-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ai/R8tJI5CHPaId3/dVxcHk4V278IwZRqZdmHwBj+1ei3sdmy/yWnOs4Ceg9GRY+ XmeU/EBbRkbR39anyCfw0A== 0001011438-02-000567.txt : 20021112 0001011438-02-000567.hdr.sgml : 20021111 20021112162853 ACCESSION NUMBER: 0001011438-02-000567 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 20020927 FILED AS OF DATE: 20021112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: 3 D SYSTEMS CORP CENTRAL INDEX KEY: 0000910638 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 954431352 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-22250 FILM NUMBER: 02817509 BUSINESS ADDRESS: STREET 1: 26081 AVENUE HALL CITY: VALENCIA STATE: CA ZIP: 91355 BUSINESS PHONE: 6612955600 MAIL ADDRESS: STREET 1: 26081 AVENUE HALL CITY: VALENCIA STATE: CA ZIP: 91355 10-Q 1 form_10-q.txt 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, 2002 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) (661) 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 November 7, 2002: 12,708,171 3D SYSTEMS CORPORATION TABLE OF CONTENTS Page PART I. FINANCIAL INFORMATION.................................................3 ITEM 1. Financial Statements.......................................3 Consolidated Balance Sheets as of September 27, 2002 (unaudited) and December 31, 2001..........................3 Consolidated Statements of Operations for the Three Months and Nine Months Ended September 27, 2002 and September 28, 2001 (unaudited).........................4 Consolidated Statement of Stockholders' Equity for the year ended December 31, 2001 and for the nine months ended September 27, 2002 (unaudited)................5 Consolidated Statements of Cash Flows for the Nine Months Ended September 27, 2002 and September 28, 2001 (unaudited).............................6 Consolidated Statements of Comprehensive Income (Loss) for the Three Months and Nine Months Ended September 27, 2002 and September 28, 2001 (unaudited)......8 Notes to Consolidated Financial Statements (unaudited).....9 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................16 Liquidity and Capital Resources...........................26 Cautionary Statements and Risk Factors....................28 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk.........................................35 ITEM 4. Controls and Procedures...................................36 PART II. OTHER INFORMATION....................................................37 ITEM 1. Litigation Proceedings....................................37 ITEM 6. Exhibits and Reports on Form 8-K..........................38 Page 2 PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements
3D SYSTEMS CORPORATION Consolidated Balance Sheets As of September 27, 2002 and December 31, 2001 (in thousands) (UNAUDITED) SEPTEMBER 27, DECEMBER 31, 2002 2001 ------------- ------------ ASSETS Current assets: Cash and cash equivalents $ 1,032 $ 5,948 Accounts receivable, less allowances for doubtful accounts of $2,224 (2002) and $2,710 (2001) 30,120 38,181 Current portion of lease receivables 391 498 Inventories 14,940 17,822 Deferred tax assets 5,764 5,271 Prepaid expenses and other current assets 2,878 2,817 ---------- ---------- Total current assets 55,125 70,537 Property and equipment, net 15,785 17,864 Licenses and patent costs, net 13,646 12,314 Deferred tax assets 10,035 6,618 Lease receivables, less current portion 1,019 1,750 Acquired technology, net 8,018 9,192 Goodwill 43,381 44,158 Other assets, net 2,951 3,572 ---------- ---------- $ 149,960 $ 166,005 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Line of credit $ 546 $ 6,151 Accounts payable 13,216 12,819 Accrued liabilities 10,373 15,681 Current portion of long-term debt 4,512 3,135 Customer deposits 904 1,624 Deferred revenues 12,623 13,697 ---------- ---------- Total current liabilities 42,174 53,107 Deferred tax liabilities 4,888 4,210 Other liabilities 3,456 3,329 Long-term debt, less current portion 13,845 16,240 Subordinated debt 10,000 9,400 ---------- ---------- 74,363 86,286 ---------- ---------- Stockholders' equity: Preferred stock, authorized 5,000 shares, none issued --- --- Common stock, authorized 25,000 shares, issued 12,931 and outstanding 12,706 (2002) and issued 13,357 and outstanding 13,132 (2001) 13 13 Capital in excess of par value 86,363 93,173 Notes receivable from officers for purchase of stock (59) (244) Accumulated deficit (4,515) (5,263) Accumulated other comprehensive loss (4,665) (6,420) Treasury stock, at cost, 225 shares (2002 and 2001) (1,540) (1,540) ---------- ---------- Total stockholders' equity 75,597 79,719 ---------- ---------- $ 149,960 $ 166,005 ========== ==========
See accompanying notes to consolidated financial statements Page 3
3D SYSTEMS CORPORATION Consolidated Statements of Operations (in thousands, except per share amounts) (unaudited) THREE MONTHS ENDED NINE MONTHS ENDED ------------------------ ------------------------ SEPTEMBER SEPTEMBER SEPTEMBER SEPTEMBER 27, 2002 28, 2001 27, 2002 28, 2001 ----------- ----------- ----------- ----------- Sales: Products $ 19,062 $ 22,440 $ 57,354 $ 60,327 Services 9,327 9,104 27,013 24,162 ----------- ----------- ----------- ----------- Total sales 28,389 31,544 84,367 84,489 Cost of sales: Products 9,541 11,745 31,310 29,346 Services 6,701 6,280 19,898 17,509 ----------- ----------- ----------- ----------- Total cost of sales 16,242 18,025 51,208 46,855 ----------- ----------- ----------- ----------- Gross profit 12,147 13,519 33,159 37,634 ----------- ----------- ----------- ----------- Operating expenses: Selling, general and administrative 11,129 10,001 35,072 28,001 Research and development 3,789 2,791 12,435 7,624 Severance and other restructuring costs 2,734 --- 4,350 --- ----------- ----------- ----------- ----------- Total operating expenses 17,652 12,792 51,857 35,625 ----------- ----------- ----------- ----------- (Loss) income from operations (5,505) 727 (18,698) 2,009 Interest and other income (expense), net (629) (360) (1,997) (22) Gain on arbitration settlement --- --- 18,464 --- ----------- ----------- ----------- ----------- (Loss) income before (benefit from) provision for income taxes (6,134) 367 (2,231) 1,987 (Benefit from) provision for income taxes (4,345) 136 (2,979) 735 ----------- ----------- ----------- ----------- Net (loss) income $ (1,789) $ 231 $ 748 $ 1,252 =========== =========== =========== =========== Shares used to calculate basic net income (loss) per share 12,675 12,499 12,881 12,396 =========== =========== =========== =========== Basic net income (loss) per share $ (.14) $ .02 $ .06 $ .10 =========== =========== =========== =========== Shares used to calculate diluted net income (loss) per share 12,675 13,276 13,441 13,176 =========== =========== =========== =========== Diluted net income (loss) per share $ (.14) $ .02 $ .06 $ .10 =========== =========== =========== ===========
See accompanying notes to consolidated financial statements Page 4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AS OF DECEMBER 31, 2001 AND SEPTEMBER 27, 2002 (IN THOUSANDS) (UNAUDITED) NOTES COMMON STOCK RECEIVABLE ---------------------- CAPITAL IN FROM ACCUMULATED PAR EXCESS OF OFFICERS OTHER TOTAL VALUE PAR FOR PURCHASE ACCUMULATED COMPREHENSIVE TREASURY STOCKHOLDERS' SHARES $0.001 VALUE OF STOCK DEFICIT INCOME (LOSS) STOCK EQUITY --------- -------- ----------- ------------ ----------- ------------- --------- ------------- Balance at December 31, 2000 12,198 $ 12 $ 81,568 $ (330) $ (3,922) $ (3,992) $ (1,540) $ 71,796 Exercise of stock options 294 --- 2,127 --- --- --- --- 2,127 Employee stock purchase plan 23 --- 242 --- --- --- --- 243 Private placement 617 --- 8,021 --- --- --- --- 8,021 Repayment of officer loans --- --- --- 86 --- --- --- 86 Tax benefit related to stock option exercises --- --- 1,215 --- --- --- --- 1,215 Net loss --- --- --- --- (1,341) --- --- (1,341) Cumulative translation adjustment --- --- --- --- --- (2,428) --- (2,428) --------- -------- ----------- ------------ ----------- ------------- --------- ----------- Balance at December 31, 2001 13,132 13 93,173 (244) (5,263) (6,420) (1,540) 79,719 Exercise of stock options 106 --- 788 --- --- --- --- 788 Employee stock purchase plan 18 --- 155 --- --- --- --- 155 Vantico settlement (net of put option) (1,550) (1) (20,308) --- --- --- --- (20,309) Private placement 1,000 1 12,491 --- --- --- --- 12,492 Issuance of warrants --- --- 64 --- --- --- --- 64 Repayment of officer loans --- --- --- 185 --- --- --- 185 Net income --- --- --- --- 748 --- --- 748 Cumulative translation adjustment --- --- --- --- --- 1,755 --- 1,755 --------- -------- ----------- ------------ ----------- ------------- --------- ----------- Balance at September 27, 2002 12,706 $ 13 $ 86,363 $ (59) $ (4,515) $ (4,665) $ (1,540) $ 75,597 ========= ======== =========== ============ =========== ============= ========= ===========
See accompanying notes to consolidated financial statements. Page 5
3D SYSTEMS CORPORATION Consolidated Statements of Cash Flows (in thousands) (unaudited) NINE MONTHS ENDED ------------------------- SEPTEMBER SEPTEMBER 27, 2002 28, 2001 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 748 $ 1,252 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Deferred income taxes (3,897) 356 Gain on arbitration settlement (including $1,846 included in S,G&A for legal reimbursement) (20,310) --- Depreciation and amortization 7,129 4,253 Loss on disposition of property and equipment 179 153 Issuance of warrants related to RPC employees 64 --- Changes in operating accounts, excluding acquisition: Accounts receivable 9,565 (3,977) Lease receivables 838 3,711 Inventories 3,087 (3,471) Prepaid expenses and other current assets 105 999 Other assets 561 (1,606) Accounts payable (410) (301) Accrued liabilities (1,629) 1,524 Customer deposits (720) 23 Deferred revenues (1,446) (625) Other liabilities 705 (1,735) ----------- ----------- Net cash (used in) provided by operating activities (5,431) 556 CASH FLOWS FROM INVESTING ACTIVITIES: Investment in OptoForm SARL (1,200) (1,311) Investment in DTM --- (48,606) Investment in RPC (2,045) (2,113) Purchase of property and equipment (1,569) (3,684) Additions to licenses and patents (2,661) (203) Software development costs (446) (299) ----------- ----------- Net cash used for investing activities (7,921) (56,216) CASH FLOWS FROM FINANCING ACTIVITIES: Exercise of stock options and purchase plan 943 2,282 Proceeds from sale of stock 12,492 8,021 Borrowings 34,928 39,092 Repayment of long-term debt (40,950) (4,061) Repayment of notes receivable from officers and employees 185 39 ----------- ----------- Net cash provided by financing activities 7,598 45,373 Effect of exchange rate changes on cash 838 (184) ----------- ----------- Net (decrease) increase in cash and cash equivalents (4,916) (10,471) Cash and cash equivalents at the beginning of the period 5,948 18,999 ----------- ----------- Cash and cash equivalents at the end of the period $ 1,032 $ 8,528 =========== ===========
See accompanying notes to consolidated financial statements. Page 6 Supplemental schedule of non-cash investing and financing activities: During the nine months ended September 27, 2002 and September 28, 2001, the Company transferred $4.9 million and $2.4 million of property and equipment from inventories to fixed assets, respectively. Additionally, $4.0 million and $1.3 million of property and equipment was transferred from fixed assets to inventories for the nine months ended September 27, 2002 and September 28, 2001, respectively. In conjunction with the $22 million arbitration settlement with Vantico which was settled through the return of shares to the Company, the Company allocated $1.7 million to a put option which is included as an addition to stockholders' equity in the first quarter of 2002. The Company issued warrants valued at $64,000 to selling shareholders of RPC. Page 7
3D SYSTEMS CORPORATION Consolidated Statements of Comprehensive Income (loss) (in thousands) (unaudited) THREE MONTHS ENDED NINE MONTHS ENDED ----------------------------- ----------------------------- SEPTEMBER 27, SEPTEMBER 28, SEPTEMBER 27, SEPTEMBER 28, 2002 2001 2002 2001 ------------- ------------- ------------- ------------- Net income (loss) $ (1,789) $ 231 $ 748 $ 1,252 Foreign currency translation (1,116) 1,402 1,755 (463) ------------- ------------- ------------- ------------ Comprehensive income (loss) $ (2,905) $ 1,633 $ 2,503 $ 789 ============= ============= ============= ============
