 hours after deposit in the
mail postage pre-paid, addressed as aforesaid.
9.3 AMENDMENT; WAIVER. This Agreement shall be binding upon and
inure to the benefit of the parties to this Agreement and their respective
successors, heirs and personal representatives. No provision of this Agreement
may be amended or waived unless in writing
10
<PAGE>
signed by all of the parties to this Agreement. Waiver of any one provision
of this Agreement shall not be deemed to be a waiver of any other provision.
9.4 GOVERNING LAW. This Agreement shall be governed by and construed
both as to validity and performance and enforced in accordance with the laws of
the State of California without giving effect to the choice of law principles
thereof. Each of the parties hereto hereby waive their right to a jury trial
with respect to any such legal actions.
9.5 ATTORNEYS' FEES. If any action, suit or other proceeding is
instituted to remedy, prevent or obtain relief from a default in the performance
by any party of its obligations under this Agreement, the prevailing party shall
recover all of such party's costs and reasonable attorneys' fees incurred in
each and every such action, suit or other proceeding, including any and all
appeals or petitions therefrom.
9.6 NO FINDERS. The parties each agree to indemnify and hold
harmless the other against any expense incurred by reason of any consulting,
brokerage commission or finder's fee alleged to be payable to any person in
connection with the transactions contemplated hereby because of any act,
omission or statement of indemnifying party or any dealings by the indemnifying
party with any consultant, broker or finder.
9.7 EXPENSES. Each of the parties shall pay its own expenses
incurred in connection with the preparation of this agreement and the
consummation of the transactions contemplated hereby.
9.8 RECAPITALIZATIONS. The grant of the Warrant shall not affect
in any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes in its capital or business
structure, or to merge, consolidate, dissolve or liquidate, or to sell or
transfer all or any part of its business or assets.
9.9 SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such a manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be or become
prohibited or invalid under applicable law, such provision shall be ineffective
to the extent of such prohibition or invalidity without invalidating the
remainder of such provision or the remaining provisions of this Agreement.
9.10 HEADINGS. The section and subsection headings contained in this
Agreement are included for convenience only and form no part of the agreement
between the parties.
9.11 COUNTERPARTS. This Agreement may be executed in several
counterparts, all of which together shall constitute one agreement binding on
all parties hereto, notwithstanding that all of the parties have not signed the
same counterpart.
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9.12 SURVIVAL. The provisions of Section 7.3(d), Section 7.3(e),
Section 8 and Section 9 shall survive termination of this Agreement.
9.13 ENTIRE AGREEMENT. This Agreement constitutes and embodies the
entire understanding and agreement of the parties hereto relating to the subject
matter hereof and there are no other agreements or understandings, written or
oral, in effect between the parties relating to such subject matter except as
expressly referred to herein.
9.14 INTERPRETATION. In all matters of interpretation, whenever
necessary to give effect to any provision of this Agreement, each gender
shall include the others, the singular shall include the plural, and the
plural shall include the singular. The titles of the paragraphs of this
Agreement are for convenience only and shall not in any way affect the
interpretation of any provision or condition of this Agreement. Each party
and its counsel have reviewed and revised this Agreement. As a result, the
normal rule of construction to the effect that any ambiguities are to be
resolved against the drafting party shall not be employed in the
interpretation of this Agreement or any amendments or exhibits thereto.
IN WITNESS WHEREOF, the parties have entered into and executed this Warrant
Agreement as of the date first above written.
3D SYSTEMS CORPORATION
By:
----------------------
Its:
----------------------
KELTOOL, INC. ("HOLDER")
----------------------------
By: Wayne O. Duescher
Its: President
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EXHIBIT "A"
NOTICE OF EXERCISE
(TO BE SIGNED ONLY UPON EXERCISE OF THE WARRANT)
TO: 3D Systems Corporation
The undersigned hereby irrevocably elects (to the extent indicated herein)
to exercise the purchase right represented by the Warrant granted to the
undersigned on September __, 1996 and to purchase thereunder ___________ shares
of Common Stock of 3D Systems Corporation, a Delaware corporation (the
"Company"). The closing of the exercise of the purchase right shall take place
at _____ on _________________, 199_ at the principal executive office of the
Company located at 26081 Avenue Hall, Valencia, California 91355.