See accompanying notes to consolidated financial statements. Page 8 3D SYSTEMS CORPORATION Notes to Consolidated Financial Statements September 27, 2002 and September 28, 2001 (unaudited) (1) Basis of Presentation The accompanying 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 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 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, 2001. The results of the three and nine months ended September 27, 2002 are not necessarily indicative of the results to be expected for the full year. (2) Significant accounting policies and estimates The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to allowance for doubtful accounts, income taxes, inventories, goodwill, intangible assets and contingencies. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The Company believes the following critical accounting policies are most affected by management's judgements and the estimates used in preparation of the consolidated financial statements. Allowance for doubtful accounts. The Company's estimate for the allowance for doubtful accounts related to trade receivables is based on two methods. The amounts calculated from each of these methods are combined to determine the total amount reserved. First, the Company evaluates specific accounts where it has information that the customer may have an inability to meet its financial obligations (for example, bankruptcy). In these cases, the Company uses its judgment, based on the available facts and circumstances, and records a specific reserve for that customer against amounts due to reduce the receivable to the amount that is expected to be collected. These specific reserves are reevaluated and adjusted as additional information is received that impacts the amount reserved. Second, a reserve is established for all customers based on a range of percentages applied to aging categories. These percentages are based on historical collection and write-off experience. If circumstances change (for example, the Company experiences higher than expected defaults or an unexpected material adverse change in a major customer's ability to meet its financial obligation to the Company), estimates of the recoverability of amounts due to the Company could be reduced by a material amount. Income taxes. The determination of the Company's income tax provision is complex due to operations in numerous tax jurisdictions outside the United States, which are subject to certain risks, which ordinarily would not be expected in the United States. Tax laws in certain jurisdictions are subject to significant changes, which may be applied on a retroactive basis. If this were to occur, the Company's tax expense could be materially different than the amounts reported. Furthermore, in determining the valuation allowance related to deferred tax assets, the Company estimates future taxable income and determines the magnitude of deferred tax assets, which are more likely than not to be realized. Future taxable income could be materially different than amounts estimated, in which case the Company would need to adjust the valuation allowance. Inventories. Inventories are stated at the lower of cost or market, cost being determined using the first-in, first-out method. Reserves for slow moving and obsolete inventories are provided based on historical experience and current product demand. The Company evaluates the adequacy of these reserves quarterly. Page 9 Goodwill and intangible assets. The Company has applied Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" in its allocation of the purchase price of DTM Corporation (DTM) and RPC Ltd. (RPC). The annual impairment testing required by SFAS No. 142, "Goodwill and Other Intangible Assets" requires the Company to use its judgment and could require the Company to write down the carrying value of its goodwill and other intangible assets in future periods. SFAS No. 142 requires companies to allocate their goodwill to identifiable reporting units, which are then tested for impairment using a two-step process detailed in the statement. The first step requires comparing the fair value of each reporting unit with its carrying amount, including goodwill. If that fair value exceeds the carrying amount, the second step of the process is not necessary and there are no impairment issues. If that fair value does not exceed that carrying amount, companies must perform the second step that requires an allocation of the fair value of the reporting unit to all assets and liabilities of that unit as if the reporting unit had been acquired in a purchase business combination and the fair value of the reporting unit was the purchase price. The goodwill resulting from that purchase price allocation is then compared to its carrying amount with any excess recorded as an impairment charge. In the second quarter of 2002, the Company concluded that the fair value of the Company's reporting unit exceeded it's carrying value and accordingly, as of that date, there were no goodwill impairment issues. The Company plans to perform a valuation of its reporting unit annually, or upon significant changes in the Company's business environment. Licenses and Patent Costs. For the nine months ended September 27, 2002 and September 28, 2001, the Company capitalized $2.7 million and $.2 million respectively, and $1.2 million and $0 respectively, for the three months ended September 27, 2002 and September 28, 2001, related to the legal defense and application of its patents and licenses. Contingencies. The Company accounts for contingencies in accordance with SFAS No. 5, "Accounting for Contingencies." SFAS No. 5 requires that the Company record an estimated loss from a loss contingency when information available prior to issuance of the Company's financial statements indicates that it is probable that an asset has been impaired or a liability has been incurred at the date of the financial statements and the amount of the loss can be reasonably estimated. Accounting for contingencies such as litigation require the Company to use its judgment. At this time the Company cannot reasonably estimate its contingencies and no loss contingencies have been recorded, however, management believes the ultimate outcome of these matters will not have a material effect on the Company's consolidated financial position, results of operations or cash flows. Revenue recognition. Revenues from the sale of systems and related products and services are recognized upon shipment, at which time title has passed to the customer, or in the case of services, upon performance. The Company provides end users with up to one year of maintenance and warranty services, and defers a portion of its revenues at the time of sale based on the relative fair value of such services. After the initial maintenance period, the Company offers customers optional maintenance contracts; revenue related to these contracts is deferred and recognized ratably over the period of the contract. To date, the Company has not experienced any significant warranty claims or significant product returns. The Company's systems are sold with software products that are integral to the operation of the systems. These software products are not sold separately. The above listing is not intended to be a comprehensive list of all of the Company's accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by generally accepted accounting principles, with no need for management's judgment in their application. RECENT ACCOUNTING PRONOUNCEMENTS In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 replaces Emerging Issues Task Force (EITF) Issue 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity." This standard requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. This statement is effective for exit or disposal activities that are initiated after December 31, 2002. The Company has not yet evaluated the financial statement impact of the adoption of SFAS 146. (3) Inventories (in thousands):
SEPTEMBER 27, DECEMBER 31, 2002 2001 ---------------- ----------------- Raw materials $ 1,865 $ 2,397 Work in progress 281 759 Finished goods 12,794 14,666 ---------------- ----------------- $ 14,940 $ 17,822 ================ =================
Page 10 (4) Property and Equipment, net (in thousands):
SEPTEMBER 27, DECEMBER 31, USEFUL LIFE 2002 2001 (IN YEARS) ------------- ------------ -------------- Land and building $ 4,637 $ 4,637 30 Machinery and equipment 26,157 26,259 3-5 Office furniture and equipment 3,498 3,183 5 Leasehold improvements 3,453 3,323 Life of lease Rental equipment 1,192 1,015 5 Construction in progress 1,389 925 N/A ------------ ------------ 40,326 39,342 Less accumulated depreciation (24,541) (21,478) ------------ ------------ $ 15,785 $ 17,864 ============ ============
(5) LICENSES AND PATENT COSTS Licenses and patent costs at September 27, 2002 and December 31, 2001 are summarized as follows (in thousands):
SEPTEMBER 27, DECEMBER 31, 2002 2001 ------------- ----------- Licenses, at cost $ 2,333 $ 2,333 Patent costs 20,985 18,349 ------------ ----------- 23,318 20,682 Less: Accumulated amortization (9,672) (8,368) ------------ ----------- $ 13,646 $ 12,314 ============ ===========
For three months ended September 27, 2002 and September 28, 2001, the Company amortized $0.3 million and $0.2 million in license and patent costs, respectively. For the nine months ended September 27, 2002 and September 28, 2001, the Company amortized $1.3 million and $0.6 million in license and patent costs, respectively. The Company incurred $2.6 million in costs for the nine months ended September 27, 2002 to acquire, defend, develop and extend patents in the United States, Japan, Europe, and certain other countries. ACQUIRED TECHNOLOGY Acquired technology at September 27, 2002 and December 31, 2001 are summarized as follows (in thousands):
SEPTEMBER 27, DECEMBER 31, 2002 2001 ------------- ------------ Acquired technology $ 9,964 $ 9,880 Less: Accumulated amortization (1,946) (688) -------------- ----------- $ 8,018 $ 9,192 ============== ===========
For three months ended September 27, 2002 and September 28, 2001, the Company amortized $0.5 million and $0.1 in acquired technology, respectively. For the nine months ended September 27, 2002 and September 28, 2001, the Company amortized $1.3 million and $0.1 in acquired technology, respectively. GOODWILL The changes in the carrying amount of goodwill for the nine months ended September 27, 2002 are as follows (in thousands): Balance as of December 31, 2001 $ 44,158 Effect of foreign currency exchange rates 210 Adjustments related to DTM acquisition (987) Less: Accumulated amortization --- ----------- Balance at September 27, 2002 $ 43,381 =========== The changes related to the DTM acquisition represent adjustments to the purchase price for income tax refunds received partially offset by an adjustment for sales and use taxes payable. The Company recorded no goodwill expense for the three and nine months ended September 28, 2001. Page 11 During the nine months ended September 27, 2002 and September 28, 2001, the Company had amortization expense on intangible assets of $3.0 million and $1.0 million respectively. The estimated amortization expense for each of the five succeeding fiscal years are as follows (in thousands): FOR THE YEAR ENDING DECEMBER 31, ----------------------------------- 2003 $ 3,218 2004 $ 2,985 2005 $ 2,885 2006 $ 2,845 2007 $ 2,079 (6) Computation of Earnings Per Share In accordance with SFAS No. 128, "Earnings Per Share," basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Dilutive net income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding plus the number of additional common shares that would have been outstanding if all potential dilutive common shares had been issued. Potential common shares related to convertible debt, stock options and warrants are excluded from the computation when their effect is antidilutive. The following is a reconciliation of the numerator and denominator of the basic and diluted earnings (loss) per share computations for the three and nine months ended September 27, 2002 and September 28, 2001 (in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED ------------------------------ ------------------------------ SEPTEMBER 27, SEPTEMBER 28, SEPTEMBER 27, SEPTEMBER 28, 2002 2001 2002 2001 ------------- ------------- ------------- ------------- Numerator: Net (loss) income--numerator for basic and diluted net (loss) income per share $ (1,789) $ 231 $ 748 $ 1,252 Denominator: Denominator for basic net (loss) income per share-- weighted average shares 12,675 12,499 12,881 12,396 Effect of dilutive securities: Stock options and warrants --- 777 560 780 ------------- ------------- ------------- ------------- Denominator for diluted net (loss) income per share 12,675 13,276 13,441 13,176 ============= ============= ============= =============
Potential common shares related to convertible debt, stock options and warrants that are antidilutive amounted to 1,781,916 shares and 388,808 shares for the nine months ended September 27, 2002 and September 28, 2001, respectively. (7) Segment Information All of the Company's assets are devoted to the manufacture and sale of Company systems, supplies and services; assets are not identifiable by operating segment. The Company's three major operating segments are U.S. operations, European operations and Asia/Pacific operations, and segment operations are measured by gross profit. Summarized data for the Company's operating segments is as follows (in thousands): Page 12
THREE MONTHS ENDED NINE MONTHS ENDED ------------------------------ ---------------------------- SEPTEMBER 27, SEPTEMBER 28, SEPTEMBER 27, SEPTEMBER 28, 2002 2001 2002 2001 -------------- -------------- ------------- ------------- Sales: U.S. operations $ 14,128 $ 14,387 $ 43,499 $ 39,844 European operations 11,973 13,834 31,497 33,431 Asia/Pacific operations 2,288 3,323 9,371 11,214 -------------- ------------- ------------ ------------ Total sales 28,389 31,544 84,367 84,489 Cost of sales: U.S. operations 7,896 8,611 26,104 22,410 European operations 6,845 7,653 19,954 18,579 Asia/Pacific operations 1,501 1,761 5,150 5,866 -------------- ------------- ------------ ------------ Total cost of sales 16,242 18,025 51,208 46,855 -------------- ------------- ------------ ------------ Gross profit $ 12,147 $ 13,519 $ 33,159 $ 37,634 ============== ============= ============ ============
(8) Debt On August 17, 2001, the Company entered into a loan agreement with U.S. Bank totaling $41.5 million, in order to finance the acquisition of DTM. The financing arrangement consisted of a $26.5 million three-year revolving credit facility and $15 million 66-month commercial term loan. At September 27, 2002, a total of $0.5 million was outstanding under the revolving credit facility and $12.7 million outstanding under the term loan. The interest rate at September 27, 2002 for the revolving credit facility and term loan was 4.3%. The interest rate applicable to both facilities will be either: (1) the prime rate plus a margin ranging from 0.25% to 1.0%, or (2) the 90-day adjusted LIBOR plus a margin ranging from 2.0% to 2.75%. The margin for each rate will vary depending upon our interest-bearing debt to earnings before interest, taxes, depreciation and amortization, "EBITDA." The terms of the debt agreement require the Company to maintain specific levels of minimum tangible net worth, EBITDA and liquidity, along with capital expenditure restrictions. The Company has amended the loan agreement with U.S. Bank to reduce the amount of the revolving credit facility to $13.5 million, eliminate the requirement that the Company maintain a minimum of $5 million in cash at quarter end and allow for a one-time benefit in our third and fourth quarter of 2002 EBITDA calculations. The Company is in compliance with all loan covenants as amended, at September 27, 2002. Subsequent to September 27, 2002, the Company further amended its agreement with U.S. Bank which reduced the Company's revolving credit facility and term loan to $9.7 million and $10.3 million respectively and altered its covenant requirements for 2003. (9) Acquisitions In August 2001, the Company acquired 100 percent of the outstanding common shares of DTM. The results of DTM's operations have been included in the consolidated financial statements since the date of acquisition. At September 27, 2002, acquisition liabilities for severance and duplicate facilities totaled $0.5 million. During the first nine months of 2002 the Company made $0.6 million in acquisition related severance payments. The final severance and facilities payments will be made in 2003 and 2006, respectively. The following table reflects unaudited pro-forma combined results of operations of the Company and DTM on the basis that the acquisition of DTM had taken place at the beginning of the period presented: NINE MONTHS ENDED SEPTEMBER 28, 2001 ------------------ (IN THOUSANDS) Net sales $ 107,204 Net income $ 132 Basic income per common share $ 0.01 Diluted income per common share $ 0.01 The unaudited pro-forma combined results of operations are not indicative of the actual results that would have occurred had the acquisition been consummated at the beginning of fiscal year 2001 or of future operations of the combined entities under the ownership and operation of the Company. Page 13 (10) Severance and other restructuring costs On July 24, 2002, the Company substantially completed a reduction in workforce, which eliminated 109 positions out of its total workforce of 523 or approximately 20% of the total workforce. In addition, the Company closed its existing office in Austin, Texas, which it acquired as part of its acquisition of DTM, as well as its sales office in Farmington Hills, Michigan. This was the second reduction in workforce completed in 2002. On April 9, 2002, the Company eliminated approximately 10% of its total workforce. All costs incurred in connection with these restructuring activities are included as severance and other restructuring costs in the accompanying consolidated statement of operations. A summary of the severance and other restructuring costs consist of the following (in thousands, except number of employees):
Second Quarter Third Quarter Provision Provision Remaining April 2002 July 2002 Utilized Balance -------------- ------------- -------- --------- Severance costs (one-time benefits) $ 1,616 $ 1,906 $ 2,935 $ 587 Contract termination costs 0 638 86 552 Other associated costs 0 190 104 86 ---------- ---------- -------- -------- Total severance and other restructuring costs $ 1,616 $ 2,734 $ 3,125 $ 1,225 ========== ========== ======== ======== Number of employees 63 109 167 5 ========== ========== ======== ========
These amounts are included in accrued liabilities and are expected to be paid by October 2003. There have been no adjustments to the liability except for payments of amounts due under the restructuring plan. (11) Contingencies 3D SYSTEMS, INC. V. AAROFLEX, ET AL. On January 13, 1997, the Company filed a complaint in federal court in California, against Aarotech Laboratories, Inc., Aaroflex, Inc. and Albert C. Young. Aaroflex is the parent corporation of Aarotech. Young is the Chairman of the Board and Chief Executive Officer of both Aarotech and Aaroflex. The original complaint alleged that stereolithography equipment manufactured by Aaroflex infringes six of the Company's patents. In August 2000, two additional patents were added to the complaint. The Company seeks damages and injunctive relief from the defendants, who have threatened to sue the Company for trade libel. To date, the defendants have not filed such a suit. Following decisions by the District Court and the Federal Circuit Court of Appeals on jurisdictional issues, Aarotech and Mr. Young were dismissed from the suit, and an action against Aaroflex is proceeding in the District Court. Motions for summary judgment by Aaroflex on multiple counts contained in the Company's complaint and on Aaroflex's counterclaims have been dismissed and fact discovery in the case has been completed. The Company's motions for summary judgment for patent infringement and validity and Aaroflex's motion for patent invalidity were heard on May 10, 2001. In February 2002, the court denied Aaroflex's invalidity motions. On April 24, 2002, the court denied the Company's motions for summary judgment on infringement, reserving the right to revisit on its own initiative the decisions following the determination of claim construction. The court also granted in part the Company's motion on validity. The case is in the final stages of preparation for trial. The court indicated a trial date would be forthcoming shortly. DTM VS. EOS, ET AL. The plastic sintering patent infringement actions against EOS began in France, Germany and Italy in 1996. Legal actions in Germany and Italy are proceeding. EOS had challenged the validity of two patents related to thermal control of the powder bed in the European Patent Office, or EPO. Both of those patents survived the opposition proceedings after the original claims were modified. One patent was successfully challenged in an appeal proceeding and in January 2002, the claims were invalidated. The other patent successfully withstood the appeal process and the infringement hearings were re-started. In October 2001, a German district court ruled the patent was not infringed, and this decision is being appealed. In November 2001, the Company received a decision of a French court that the French patent was valid and infringed by the EOS product sold at the time of the filing of the action and an injunction was granted against future sales of the product. EOS filed an appeal of that decision in June 2002, but the appeal does not stay the injunction. In February 2002, the Company received a decision from an Italian court that the invalidation trial initiated by EOS was unsuccessful and the Italian patent was held valid. The infringement action in a separate Italian court was recommenced and awaiting a decision from the court on this matter. Page 14 EOS VS. DTM AND 3D SYSTEMS, INC. In December 2000, EOS filed a patent infringement suit against DTM in federal court in California. EOS alleges that DTM has infringed and continues to infringe certain U.S. patents that the Company licenses to EOS. EOS has estimated its damages to be approximately $27.0 million for the period from the fourth quarter of 1997 through 2002. In April 2001, consistent with an order issued by the federal court in this matter, the Company was added as a plaintiff to the lawsuit. On October 17, 2001, the Company was substituted as a defendant in this action because DTM's corporate existence terminated when it merged into the Company's subsidiary, 3D Systems, Inc. in August 2001. In February 2002, the court granted summary adjudication on the Company's motion that any potential liability for patent infringement terminated with the merger of DTM into 3D Systems, Inc. Concurrently, the court denied EOS's motion for a fourth amended complaint to add counts related to EOS's claim that 3D Systems, Inc. is not permitted to compete in the field of laser sintering under the terms of the 1997 Patent License Agreement between 3D Systems, Inc. and EOS. 3D Systems, Inc. filed counterclaims against EOS for the sale of polyamide powders in the United States based on two of the patents acquired in the DTM acquisition. A motion by 3D Systems, Inc. for a preliminary injunction was denied by the court on May 14, 2002. The court rescheduled the trial date from February 2003 to April 29, 2003, and has set a cut-off date for all discovery of January 20, 2003. 3D SYSTEMS, INC. VS. AMES. In April 2002, the Company filed suit for patent infringement against Advanced Manufacturing Engineering Systems of Nevada, Iowa for patent infringement related to AMES' purchase and use of EOS powders in the Company's SLS system. On June 24, 2002, upon motion by the defendants, this matter was stayed pending trial of the EOS vs. DTM and 3D Systems, Inc. matter described immediately above. OTHER ITEMS On May 22, 2002, EOS GmbH announced in a press release that it had filed a lawsuit against the Company in a German court seeking damages for the alleged breach of the 1997 Patent License Agreement. To date the Company has not been served with any pleadings relating to this matter and is therefore unable to make any evaluation of potential liability with respect to it. 3D Systems is currently involved in a dispute with Regent Pacific Management Corporation ("Regent"), which had provided management services to 3D Systems from September 1999 through September 2002, and with Gary Sbona, a principal of Regent who was also an employee and director of 3D Systems during the term of Regent's engagement. This dispute involves a claim by Regent that 3D Systems owes $780,000 in "liquidated damages" related to the hiring of Ben DiLello and the engagement of Brian Service, both former principals of Regent, at the end of the Regent engagement. It is the Company's position that Regent had previously agreed to a waiver of these fees. The dispute also involves a disagreement with regard to the termination provisions in certain option certificates and agreements pursuant to which Mr. Sbona was granted stock options. These certificates and agreements cover 166,666 non-qualified stock options issued to Mr. Sbona in 1999 at an exercise price of $6.00 and 350,000 incentive stock options issued to Mr. Sbona in 2001 at an exercise price of $12.43. At this time, the Company is not able to estimate these legal contingencies and these contingencies have not been recorded; however, management believes the ultimate outcome of these actions will not have a material adverse effect on the Company's consolidated financial position, results of operations and cash flows. Page 15 3D SYSTEMS CORPORATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This discussion should be read in conjunction with the consolidated financial statements and notes thereto included in Item 1, and the cautionary statements and risk factors included in this Item 2 of this Quarterly Report. The forward-looking information set forth in this quarterly report on Form 10-Q is as of the date of this filing, and we undertake no duty to update this information. If events occur subsequent to the date of this filing that make it necessary to update the forward-looking information contained in this Form 10-Q, the updated forward-looking information will be filed with the Securities and Exchange Commission in a quarterly report on Form 10-Q or a current report on Form 8-K, each of which will be available at our website at www.3dsystems.com. More information about potential factors that could affect our business and financial results is included in the section in this Item 2. entitled "Cautionary Statement and Risk Factors." OVERVIEW We develop, manufacture and market worldwide solid imaging systems designed to reduce the time it takes to produce three-dimensional objects. Our products produce physical objects from the digital output of solid or surface data from computer aided design and manufacturing, which we refer to as CAD/CAM, and related computer systems, and include SLA(R) systems, SLS(R) systems and ThermoJet(R) solid object printers. SLA systems use our proprietary stereolithography technology, which we refer to as SL, an additive solid imaging process which uses a laser beam to expose and solidify successive layers of photosensitive resin until the desired object is formed to precise specifications in epoxy or acrylic resin. SLS systems utilize a process called laser sintering, which we refer to as LS, which uses laser energy to sinter powdered material to create solid objects from powdered materials. LS and SL-produced parts can be used for concept models, engineering prototypes, patterns and masters for molds, consumable tooling, and short-run manufacturing of final product, among other applications. ThermoJet solid object printers employ hot melt ink jet technology to build models in successive layers using our proprietary thermoplastic material. These printers, about the size of an office copier, are network-ready and are designed for operation in engineering and design office environments. The ThermoJet printer output can be used as patterns and molds, and when combined with other secondary processes such as investment casting, can produce parts with representative end-use properties. Our customers include major corporations in a broad range of industries including service bureaus and manufacturers of automotive, aerospace, computer, electronic, consumer and medical products. Our revenues are generated by product and service sales. Product sales are comprised of sales of systems and related equipment, materials, software and other component parts, as well as rentals of systems. Service and warranty sales include revenues from a variety of on-site maintenance services and customer training. For the first nine months of 2002, the continued general economic slowdown in capital equipment spending worldwide impacted both revenues and earnings. In the first nine months of 2002, SLA system unit sales were down 22% and SLS system unit sales were down 25% from the same period in 2001 (comparing the combined results of 3D Systems and DTM Corporation for both periods). In addition, the total sales of SLA large frame systems decreased by 36% in the first nine months of 2002 compared to the same period in 2001. This had a significant impact on both revenue and overall gross margin. Since the second quarter of 2001, the market for our capital equipment has been impacted by overall economic conditions. Consequently, we reduced our cost structure by implementing an approximate 10% reduction in workforce worldwide in April of 2002. After reviewing our results for the second quarter of 2002 and the long-term prospects for the worldwide economy, we took additional measures to realign our projected expenses with anticipated revenue levels. During the third quarter of 2002, we closed our existing facilities in Austin, Texas and Farmington Hills, Michigan and reduced our workforce by an additional 20% or 109 employees. As a result of these activities, we recorded a charge of $2.7 million in the quarter ending September 27, 2002. Page 16 Sales into our Advanced Digital Manufacturing ("ADM") market continues to increase including sales into aerospace, motorsports, jewelry, and hearing aids. Our ADM revenue was $12.0 million or 42% of our overall revenue in the third quarter of 2002 and $9.9 million or 35% of our total revenue in the second quarter of 2002, and we believe that the market demand for new ADM applications continues to grow. Total revenue for ADM for the first nine months of 2002 was $27.8 million or 32.9% of the total revenue. During the first nine months of 2002, we placed five systems into aerospace applications, a total of seven into motorsports, and thirteen systems into jewelry related applications as well as several other ADM applications. The following table reflects recurring revenues (service and materials sales) and non-recurring revenues (system sales and related equipment) and those revenues as a percentage of total revenues for the periods indicated below (in thousands, expect percentages):