The undersigned represents that it (a) is acquiring the Common Stock for
its own account with the present intention of holding such securities for
investment purposes only and not with a view to, or for sale in connection with,
any distribution of such securities (other than a distribution in compliance
with all applicable federal and state securities laws); and (b) is an
"accredited investor" as that term is defined under Rule 501(a)(8) of
Regulation D promulgated by the Securities and Exchange Commission under
the Securities Act.
KELTOOL, INC.
----------------------------
By:
------------------------
Its:
-----------------------
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EXHIBIT 10.3
NON-COMPETITION AGREEMENT
THIS NON-COMPETITION AGREEMENT (this "Agreement") is made as of the __th
day of September, 1996, by and among 3D SYSTEMS, INC., a California corporation
("3D") and Wayne O. Duescher ("Covenantor").
RECITALS
3D is purchasing from Keltool all of the assets (the "Assets") of Keltool,
together with the goodwill of Keltool (collectively, the "Business"), located
at 561 Shoreview Park Road, St. Paul, Minnesota 55126, pursuant to that certain
Asset Purchase Agreement dated August 30, 1996 (the "Purchase Agreement").
Covenantor has, in consideration of 3D entering into the Purchase Agreement,
which Purchase Agreement would not have been entered into by 3D if Covenantor
was unwilling to execute this Agreement, agreed to execute this Agreement and
perform his obligations hereunder.
AGREEMENT
NOW, THEREFORE, in reliance on the foregoing facts and in consideration of
the mutual covenants and agreements contained herein, the parties hereto agree
as follows:
1. NON-COMPETITION. During the term hereof Covenantor agrees that,
throughout the State of Minnesota, any other state or territory of the United
States, or anywhere else in the World, he shall not, without the prior
written consent of 3D (which consent may be withheld by 3D in the exercise of
its sole and absolute discretion), directly or indirectly, own, manage,
operate, join, control, finance or participate in the ownership, management,
operation, control or financing of, or be connected as an officer, director,
employee, principal, agent, representative, consultant, investor, owner,
partner, stockholder (except as a holder of less than 2% of the issued and
outstanding voting stock of a publicly held corporation), member, manager
joint venturer or otherwise permit his name to be used by or in connection
with, or lease, sell, or permit to use any real property or interest therein
owned by him to, any business which is in any manner competitive with the
Business, as conducted during the one year period prior to the date hereof;
provided however, that Covenantor may continue to conduct the business of
Keltech Engineering as currently conducted (the "Keltech Business"). It is
agreed that the Keltech Business as currently conducted does not involve the
manufacture of, sale of, or provision of services to enable or facilitate the
manufacture or creation of, any hard tools or molds for hard tools. In
connection with and in addition to the foregoing, Covenantor agrees during
the term hereof not to: (i) hire or offer employment to any employee of 3D
or any of its affiliates unless 3D first terminates the employment of such
employee (except with respect to Matt Mullenburg, who Conventor may hire or
offer employment to upon the earlier of (x) the relocation of the Assets
<PAGE>
and Business of Keltool to California, or (y) after six months after the
Closing of the sale pursuant to the Purchase Agreement); or (ii) solicit,
divert, or take away from 3D and its affiliates the business of any
individual, corporation, trust, estate, partnership, joint venture,
association, limited liability company, governmental bureau or other entity
of whatsoever kind or nature ("Person") who or which at the time of the
Closing or at any time within the three years prior to such time or at any
time thereafter, was a customer of the Business.
2. CONFIDENTIAL INFORMATION. Covenantor agrees that he will not, during
the term of this Agreement or at any time thereafter, use or disclose to any
Person other than 3D or its affiliates or their respective employees acting on
behalf of 3D or its affiliates, any customer list, potential customer list,
records, techniques, business secrets, trade secrets or any other information
with respect to the Business not available generally in the rapid prototype
tooling or moldmaking industries and not known to competitors of 3D or its
affiliates or other third parties unaffiliated with 3D or its affiliates
("Confidential Information") except as may be required by order of court or
other governmental agency, provided that Covenantor shall have first provided
3D with notice of such order and an opportunity to object.