Three Months Ended Nine Months Ended ------------------------------ ------------------------------- September 27, September 28, September 27, September 28, 2002 2001 2002 2001 ------------- ------------- ------------- ------------- Recurring revenues $16,607 $17,027 $50,814 $45,692 Non-recurring revenues 11,782 14,517 33,553 38,797 ------------- ------------- ------------- ------------- Total revenues $28,389 $31,544 $84,367 $84,489 ============= ============= ============= ============= Recurring revenues 58.5% 54.0% 60.2% 54.1% Non-recurring revenues 41.5% 46.0% 39.8% 45.9% ------------- ------------- ------------- ------------- Total revenues 100.0% 100.0% 100.0% 100.0% ============= ============= ============= =============
During the third quarter, we progressed in new material development, announcing that we are developing four new materials for use in our SLS systems and the release of another series of resins for our SLA systems. New materials such as aluminum, hard steel, fire retardant nylon (for commercial aerospace applications) and a resin that mimics nylon material, are focused on meeting the opportunities available in ADM and significantly expanding the range of applications for which 3D can provide solid imaging solutions. Brian Service has been retained as Chief Executive Officer. Mr. Service's services were previously provided under an arrangement with Regent Pacific Corporation. From September 10, 2002 (the date of the termination of the Regent Agreement), through October 15, 2002, Mr. Service was engaged on an interim consulting basis for which he was paid $79,999. Effective October 15, 2002, Mr. Service was employed by us pursuant to an employment agreement under which he has agreed to serve as Chief Executive Officer until at least December 2003. Mr. Service is being paid $17,809 on a bi-weekly basis under this agreement, and has been awarded fully vested options, with a term of five years, to purchase 350,000 shares of our common stock at a price of $5.78 (the closing price on October 15, 2002). On March 19, 2002, we reached a settlement agreement with Vantico relating to the termination of the Distribution and Research and Development Agreement which required Vantico to pay us $22 million through payment of cash or delivery of 1.55 million shares of 3D Systems common stock. On April 22, 2002, Vantico delivered their 1.55 million shares to us. We continue to focus on our resin conversion program and our overall materials business. We are moving forward with our retail materials strategy with our Accura(TM) materials which we launched on April 23, 2002. On July 9, 2002, the United States Department of Justice approved Sony Corporation as the licensee for certain of our technology, as provided for by the Final Judgement issued on April 17, 2002, by the United States District Court for the District of Columbia, relating to our acquisition of DTM Corporation. Under the terms of the license agreement, we have granted a license to Sony to certain of our North American patents and software copyrights for use only in the field of stereolithography within North America (consisting of the United States, Canada and Mexico) together with a list of our North American stereolithography customers, in exchange for a license fee of $900,000, which we received and recorded into revenue in August 2002. In addition, we recorded $450,000 in cost of sales associated with the license fee. This license applies only to those North American patents which we owned or licensed as of April 17, 2002, as well as any applied-for patents as of April 17, 2002, that cover technology marketed prior to April 17, 2002 for use in the field of stereolithography. The license does not apply to technology that we may develop in the future. The license is perpetual, assignable, transferable and non-exclusive, but there is no right to sublicense except as necessary to establish distribution and to outsource manufacturing. Page 17 SIGNIFICANT ACCOUNTING POLICIES Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to allowance for doubtful accounts, income taxes, inventories, goodwill and intangible assets and contingencies. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies are most affected by management's more significant judgments and estimates used in preparation of our consolidated financial statements. Allowance for doubtful accounts. Our estimate for the allowance for doubtful accounts related to trade receivables is based on two methods. The amounts calculated from each of these methods are combined to determine the total amount reserved. First, we evaluate specific accounts where we have information that the customer may have an inability to meet its financial obligations (for example, bankruptcy). In these cases, we use our judgment, based on the available facts and circumstances, and record a specific reserve for that customer against amounts due to reduce the receivable to the amount that we expect to collect. We reevaluate and adjust these specific reserves when we receive additional information that impacts the amount reserved. Second, we establish a reserve for all customers based on a range of percentages applied to aging categories. These percentages are based on historical collection and write-off experience. If circumstances change (for example, we experience higher than expected defaults or an unexpected material adverse change in a major customer's ability to meet its financial obligation to us), our estimates of the recoverability of amounts due to us could be reduced by a material amount. Income taxes. The determination of our income tax provision is complex due to operations in numerous tax jurisdictions outside the United States, which are subject to certain risks, which ordinarily would not be expected in the United States. Tax regimes in certain jurisdictions are subject to significant changes, which may be applied on a retroactive basis. If this were to occur, our tax expense could be materially different than the amounts reported. Furthermore, in determining the valuation allowance related to deferred tax assets, we estimate future taxable income and determine the magnitude of deferred tax assets which are more likely than not to be realized. Future taxable income could be materially different than amounts estimated, in which case we would need to adjust the valuation allowance. Inventories. Inventories are stated at the lower of cost or market, cost being determined on the first-in, first-out method. Reserves for slow moving and obsolete inventories are provided based on historical experience and current product demand. We evaluate the adequacy of these reserves quarterly. Goodwill and intangible assets. We have applied Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" in our allocation of the purchase price of DTM Corporation and RPC. The annual impairment testing required by SFAS No. 142, "Goodwill and Other Intangible Assets" will also require us to use our judgment and could require us to write down the carrying value of our goodwill and other intangible assets in future periods. SFAS No. 142 requires companies to allocate their goodwill to identifiable reporting units, which are then tested for impairment using a two-step process detailed in the statement. The first step requires comparing the fair value of each reporting unit with its carrying amount, including goodwill. If that fair value exceeds the carrying amount, the second step of the process is not necessary and there are no impairment issues. If that fair value does not exceed that carrying amount, companies must perform the second step that requires an allocation of the fair value of the reporting unit to all assets and liabilities of that unit as if the reporting unit had been acquired on a purchase business combination and the fair value of the reporting unit was the purchase price. The goodwill resulting from that purchase price allocation is then compared to its carrying amount with any excess recorded as an impairment charge. In the second quarter of 2002, the Company concluded that the fair value of the Company's reporting unit exceeded it's carrying value and accordingly, as of that date, there were no goodwill impairment issues. The Company plans to perform a valuation of its reporting unit annually, or upon significant changes in the Company's business environment. Page 18 Contingencies. We account for contingencies in accordance with SFAS No. 5, "Accounting for Contingencies." SFAS No. 5 requires that we record an estimated loss from a loss contingency when information available prior to issuance of our financial statements indicates that it is probable that an asset has been impaired or a liability has been incurred at the date of the financial statements and we can reasonably estimate the amount of the loss. Accounting for contingencies such as legal and income tax matters requires us to use our judgment. At this time, we are not able to estimate our contingencies and we have not recorded these contingencies. However, management believes the ultimate outcome of these actions will not have a material effect on our consolidated financial position, results of operations or cash flows. Revenue recognition. Revenues from the sale of systems and related products and services are recognized upon shipment, at which time title has passed to the customer, or performance. We provide end users with up to one year of maintenance and warranty services, and defer a portion of our revenues at the time of sale based on the relative fair value of our services. After the initial maintenance period, we offer these customers optional maintenance contracts; revenue related to these contracts is deferred and recognized ratably over the period of the contract. To date, we have not experienced any significant warranty claims or product returns. We license software in conjunction with the sale of our systems, that are integral to the operation of the systems. We do not sell these software products separately. The above listing is not intended to be a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by generally accepted accounting principles, with no need for management's judgment in their application. Recent Accounting Pronouncements In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 replaces Emerging Issues Task Force (EITF) Issue 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity." This standard requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. This statement is effective for exit or disposal activities that are initiated after December 31, 2002. The Company has not yet evaluated the financial impact of the adoption of SFAS 146. Page 19 RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, the percentage relationship of certain items from the Statements of Operations to total sales:
PERCENTAGE OF TOTAL SALES -------------------------------------------------------------- THREE MONTHS ENDED NINE MONTHS ENDED ----------------------------- ------------------------------ SEPTEMBER 27, SEPTEMBER 28, SEPTEMBER 27, SEPTEMBER 28, 2002 2001 2002 2001 ------------- ------------- ------------- ------------- Sales: Products 67.1% 71.1% 68.0% 71.4% Services 32.9% 28.9% 32.0% 28.6% Total sales 100.0% 100.0% 100.0% 100.0% Cost of sales: Products (as a percent of product sales) 50.1% 52.3% 54.6% 48.6% Services (as a percent of services sales) 71.8% 69.0% 73.7% 72.4% Total cost of sales 57.2% 57.1% 60.7% 55.5% Gross profit 42.8% 42.9% 39.3% 44.5% Selling, general and administrative expenses 39.2% 31.7% 41.6% 33.1% Research and development expenses 13.4% 8.9% 14.7% 9.0% Severance costs 9.6% --- 5.2% ---% Income (loss) from operations (19.4)% 2.3% (22.2)% 2.4% Interest and other income (expense), net (2.2)% (1.2)% (2.3)% (0.1)% Gain on arbitration settlement ---% ---% 21.9% ---% Provision for (benefit from) income taxes (15.3)% 0.4% (3.5)% 0.8% Net income (loss) (6.3)% 0.7% 0.9% 1.5%
Page 20 The following table sets forth, for the periods indicated, total sales attributable to each of our major products and services groups, and those sales as a percentage of total sales (in thousands, except for percentages):
THREE MONTHS ENDED NINE MONTHS ENDED ------------------------------- ------------------------------ SEPTEMBER 27, SEPTEMBER 28, SEPTEMBER 27, SEPTEMBER 28, 2002 2001 2002 2001 --------------- --------------- -------------- -------------- Products: SLA systems and related equipment $ 6,427 $ 8,580 $ 18,252 $ 28,416 Solid object printers 377 1,183 1,493 4,192 SLS systems and related equipment 3,008 3,976 10,223 3,976 Materials 7,280 7,923 23,801 21,530 Other 1,970 778 3,585 2,213 --------------- --------------- -------------- -------------- Total products 19,062 22,440 57,354 60,327 --------------- --------------- -------------- -------------- Services: Maintenance 8,867 8,532 25,463 22,556 Other 460 572 1,550 1,606 --------------- --------------- -------------- -------------- Total services 9,327 9,104 27,013 24,162 --------------- --------------- -------------- -------------- Total sales $ 28,389 $ 31,544 $ 84,367 $ 84,489 =============== =============== ============== ============== Products: SLA systems and related equipment 22.7% 27.2% 21.6% 33.6% Solid object printers 1.3% 3.8% 1.8% 5.0% SLS systems and related equipment 10.6% 12.6% 12.1% 4.7% Materials 25.7% 25.1% 28.2% 25.5% Other 6.9% 2.4% 4.3% 2.6% --------------- --------------- -------------- -------------- Total products 67.2% 71.1% 68.0% 71.4% --------------- --------------- -------------- -------------- Services: Maintenance 31.2% 27.1% 30.2% 26.7% Other 1.6% 1.8% 1.8% 1.9% --------------- --------------- -------------- -------------- Total services 32.8% 28.9% 32.0% 28.6% --------------- --------------- -------------- -------------- Total sales 100.0% 100.0% 100.0% 100.0% =============== =============== ============== ==============
All of the Company's assets are devoted to the manufacture and sale of Company systems, supplies and services; assets are not identifiable by operating segment. The Company's three major operating segments are U.S. operations, European operations and Asia/Pacific operations, and segment operations are measured by gross profit. Summarized data for the Company's operating segments is as follows (in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED ------------------------------ ---------------------------- SEPTEMBER 27, SEPTEMBER 28, SEPTEMBER 27, SEPTEMBER 28, 2002 2001 2002 2001 -------------- -------------- ------------- ------------- Sales: U.S. operations $ 14,351 $ 14,387 $ 43,722 $ 39,844 European operations 11,750 13,834 31,274 33,431 Asia/Pacific operations 2,288 3,323 9,371 11,214 -------------- ------------- ------------ ------------ Total sales 28,389 31,544 84,367 84,489 Cost of sales: U.S. operations 8,001 8,611 26,209 22,410 European operations 6,740 7,653 19,849 18,579 Asia/Pacific operations 1,501 1,761 5,150 5,866 -------------- ------------- ------------ ------------ Total cost of sales 16,242 18,025 51,208 46,855 -------------- ------------- ------------ ------------ Gross profit $ 12,147 $ 13,519 $ 33,159 $ 37,634 ============== ============= ============ ============
Page 21 THREE MONTHS ENDED SEPTEMBER 27, 2002 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 28, 2001 SALES. Sales during the three months ended September 27, 2002, (the "third quarter of 2002") were $28.4 million, a decrease of 10.0% from the $31.6 million recorded during the three months ended September 28, 2001 (the "third quarter of 2001"). Sales for the three months ended September 27, 2002, include a full period of sales of the LS product line acquired through our acquisition of DTM on August 24, 2001. The SLS product line of machines and materials contributed $6.6 million in revenue for the three months ended September 27, 2002 compared to $5.9 million in revenue for the three months ended September 28, 2001. Product sales of $19.1 million were recorded in the third quarter of 2002, a decrease of 14.7% compared to $22.4 million for the third quarter of 2001. Without the inclusion of the SLS product line (which includes materials from the SLS product line), product sales of $12.5 million would have been recorded for the third quarter of 2002, compared to $16.5 million for the third quarter of 2001. This decrease in product sales is due primarily to the decrease in our sales of ThermoJet(R) solid object printers of $0.8 million or 68.1%, a decrease in sales of our SLA systems and related equipment of $2.2 million or 25.1%, a decrease in materials revenue of $2.3 million or 39.0% partially offset by an increase in other revenue of $1.2 million. Included in other revenue for the third quarter of 2002 was a license fee granted to Sony Corporation for $0.9 million. We acquired DTM on August 24, 2001, and therefore sales of SLS systems for the third quarter of 2001 only represent sales as of and subsequent to the date of acquisition. SLS System and related equipment sales decreased to $3.0 million for the third quarter of 2002 from $4.0 million for the third quarter of 2001, a decrease of 24.3%. In the third quarter of 2002, we sold a total of 34 SLA systems compared to the third quarter of 2001 in which we sold a total of 49 SLA systems. In addition, we sold 11 SLS systems in the third quarter of 2002, compared to 16 SLS systems sold in the third quarter of 2001, which includes sales subsequent to the date of the DTM acquisition. Due to a continued overall economic decline in capital spending by customers worldwide our sales mix has been generally shifting from our larger frame SLA systems to our small frame SLA systems. However in the third quarter of 2002, we have sold one more larger frame system than the third quarter ended of 2001. In the third quarter of 2002, we sold 12 larger frame SLA systems compared to 11 in the same period of the prior year. Materials revenue of $7.3 million was recorded in the third quarter of 2002, an 8.1% decrease from the $7.9 million recorded in the third quarter of 2001. Without the inclusion of the SLS product line, materials revenue of $3.7 million would have been recorded for the third quarter of 2002 compared to $6.0 million for the third quarter of 2001. The decrease in materials revenue primarily relates to lower resin volumes as we continue to solicit customers to transition from Vantico material to RPC supplied material. System orders and sales may fluctuate on a quarterly basis as a result of a number of other factors, including world economic conditions, fluctuations in foreign currency exchange rates, acceptance of new products and the timing of product shipments. Due to the price of certain systems and the overall low unit volumes, the acceleration or delay of shipments of a small number of higher-end SLA systems from one period to another can significantly affect our results of operations for the quarters involved. Service sales during the third quarter of 2002 totaled $9.3 million, an increase of 2.4% from $9.1 million in the third quarter of 2001. The increase primarily reflects increased maintenance contract revenue as a result of the SLS product line and a gradual increase in the overall number of systems in the marketplace. Sales for our U.S. operating segment for the third quarter of 2002 and 2001 were $14.4 million and $14.4 million, respectively. The U.S. sales included revenue related to the SLA license granted to Sony Corporation of $0.9 million offset by a decrease in resin material revenue due to the termination of the Vantico distributor relationship in April, 2002, and the commencement of sales by our wholly owned subsidiary, RPC. Sales for our European operating segment for the third quarter of 2002 were $11.8 million a decrease of 15.1% from the $13.8 million recorded during the third quarter of 2001 primarily due to a decrease in SLA and SLS system sales and a decrease in resin material. Sales for our Asia/Pacific operating segment for the third quarter of 2002 were $2.3 million, a decrease of 31.1% from the $3.3 million recorded during the third quarter of 2001 primarily due to a decrease in SLA and SLS system sales and a decrease in resin material revenue. COST OF SALES. Cost of sales was $16.2 million or 57.2% of sales in the third quarter of 2002 and $18.0 million or 57.1% of sales in the third quarter of 2001. Page 22 Product cost of sales as a percentage of product sales was 50.1% in the third quarter of 2002 and 52.3% in the third quarter of 2001. Product cost of sales as a percentage of product sales decreased primarily due to a shift in the sales mix of our SLA systems. We sold one more higher-end SLA system (which have higher margins) and 16 fewer smaller systems (which have lower margins) in the third quarter of 2002 as compared to the third quarter of 2001. We also recorded higher gross margins as a percent of revenue on our resin materials as a result of producing our own resins instead of acting as a distributor for Vantico. Service cost of sales as a percentage of service sales was 71.8% in the third quarter of 2002 and 69.0% in the third quarter of 2001. The increase in the service cost of sales as a percentage of service sales is primarily attributable to an increase in service inventory reserves of $0.2 million for older parts. Cost of sales for U.S. operations decreased to $8.0 million or 55.8 % of U.S. sales in the third quarter of 2002 from $8.6 million or 59.9% of sales in the third quarter of 2001. The decrease in cost of sales as a percent of sales primarily is due to higher margins recorded related to resin sales. Cost of sales for our European operations decreased to $6.7 million or 57.4% of sales in the third quarter of 2002 from $7.7 million or 55.3% of sales in the third quarter of 2001. The increase in cost of sales as a percent of sales relates to higher margins on resin sales offset by lower margins associated with the mix of SLS and SLA systems sold. Cost of sales for our Asia/Pacific operations decreased to $1.5 million or 65.6% of sales in the third quarter of 2002 from $1.8 million or 53.0% of sales in the third quarter of 2001 primarily as a result of lower sales of SLA and SLS systems. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses totaled $11.1 million in the third quarter of 2002 and $10.0 million in the third quarter of 2001. This increase was primarily a result of including a full quarter of DTM related operating expenses in the third quarter of 2002 compared to the prior year. RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses in the third quarter of 2002 increased to $3.8 million or 13.3% of sales compared to $2.8 million or 8.8% of sales in the third quarter of 2001. The increase in research and development expenses is primarily due to development work associated with the InVision(R) si2 3-D printer. We do not anticipate any revenue from the InVision(R) si2 3-D printer until we have successfully completed design validation testing, beta testing and market research, which we currently anticipate in 2003. Given the anticipated impact of cost reductions and closure of our Austin facility, we anticipate further research and development expenses to be more in line with historical levels relative to revenues. INCOME (LOSS) FROM OPERATIONS. Operating loss for the third quarter of 2002 was $5.5 million compared to operating income of $0.7 million in the third quarter of 2001. This increase in operating loss is attributable primarily to decreased revenue and an increase in operating expenses due to the acquisition of DTM and severance and other restructuring costs due to a reduction in workforce. INTEREST AND OTHER INCOME (EXPENSE), NET. Interest and other income (expense), net for the third quarter of 2002 was $(0.6) million compared to interest and other income (expense), net of $(0.4) million in the third quarter of 2001. The increased expense in the third quarter of 2002 reflects interest expense and amortization of loan costs related to our U.S. Bank term loan and revolving line of credit incurred as part of the acquisition of DTM in August 2001. PROVISION FOR (BENEFIT FROM) INCOME TAXES. For the third quarter of 2002, our income tax benefit was $4.3 million, compared to a tax provision of $0.1 million in the third quarter of 2001. Included in the tax benefit is $2.2 million related to the Vantico settlement recorded in the first quarter of 2002. Page 23 NINE MONTHS ENDED SEPTEMBER 27, 2002 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 28, 2001 SALES. Sales during the nine months ended September 27, 2002, (the "first nine months of 2002") were $84.4 million, consistent with the $84.5 million recorded during the nine months ended September 28, 2001 (the "first nine months of 2001"). Sales for the first nine months of 2002 include revenue from the SLS product line acquired through our acquisition of DTM in August 2001. The SLS product line of machines and materials contributed $20.8 million in revenue for the first nine months of 2002 compared to $5.9 million for the first nine months of 2001. Product sales of $57.4 million were recorded in the first nine months of 2002, a decrease of 4.9% compared to $60.3 million for the first nine months of 2001. Without the inclusion of the SLS product line, product sales of $36.5 million would have been recorded for the first nine months of 2002, compared to $54.5 million for the first nine months of 2001. This decrease in product sales is due primarily to the decrease in our sales of ThermoJet(R) solid object printers of $2.7 million or 64.4%, a decrease in the sales of our SLA systems and related equipment of $10.2 million or 35.8%, a decrease of $6.2 million or 39.4% related to terminating our distribution relationship with Vantico and producing and supplying our own resins, partially offset by an increase in other revenue of $0.9 million due to a license fee granted in the first nine months ended 2002. Due to a continued general economic decline in capital equipment spending by customers worldwide, our sales mix has shifted from our large frame SLA systems to our small frame SLA systems. In the first nine months of 2002, we sold a total of 92 SLA systems, compared to the first nine months of 2001 in which we sold a total of 118 SLA systems. In the first nine months of 2002, we sold 30 large frame SLA systems compared to 47 in the prior period. Materials revenue of $23.8 million were recorded in the first nine months of 2002, an increase of 10.5% compared to $21.5 million for the first nine months of 2001. The acquisition of DTM in August of 2001 added $10.6 million and $1.9 million to materials revenue for the first nine months of 2002 and 2001, respectively. Eliminating the impact of the DTM acquisition, material sales would have been $13.2 million for the nine months ended 2002 and $19.6 million for the nine months ended 2001. The decrease primarily relates to lower resin