3. CONSIDERATION. As consideration for the covenants and agreements of
Covenantor contained herein, 3D has agreed to execute the Purchase Agreement
and the exhibits thereto, and to perform its obligations thereunder. The
parties hereto agree that $250,000 of the Purchase Price (as that term is
defined in the Purchase Agreement) has been allocated to the covenants and
agreements of Covenantor contained herein. Covenantor hereby acknowledges
that 3D has been materially induced to enter into the Purchase Agreement and
to make the payments provided for thereunder by and in reliance on
Covenantor's execution of this Agreement, such execution of this Agreement
being a condition precedent to 3D's obligation to consummate the Purchase
Agreement, and agreement to comply with the covenants and agreements
contained therein.
4. TERM AND TERMINATION. The term of this Agreement shall commence on
the date hereof and shall terminate on that date which is five (5) years
following the date of this Agreement.
5. INJUNCTIVE RELIEF AND OTHER REMEDIES UPON BREACH BY COVENANTOR.
Covenantor acknowledges and agrees that (i) the provisions of this Agreement
are reasonable and necessary to protect the legitimate interests of 3D, and
(ii) in the event of any breach by Covenantor of any of Covenantor's
covenants and agreements contained herein, 3D would encounter extreme
difficulty in attempting to prove the actual amount of damages suffered by it
as a result of such breach, 3D would not have an adequate remedy at law in
such event and, therefore, in addition to any other remedy it may have at law
or in equity in the event of any such breach, 3D shall be entitled to seek
and receive specific performance and temporary, preliminary and permanent
injunctive relief from violation of any of the provisions of this Agreement
from any court of competent jurisdiction without the necessity of proving the
amount of any actual damages to it resulting from such breach.
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6. MISCELLANEOUS.
6.1 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective
successors and assigns. No party other than 3D may assign any of its rights,
or delegate any of its duties or obligation, under this Agreement without the
prior written consent of the other parties, and any such purported assignment
or delegation shall be void AB INITIO. Notwithstanding the foregoing, 3D,
its affiliates, and its successors and assigns, may assign its rights and
delegate its duties to any successor entity resulting from any liquidation,
merger, consolidation, reorganization, or transfer of all or substantially
all of the assets or stock of 3D or the Business of 3D.
6.2 NOTICES. All notices, demands and other communications
(collectively, "Notices") given or made pursuant to this Agreement shall be
in writing and shall be deemed to have been duly given if sent by registered
or certified mail, return receipt requested, postage and fees prepaid, by
overnight service with a nationally recognized "next day" delivery company
such as Federal Express or United Parcel Service, by facsimile transmission
(confirmation received), or otherwise actually delivered to the following
addresses:
(a) if to 3D:
3D Systems, Inc.
26081 Avenue Hall
Valencia, California 91355
Attn: A. Sidney Alpert
Fax: (805) 257-1200
(b) if to Covenantor:
Wayne O. Duescher
559 Shoreview Road
Shoreview, MN 55126
Any Notice shall be deemed duly given when received by the addressee thereof,
provided that any Notice sent by registered or certified mail shall be deemed
to have been duly given two business days from the date of deposit in the
United States mails, unless sooner received and any notice sent by overnight
service as provided above shall be deemed to have been duly given the next
business day from date of deposit with the service. Any of the parties to
this Agreement may from time to time change its address for receiving notices
by giving written notice thereof in the manner set forth above.
6.3 AMENDMENT; WAIVER. No provision of this Agreement may be waived
unless in writing signed by all of the parties to this Agreement, and the waiver
of any one
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provision of this Agreement shall not be deemed to be a waiver of any other
provision. This Agreement may be amended only by a written agreement
executed by all of the parties to this Agreement.
6.4 GOVERNING LAW. This Agreement shall be governed by and construed
both as to validity and performance and enforced in accordance with the laws of
the State of California without giving effect to the choice of law principles
thereof.
6.5 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
6.6 REMEDIES CUMULATIVE. Each of the various rights, powers and
remedies shall be deemed to be cumulative with, and in addition to, all the
rights, powers and remedies which each party may have hereunder or under
applicable law relating hereto or to the subject matter hereof, and the exercise
or partial exercise of any such right, power or remedy shall constitute neither
an exclusive election thereof nor a waiver of any other such right, power or
remedy.
6.7 HEADINGS. The section and subsection headings contained in this
Agreement are included for convenience only and form no part of the agreement
between the parties.
6.8 SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such a manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be or
become prohibited or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity without
invalidating the remainder of such provision or the remaining provisions of
this Agreement.