volumes as we continue to solicit customers to transition from Vantico material to RPC supplied material. System orders and sales may fluctuate on a quarterly basis as a result of a number of other factors, including world economic conditions, fluctuations in foreign currency exchange rates, acceptance of new products and the timing of product shipments. Due to the price of certain systems and the overall low unit volumes, the acceleration or delay of shipments of a small number of higher-end SLA systems from one period to another can significantly affect our results of operations for the quarters involved. Service sales during the first nine months of 2002 totaled $27.0 million, an increase of 11.8% from $24.2 million in the first nine months of 2001. The increase primarily reflects increased maintenance contract revenue as a result of the LS product line and a gradual increase in the overall number of systems in the marketplace. Sales for our U.S. operating segment for the first nine months of 2002 were $43.7 million, an increase of 9.7% from the $39.8 million recorded during the first nine months of 2001. Sales for our European operating segment for the first nine months of 2002 were $31.3 million a decrease of 6.5% from the $33.4 million recorded during the first nine months of 2001. Sales for our Asia/Pacific operating segment for the first nine months of 2002 were $9.4 million a decrease of 16.4% from the $11.2 million recorded during the first nine months of 2001. The SLS product line of machines and material contributed to $9.6 million in U.S. operations and $9.7 million in European operations and is primarily responsible for the increase in revenue offset by a decrease in our SLA product line and materials. The SLS product line also contributed to $1.5 million in Asia/Pacific operations for the first nine months of 2002. The overall decrease in revenue associated with Asia/Pacific operations is primarily a result of a decrease in the SLA product line from the first nine months of 2002 when compared to the first nine months of 2001. COST OF SALES. Cost of sales increased to $51.2 million or 60.7% of sales in first nine months of 2002 from $46.9 million or 55.5% of sales in the first nine months of 2001. Product cost of sales as a percentage of product sales increased to 54.6% in the first nine months of 2002 from 48.6% in the first nine months of 2001. Without the inclusion of the SLS product line, product cost of sales as a percentage of product sales was 54.6% in the first nine months of 2002 compared to 48.0% in the first nine months of 2001. Product cost of sales as a percentage of product sales increased primarily due to a shift in the sales mix from higher-end SLA systems to our smaller systems in the first nine months of 2002 as compared to the first nine months of 2001. Page 24 Service cost of sales as a percentage of service sales remained relatively consistent at 73.7% in the first nine months of 2002 and 72.5% in 2001. Cost of sales for U.S. operations increased to $26.2 million or 60.0% of U.S. sales in the first nine months of 2002 from $22.4 million or 56.2% of U.S. sales in the first nine months of 2001. Cost of sales for our European operations increased to $19.8 million or 63.5% of European sales in the first nine months of 2002 from $18.6 million or 55.6% of sales in the first nine months of 2001. Cost of sales for our Asia/Pacific operations decreased to $5.2 million or 55.0% of Asia sales in the first nine months of 2002 from $5.9 million or 52.3% of Asia sales for the first nine months of 2001. The change in cost of sales as a percent of revenue relates to a change in mix of products sold. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses totaled $35.1 million (net of $1.8 million credit for legal fees reimbursement as provided in the Vantico arbitration settlement) in the first nine months of 2002 and $28.0 million in the first nine months of 2001. The increase is primarily attributable to increased personnel associated with the acquisition of DTM in August 2001. RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses in the first nine months of 2002 increased to $12.4 million compared to $7.6 million in the first nine months of 2001. The increase in research and development expenses is primarily due to development costs related to the InVision(R) si2 3-D printer and the initial decision to maintain our facility in Austin, Texas. Due to our recent decrease in our workforce, we anticipate future research and development expenses to be more in line with historical levels relative to revenues. INCOME (LOSS) FROM OPERATIONS. Operating loss for the first nine months of 2002 was $18.7 million compared to operating income of $2.0 million in the first nine months of 2001. The increase in operating loss is attributable to a decreased gross profit and increased operating expenses. Operating expenses increased due to the acquisition of DTM. INTEREST AND OTHER INCOME (EXPENSE), NET. Interest and other income (expense), net for the first nine months of 2002 was $(2.0) million compared to interest and other income (expense), net of $(0.02) million in the first nine months of 2001. The increased expense in the first nine months of 2002 reflects interest expense and amortization of loan costs related to our U.S. Bank term loan and revolving line of credit incurred as part of the acquisition of DTM in August 2001. GAIN ON ARBITRATION SETTLEMENT. Gain on arbitration settlement reflects an $18.5 million gain associated with the Vantico arbitration which was recorded in the first quarter of 2002. PROVISION FOR (BENEFIT FROM) INCOME TAXES. For the first nine months of 2002, our income tax benefit was $3.0 million compared to an income tax provision of $0.7 million in the first nine months of 2001. Included in the tax benefit is $2.2 million benefit recorded in the third quarter of 2002 related to the Vantico settlement recorded in the first quarter of 2002. Page 25 LIQUIDITY AND CAPITAL RESOURCES
SEPTEMBER 27, 2002 DECEMBER 31, 2001 ------------------ ----------------- (IN THOUSANDS) Cash and cash equivalents $ 1,032 $ 5,948 Working capital 12,951 17,430 NINE MONTHS ENDED --------------------------------------- SEPTEMBER 27, 2002 SEPTEMBER 28, 2001 ------------------ ------------------ (IN THOUSANDS) Cash (used for) provided by operating activities $ (5,431) $ 556 Cash used for investing activities (7,921) (56,216) Cash provided by financing activities 7,598 45,373
Net cash used for operating activities in the first nine months of 2002 of $5.4 million primarily results from net income of $0.7 million, offset by a non-cash gain from the Vantico settlement of $20.3 million. In addition cash was generated by the decrease in the accounts receivable balance by $9.6 million and the decrease in inventory of $3.1 million. Furthermore, cash was decreased due to a decrease in accrued liabilities of $1.6 million related to payments for sales commissions, royalties, and payments related to severance and other restructuring costs. Net cash used for investing activities during the first nine months of 2002 totaled $7.9 million and primarily relates to the payments for the Optoform acquisition of $1.2 million, $2.0 million in payments for the RPC acquisition, additions to property and equipment of $1.6 million for machinery and equipment and additions to licenses and patents of $2.7 million related to legal defense and new patent filings. Net cash provided by financing activities during the first nine months of 2002 totaled $7.6 million and primarily reflects $12.5 million in proceeds from the sale of stock, $41.0 million in debt repayment partially offset by $34.9 million in additional borrowings on our line of credit. On August 17, 2001, we entered into a loan agreement with U.S. Bank totaling $41.5 million, in order to finance the acquisition of DTM. The financing arrangement consisted of a $26.5 million three-year revolving credit facility and $15 million 66-month commercial term loan. At September 27, 2002, a total of $0.5 million was outstanding under the revolving credit facility and $12.7 million was outstanding under the term loan. The interest rate at September 27, 2002, for the revolving credit facility and term loan was 4.3%. The interest rate applicable to both facilities will be either: (1) the prime rate plus a margin ranging from 0.25% to 1.0%, or (2) the 90-day adjusted LIBOR plus a margin ranging from 2.0% to 2.75%. The margin for each rate will vary depending upon our interest-bearing debt to earnings before interest taxes depreciation and amortization, "EBITDA." The terms of the debt agreement required us to maintain specific levels of minimum tangible net worth, EBITDA and liquidity, along with capital expenditure restrictions. In addition, our total borrowing capacity is limited to a borrowing base calculation consisting of a percentage of accounts receivable and inventory. Pursuant to the terms of the agreement, U.S. Bank has received a first priority security interest in our accounts receivable, inventory, equipment and general intangible assets. The breach of any of these covenants would result in a default under our agreement with U.S. Bank. An event of default would permit our lenders to declare all amounts borrowed from them due and payable, together with accrued and unpaid interest. Moreover, these lenders would have the option to terminate any obligation to make further extensions of credit under these instruments. If we are unable to repay debt to our senior lenders, these lenders could proceed against our assets, which would have a material impact on our operations. During the third quarter, we amended our loan agreement with U.S. Bank to reduce the amount of the revolving credit facility to $13.5 million, eliminate the requirement that we maintain a minimum of $5 million in cash at quarter end and allow for a one-time benefit in our Q3 and Q4 2002 EBITDA calculations. We are in compliance with all loan covenants as amended, at September 27, 2002. Subsequent to September 27, 2002, U.S. Bank has amended the Senior Debt to EBITDA, Total Debt to EBITDA and the Fixed Charge Coverage ratio covenants for 2003 so that we will be in compliance based on our current level of expected operations during those quarters and has added a covenant requiring that we achieve a positive net income for each quarter in 2003. Additionally, we agreed to reduce the revolving credit facility to $9.7 million and the term loan to $10.3 million. Based on our current financial projections and modifications to our loan agreement with U.S. Bank, we expect to be in compliance with our loan covenants for the next 12 months. Page 26 On August 20, 1996, we completed a $4.9 million variable rate industrial development bond financing of our Colorado facility. Interest on the bonds is payable monthly (the interest rate at September 27, 2002 was 1.8%). Principal payments are payable in semi-annual installments beginning in February 1997 through August 2016. The bonds are collateralized by an irrevocable letter of credit issued by Wells Fargo Bank, N.A. that is further collateralized by a standby letter of credit issued by U.S. Bank in the amount of $1.2 million. At September 27, 2002, a total of $4.2 million was outstanding under the bond. The terms of the letter of credit require us to maintain specific levels of minimum tangible net worth and EBITDA. We were in compliance with these covenants at September 27, 2002. If we were not to be in compliance with these covenants the lender could proceed against our assets, which would have a material impact on our operations. Subsequent to September 27, 2002, Wells Fargo Bank has amended the Fixed Charge Coverage ratio covenant. This covenant is now consistent with the U.S. Bank amended covenant. Based on our current financial projections and modifications made to our loan agreement with Wells Fargo Bank, we expect to be in compliance with our loan covenants under the variable rate industrial development bond financing for the next 12 months. On October 3, 2002, we entered into a listing agreement with an agent to sell our manufacturing facility in Grand Junction, CO. If this transaction were completed, we would likely enter into a 10-year or longer lease on the facility and retire the outstanding industrial bonds associated with this facility. In conjunction with a system sold to a governmental agency in the third quarter of 2002 (which we cannot include as collateral under our U.S. Bank facility) we entered into a short-term financing with a financial institution to allow access to those funds. A total of $1.1 million was advanced at a rate of 8.25% and is required to be repaid on November 30, 2002. A letter of credit totaling $1.1 million was entered into in conjunction with the transaction. On May 7, 2002, we repurchased 125,000 shares of our common stock from Vantico. On that same date, we sold 1,125,000 shares of our common stock to accredited investors in a private placement transaction. These shares were issued in reliance on the exemption from registration provided by Section 4(2) of the Securities Act. Net proceeds to us from these transactions were $12.5 million. The future contractual payments are as follows:
LATER CONTRACTUAL OBLIGATIONS 2002 2003 2004 2005 2006 YEARS TOTAL ------------------------------ --------- -------- --------- -------- --------- -------- --------- Line of credit $ 546 $ -- $ -- $ -- $ -- $ -- $ 546 Other financings 1,100 --- --- --- --- --- 1,100 Term loan 750 3,000 3,000 3,000 3,000 -- 12,750 Industrial development bond --- 150 165 180 200 3,470 4,165 Subordinated debt -- -- -- -- 10,000 -- 10,000 Operating leases 391 499 443 380 32 -- 1,745 --------- -------- --------- -------- --------- -------- --------- Total Contractual Obligations $ 2,787 $ 3,649 $ 3,608 $ 3,560 $ 13,232 $ 3,470 $ 30,306 ========= ======== ========= ======== ========= ======== =========
Currently, our $20 million U.S. Bank credit facility approximates the loan balance outstanding plus open letters of credit. Based upon anticipated levels of operations and cost savings from the restructuring, we believe our cash flow from operations and available cash on hand will be adequate to meet our anticipated requirements for interest payments and other debt service obligations, working capital, capital expenditures and other operating needs for the next 12 months. We cannot assure you that our business will generate cash flow or that we will achieve our estimated cost savings and as a result, we may need to raise additional capital through debt or equity markets in the future. If we were unable to secure additional capital, we would expect to further reduce our cost structure to ensure adequate funds are available for the operations of the Company. Future operating performance and our ability to service or refinance existing indebtedness will be subject to future economic conditions and to financial, business and other factors, many of which are beyond our control. Page 27 CAUTIONARY STATEMENTS AND RISK FACTORS The risks and uncertainties described below are not the only risks and uncertainties we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations. If any of the following risks actually occur, our business, results of operations and financial condition could suffer. In that event the trading price of our common stock could decline, and you may lose all or part of your investment in our common stock. The risks discussed below also include forward-looking statements and our actual results may differ substantially from those discussed in these forward-looking statements. POLITICAL AND ECONOMIC EVENTS AND THE UNCERTAINTY RESULTING FROM THEM MAY HAVE A MATERIAL ADVERSE EFFECT ON OUR OPERATING RESULTS. The terrorist attacks that took place in the United States on September 11, 2001, along with the United States' military campaign against terrorism in Afghanistan and elsewhere, ongoing violence in the Middle East and increasing speculation regarding future military action against Iraq have created many economic and political uncertainties, some of which may materially harm our business and revenues. The disruption of our business as a result of these events, including disruptions and deferrals of customer purchasing decisions, had an immediate adverse impact on our business. Since September 11, 2001, some economic commentators have indicated that spending on capital equipment of the type that we sell has been weaker than spending in the economy, such as the automobile and telecommunication industries. The long-term effects of these events on our customers, the market for our common stock, the markets for our services and the U.S. economy as a whole are uncertain. The consequences of any additional terrorist attacks, or any expanded-armed conflicts are unpredictable, and we may not be able to foresee events that could have an adverse effect on our markets, or our business. FINANCE OUR DEBT LEVEL COULD ADVERSELY AFFECT OUR FINANCIAL HEALTH AND AFFECT OUR ABILITY TO RUN OUR BUSINESS. As of September 27, 2002, our debt was $28.9 million. You should be aware that this level of debt could have important consequences to you as a holder of shares. Below we have identified for you some of the material potential consequences resulting from this significant amount of debt. o We may be unable to obtain additional financing for working capital, capital expenditures, acquisitions and general corporate purposes. o Our ability to adapt to changing market conditions may be hampered. We may be more vulnerable in a volatile market and at a competitive disadvantage to our competitors that have less debt. o Our operating flexibility is more limited due to financial and other restrictive covenants, including restrictions on incurring additional debt, creating liens on our properties, making acquisitions and paying dividends. o We will be subject to the risks that interest rates and our interest expense will increase. o Our ability to plan for, or react to, changes in our business is more limited. Under certain circumstances, we may be able to incur additional indebtedness in the future. If we add new debt, the related risks that we now face could intensify. WE MUST GENERATE CASH FLOW FROM OPERATIONS TO SERVICE OUR DEBT. Our debt level requires us to dedicate a portion of our cash flow from operations to pay down our indebtedness, thereby reducing the funds available to us for working capital, capital expenditures and general corporate purposes. Our ability to make payments on our debt will depend on our ability to generate cash in the future. Insufficient cash flow could place us at risk of default under our debt agreements or could prevent us from expanding our business as planned. Our ability to generate cash is subject to general economic, financial, competitive, regulatory and other factors that are beyond our control. Our business may not generate sufficient cash flow from operations, our strategy to increase operating efficiencies may not be realized and future borrowings may not be available to use under our credit facility in an amount sufficient to enable us to fund our liquidity needs. Page 28 OUR FAILURE TO SATISFY COVENANTS IN OUR DEBT INSTRUMENTS WOULD CAUSE A DEFAULT UNDER THOSE INSTRUMENTS. In addition to imposing restrictions on our business and operations, our debt instruments include a number of covenants relating to financial ratios and tests. The covenants include requirements that we meet certain earning levels relative to our debt. For the quarters ended June 28, 2002 and September 27, 2002, we experienced operating losses. If we do not meet our anticipated levels of operations and realize the cost savings associated with the restructurings taken during 2002, we will not meet our debt covenants. In addition, our ability to comply with these covenants may be affected by events beyond our control, including prevailing economic, financial and industry conditions. The breach of any of these covenants would result in a default under these instruments. An event of default would permit our lenders to declare all amounts borrowed from them to be due and payable, together with accrued and unpaid interest. Moreover, these lenders would have the option to terminate any obligation to make further extensions of credit under these instruments. If we are unable to repay debt to our lenders, these lenders could proceed against our assets. If we do not achieve profitability on a quarterly basis in 2003, we will not be in compliance with our covenants for those periods. OUR BALANCE SHEET CONTAINS SEVERAL CATEGORIES OF INTANGIBLE ASSETS THAT WE MAY BE REQUIRED TO WRITE OFF OR WRITE DOWN BASED ON THE FUTURE PERFORMANCE OF THE COMPANY, WHICH MAY ADVERSELY IMPACT OUR FUTURE EARNINGS AND OUR STOCK PRICE. As of September 27, 2002, we had $66.4 million of unamortized intangible assets, including goodwill, licenses and patents, other intellectual property, deferred tax assets, and certain expenses that we amortize over time. Any material impairment to any of these items could reduce our net income and may adversely affect the trading price of our common stock. We currently have $43.6 million in goodwill capitalized on our balance sheet. In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 142 "Goodwill and Other Intangible Assets," which requires among other things, the discontinuance of the amortization of goodwill and certain other intangible assets that have indefinite useful lives, and the introduction of impairment testing in its place. Under SFAS 142, goodwill and some indefinite-lived intangibles will not be amortized into results of operations, but instead will be tested for impairment at least annually, with impairment being measured as the excess of the carrying value of the goodwill or intangible asset over its fair value. In addition, goodwill and intangible assets will be tested more often for impairment as circumstances warrant, and may result in write-downs of some of our goodwill and indefinite-lived intangibles. Accordingly, we could, from time to time, incur impairment charges, which will be recorded as operating expenses and will reduce our net income and adversely affect our operating results. We currently have approximately $4.9 million related to a license fee prepaid in 1999 related to the Solid Object Printer machine platform included under license and patent costs, net, in our financial statements. The amortization of this intangible is based on the number of Solid Object Printer units sold. If future sales of the Solid Object Printer machine platforms do not increase, then a more rapid rate of amortization of this balance will be required relative to the number of units sold. As of September 27, 2002, we have recorded $15.6 million in deferred tax assets on our balance sheet, which are accounted for in accordance with FAS 109. If we anticipate that we would not return to profitability and utilize those deferred tax assets in the near future, we would be required to fully reserve for the amount of the deferred tax assets. This could have significant impact on our results of operations in the period that the reserve is recorded. WE ARE CARRYING A SIGNIFICANT AMOUNT OF MODEL-RELATED INVENTORY AND TOOLING COSTS FOR A SOLID OBJECT PRINTER MACHINE PLATFORM. We are carrying approximately $1.8 million in inventory and tooling cost associated with the development and production of a new solid object printer machine platform. Design validation testing of the new platform is in process. Changes to the bill of material as a result of the design validation testing, or abandonment of the new platform because of adverse market studies, may render inventory and tooling cost obsolete. Additionally, we continue to carry inventory and have vendor commitments related to our existing solid object printer model totaling $1.8 million, which if not sold, could become obsolete. A significant write down of inventory and tooling due to obsolescence could adversely affect our results of operations. THE MIX OF PRODUCTS WE SELL AFFECTS OUR OVERALL PROFIT MARGINS. We continuously expand our product offerings, including our materials, and work to increase the number of geographic markets in which we operate and the distribution channels we use in order to reach our various target markets and customers. This variety of products, markets and channels results in a range of gross margins and operating income which can cause Page 29 substantial quarterly fluctuations depending on the mix of product shipments from quarter to quarter. We may experience significant quarterly fluctuations in gross margins or net income due to the impact of the mix of products, channels, or geographic markets utilized from period to period. More recently, our mix of products sold has reflected increased sales of our lower end systems, which have reduced gross margins as compared to the high-end SLA systems. If this trend continues over time, we may experience lower average gross margins and returns. WE MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS. Products as complex as those we offer may contain undetected defects or errors when first introduced or as enhancements are released that, despite our testing, are not discovered until after the product has been installed and used by customers, which could result in delayed market acceptance of the product or damage to our reputation and business. We attempt to include provisions in our agreements with customers that are designed to limit our exposure to potential liability for damages arising from defects or errors in our products. However, the nature and extent of such limitations vary from customer to customer, and it is possible that these limitations may not be effective as a result of unfavorable judicial decisions or laws enacted in the future. The sale and support of our products entails the risk of product liability claims. Any product liability claim brought against us, regardless of its merit, could result in material expense to us, diversion of management time and attention, and damage to our business reputation and ability to retain existing customers or attract new customers. OPERATIONS OUR RESEARCH AND DISTRIBUTION AGREEMENTS WITH VANTICO TERMINATED ON APRIL 22, 2002. IF WE ARE UNABLE TO TIMELY AND COST EFFECTIVELY DEVELOP RESINS ADEQUATE FOR USE WITH OUR PRODUCTS WHICH ARE COMMERCIALLY ACCEPTED, WE MAY LOSE CUSTOMERS AND MARKET SHARE AND OUR REVENUES AND PROFITABILITY MAY DECLINE. Under the terms of research and distribution agreements with Vantico, we had jointly developed liquid photopolymers with Vantico and served as the exclusive worldwide distributor (except in Japan) of these materials, manufactured by Vantico for use in stereolithography. Sales of our materials accounted for 28.2% and 25.5% of our total revenues for the first nine months of 2002 and 2001, respectively. Sales of our materials excluding the LS product line accounted for 20.7% and 24.8% of our total revenues for the first nine months of 2002 and 2001 respectively. A significant portion of our current SLA system customer base continue to use Vantico resins. These agreements with Vantico terminated on April 22, 2002, as a result of the settlement of our arbitration with Vantico. We obtained one alternative source of resins through the acquisition, on September 20, 2001, of RPC, an independent supplier of stereolithography resins located in Switzerland. Our management team does not, however, have substantial experience in the materials manufacturing business and we may not be able to timely and cost-effectively develop adequate enhancements to the existing RPC product line, or if developed, produce sufficient quantities of RPC resins and other materials that meet the needs of our customers or otherwise develop or obtain materials adequate for use with our products that are commercially accepted. In addition, the manufacture of materials business increases some of the existing risks we face and poses new risks to our company. For example, we must comply with all applicable environmental laws, rules and regulations associated with large scale manufacturing of resins in Switzerland. Our compliance with these laws may increase our cost of production and reduce our margins and any failure to comply with these