6.9 EXPENSES. Each party shall pay its own costs, expenses,
including without limitation, the fees and expenses of their respective counsel
and financial advisors.
6.10 ENTIRE AGREEMENT. This Agreement, including the other agreements
and schedules to be entered into in connection with the transactions
contemplated by the Purchase Agreement constitutes and embodies the entire
understanding and agreement of the parties hereto relating to the subject matter
hereof and there are no other agreements or understandings, written or oral, in
effect between the parties relating to such subject matter except as expressly
referred to herein.
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IN WITNESS WHEREOF, the parties hereto have executed this Non-Competition
Agreement as an instrument under seal as of the day and year first set forth
above.
----------------------------
WAYNE O. DUESCHER
3D SYSTEMS, INC.
a Delaware corporation
----------------------------
By:
Its:
<PAGE>
EXHIBIT 11
3D SYSTEMS CORPORATION
COMPUTATION OF PER SHARE EARNINGS
PRIMARY AND FULLY DILUTED COMPUTATION
<TABLE>
<CAPTION>
Three Month Periods Ended Nine Month Periods Ended
-------------------------------------- --------------------------------------
September 29, 1995 September 27, 1996 September 29, 1995 September 27, 1996
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE
Net income $ 4,865,705 $ 1,015,404 $ 7,607,233 $ 2,937,715
------------------ ------------------ ------------------ ------------------
------------------ ------------------ ------------------ ------------------
Applicable common and common
stock equivalent shares:
Weighted average number of shares
of common stock outstanding
during the period 11,245,945 11,336,475 9,896,816 11,313,810
Incremental number of shares
outstanding during the period
resulting from the assumed
exercises of stock options and
warrants 482,995 360,303 454,367 448,932
------------------ ------------------ ------------------ ------------------
Weighted average number of shares
of common stock and common stock
equivalents during the period 11,728,940 11,696,778 10,351,183 11,762,742
------------------ ------------------ ------------------ ------------------
------------------ ------------------ ------------------ ------------------
Primary earning per share $ .41 $ .09 $ .73 $ .25
------------------ ------------------ ------------------ ------------------
------------------ ------------------ ------------------ ------------------
FULLY DILUTED EARNINGS PER SHARE
Net income $ 4,865,705 $ 1,015,404 $ 7,607,233 $ 2,937,715
------------------ ------------------ ------------------ ------------------
------------------ ------------------ ------------------ ------------------
Applicable common and common stock
equivalent shares:
Weighted average number of shares
of common stock outstanding
during the period 11,245,945 11,336,475 9,896,816 11,313,810
Incremental number of shares
outstanding during the period
resulting from the assumed
exercises of stock options and
warrants 483,010 360,303 472,279 449,541
------------------ ------------------ ------------------ ------------------
Weighted average number of shares
of common stock and common stock
equivalents outstanding during the
period 11,728,955 11,696,778 10,369,095 11,763,351
------------------ ------------------ ------------------ ------------------
------------------ ------------------ ------------------ ------------------
Fully diluted earnings per share $ .41 $ .09 $ .73 $ .25
------------------ ------------------ ------------------ ------------------
------------------ ------------------ ------------------ ------------------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-27-1996
<CASH> 30,467,559
<SECURITIES> 0
<RECEIVABLES> 18,406,361
<ALLOWANCES> 399,376
<INVENTORY> 11,763,861
<CURRENT-ASSETS> 66,150,747
<PP&E> 22,210,665
<DEPRECIATION> 7,335,032
<TOTAL-ASSETS> 88,503,911
<CURRENT-LIABILITIES> 15,932,009
<BONDS> 0
0
0
<COMMON> 11,343
<OTHER-SE> 66,350,966
<TOTAL-LIABILITY-AND-EQUITY> 88,503,911
<SALES> 38,194,461
<TOTAL-REVENUES> 57,511,527
<CGS> 17,472,167
<TOTAL-COSTS> 29,543,316
<OTHER-EXPENSES> 24,332,798
<LOSS-PROVISION> 45,000
<INTEREST-EXPENSE> (1,147,837)
<INCOME-PRETAX> 4,738,250
<INCOME-TAX> 1,800,535
<INCOME-CONTINUING> 2,937,715
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,937,715
<EPS-PRIMARY> .25
<EPS-DILUTED> .25
</TABLE>