laws may result in legal or regulatory action instituted against us, substantial monetary fines or other damages. We may not be able to retain a sufficient number of additional qualified employees on a timely basis, or at all. In addition, in order to provide additional resins for sale and to partially replace Vantico resins previously sold by the Company, in June 2002, we entered into a two-year non-exclusive distribution agreement for the sale of a line of resins produced by another chemical manufacturer. Stereolithography is, however, very sensitive to even slight variations in materials, and we cannot be certain that these new resins will perform satisfactorily or be acceptable to customers Our material revenue, excluding DTM related revenues, declined significantly for the first nine months of 2002 as compared to the first nine months of 2001. This was due to lower resin purchases as our customers transition from Vantico material to RPC supplied material. Unless substantially more Vantico customers transition to our products, which they are not required to do so, we will continue to see decreased revenue for material sales. If we are unable to develop or otherwise obtain sufficient quantities of commercially accepted materials, we will face significant competition for materials sales from various suppliers, including Vantico. As a result, we may lose customers and market share, our revenues may decline and our results of operations may be materially and adversely affected. Page 30 THE SIGNIFICANT COMPETITION WE FACE COULD CAUSE US TO LOSE MARKET SHARE OR REDUCE PRICES, AND THIS COMPETITION WILL LIKELY INCREASE IN THE NEAR FUTURE. We compete for customers with a wide variety of producers of models, prototypes and other 3-dimensional objects, ranging from traditional model makers and subtractive-type producers, such as CNC machine makers, to a wide variety of additive solid imaging system manufacturers as well as service bureaus that provide any or all of these types of technology. Some of our existing and potential competitors are researching, designing, developing and marketing other types of equipment, materials and services. We anticipate a reduction in our research and development costs in the future due to the recent reduction in our workforce. This reduction could affect our new product development or delay current research and development efforts. Many of these competitors have financial, marketing, manufacturing, distribution and other resources substantially greater than ours. In many cases, the existence of these competitors extends the purchase decision time as customers investigate the alternative products and solutions. Also, these competitors have marketed these products successfully to our existing and potential customers. Under a settlement agreement with the Department of Justice relating to our merger with DTM we were required to license certain of our patents for use in the manufacture and sale of either stereolithography or laser sintering products, but not both, in North America. On June 6, 2002, we entered into a license agreement with Sony Corporation, pursuant to which they would license our patents for use in the field of stereolithography in North America (defined as the United States, Canada and Mexico). On July 9, 2002, we were informed by the Department of Justice that they had approved Sony as our licensee. Sony is an extremely large and sophisticated corporation with annual revenues in excess of $60 billion. Sony also has considerable experience in manufacture and sale of stereolithography machines and materials outside of the United States (including in its home country of Japan). Although we cannot be certain of the market impact, which the license to Sony will have, we anticipate that Sony will be an aggressive competitor in all aspects of our stereolithography business. We also compete with Vantico as a result of the termination of our distribution agreement with Vantico, once we expect competition may arise from the development of allied or related techniques, both additive and subtractive, that are not encompassed by our patents, the issuance of patents to other companies that inhibit our ability to develop certain products, and the improvement to existing technologies. We cannot assure you that we will be able to maintain our current position in the field or our current price level, or to continue to compete successfully against current and future sources of competition. IF WE DO NOT KEEP PACE WITH TECHNOLOGICAL CHANGE AND INTRODUCE NEW PRODUCTS, WE MAY LOSE REVENUE AND MARKET SHARE. To remain competitive, we must continue to enhance and improve the functionality and features of our products, services and technologies. We are affected by rapid technological change, changes in user and customer requirements and preferences, frequent new product and service introductions embodying new technologies and the emergence of new standards and practices. These developments could render our existing products and proprietary technology and systems obsolete. Our success will depend, in part, on our ability to: Obtain leading technologies useful in our business, Enhance our existing products, Develop new products and technology that address the increasingly sophisticated and varied needs of prospective customers, particularly in the area of material functionality, Respond to technological advances and emerging industry standards and practices on a cost-effective and timely basis, and Retain key technology employees. Also, new technologies or materials that render our existing products and services obsolete may be developed. We believe that our future success will depend on our ability to deliver products that meet changing technology and customer need. Our acquisitions of DTM or RPC may not enable us to further expand into advanced digital manufacturing and rapid tooling or ensure that we can successfully design, manufacture and market the increasingly sophisticated platforms, materials and services, which the change in technology requires. Page 31 WE HAVE INCURRED AND MAY CONTINUE TO INCUR SUBSTANTIAL EXPENSE PROTECTING OUR PATENTS AND PROPRIETARY RIGHTS, WHICH WE BELIEVE ARE CRITICAL TO OUR SUCCESS. We regard our copyrights, service marks, trademarks, trade secrets, patents and similar intellectual property as critical to our success. Third parties may infringe or misappropriate our proprietary rights, and we intend to pursue enforcement and defense of our patents and other proprietary rights. We have incurred, and may continue to incur, significant expenses in preserving our proprietary rights, and these costs could have a material adverse effect on our results of operations, liquidity and financial condition and could cause significant fluctuations in our operating results from quarter to quarter. As of December 31, 2001, we held 301 patents, which include 143 in the United States, 101 in Europe, 13 in Japan, and 44 in other foreign jurisdictions. At that date, we had 33 pending patent applications with the United States, 75 in the Pacific Rim, 43 in Europe, 7 in Canada and 1 in Latin America. As we discover new developments and components to our technology, we intend to apply for additional patents. Effective trademark, service mark, copyright, patent and trade secret protection may not be available in every country in which our products and services are made available. We cannot assure you that the pending patent applications will be granted or that we have taken adequate steps to protect our proprietary rights, especially in countries where the laws may not protect our rights as fully as in the United States. In addition, our competitors may independently develop or initiate technologies that are substantially similar or superior to ours. We cannot be certain that we will be able to maintain a meaningful technological advantage over our competitors. We currently are involved in several patent infringement actions, both as plaintiff and as defendant. We have capitalized $4.2 million in legal costs related to various litigation, which if not settled favorably, would need to be written off and would have a significant negative impact on our financial results. Our ability to fully protect and exploit our patents and proprietary rights could be adversely impacted by the level of expense required for intellectual property litigation. WE, AS SUCCESSOR TO DTM, CURRENTLY ARE INVOLVED IN INTELLECTUAL PROPERTY LITIGATION, THE OUTCOME OF WHICH COULD MATERIALLY AND ADVERSELY AFFECT US. On August 24, 2001, we completed our acquisition of DTM. As the successor to DTM, we face direct competition for selective laser sintering equipment and materials outside the United States from EOS GmbH of Planegg, Germany, which we refer to as EOS. Prior to our acquisition, DTM had been involved in significant litigation with EOS in France, Germany, Italy, Japan and the United States with regard to its proprietary rights to selective laser sintering technology. EOS has also challenged the validity of patents related to laser sintering in the European Patent Office and the Japanese Patent Office. In addition, EOS filed a patent infringement suit against DTM in federal court in California alleging that DTM infringed certain U.S. patents that we license to EOS. Our inability to resolve the claims or to prevail in any related litigation could result in a finding of infringement of our licensed patents. Additionally, one EOS patent is asserted which, if found valid and infringed, could preclude the continued development and sale of certain of our laser sintering products that incorporate the intellectual property that is the subject of the patent. In addition, we may become obligated to pay substantial monetary damages for past infringement. Regardless of the outcome of these actions we will continue to incur significant related expenses and costs that could have a material adverse effect on our business and operations. Furthermore, these actions could involve a substantial diversion of the time of some members of management. The failure to preserve our laser sintering intellectual property rights and the costs associated with these actions could have a material adverse effect on our results of operations, liquidity and financial condition and could cause significant fluctuations in operating results from quarter to quarter. WE DEPEND ON A SINGLE OR LIMITED NUMBER OF SUPPLIERS FOR SPECIFIED COMPONENTS. IF THESE RELATIONSHIPS TERMINATE, OUR BUSINESS MAY BE DISRUPTED WHILE WE LOCATE AN ALTERNATIVE SUPPLIER. We subcontract for manufacture of material laser sintering components, powdered sintering materials and accessories from a single-source third-party supplier. There are several potential suppliers of the material components, parts and subassemblies for our stereolithography products. However, we currently use only one or a limited number of suppliers for several of the critical components, parts and subassemblies, including our lasers, materials and certain ink jet components. Our reliance on a single or limited number of vendors involves many risks including: Shortages of some key components, Product performance shortfalls, and Reduced control over delivery schedules, manufacturing capabilities, quality and costs. Page 32 If any of our suppliers suffers business disruptions, financial difficulties, or if there is any significant change in the condition of our relationship with the supplier, our costs of goods sold may increase or we may be unable to obtain these key components for our products. In either event, our revenues, results of operations, liquidity and financial condition would be adversely affected. While we believe we can obtain most of the components necessary for our products from other manufacturers, any unanticipated change in the source of our supplies, or unanticipated supply limitations, could adversely affect our ability to meet our product orders. WE FACE RISKS ASSOCIATED WITH CONDUCTING BUSINESS INTERNATIONALLY AND IF WE DO NOT MANAGE THESE RISKS, OUR RESULTS OF OPERATIONS MAY SUFFER. A material portion of our sales is to customers in foreign countries. There are many risks inherent in our international business activities that, unless managed properly, may adversely affect our profitability, including our ability to collect amounts due from customers. Our foreign operations could be adversely affected by: Unexpected changes in regulatory requirements, Export controls, tariffs and other barriers, Social and political risks, Fluctuations in currency exchange rates, Seasonal reductions in business activity in certain parts of the world, particularly during the summer months in Europe, Reduced protection for intellectual property rights in some countries, Difficulties in staffing and managing foreign operations, Taxation, and Other factors, depending on the country in which an opportunity arises. MANAGEMENT THE LOSS OF MR. BRIAN SERVICE, OUR CHIEF EXECUTIVE OFFICER, OR OUR INABILITY TO ATTRACT AND RETAIN QUALIFIED EXECUTIVES COULD MATERIALLY AND ADVERSELY AFFECT OUR BUSINESS. Our ability to develop and expand our products, business and markets and to manage our growth is dependent upon the services of our executive team, including Brian Service, who currently is employed as Chief Executive Officer. We do not maintain any key life insurance coverage for Mr. Service or any other member of our executive team. Our success also depends on our ability to attract and retain additional key technical, management and other personnel. Competition for these professionals in intense. The loss of the services of any of our key executives or the failure to attract and retain other key personnel could impair the development of new products and have an adverse effect on our business, operating results and financial condition. OUR RECENT REDUCTIONS IN FORCE AND RESTRUCTURING OF THE COMPANY MAY HAVE AN ADVERSE IMPACT ON OUR BUSINESS. On July 24, 2002, we had substantially completed a reduction in workforce, which eliminated 109 positions out of its total work force of 523, or approximately 20% of the total workforce. This reduction also included announcing the closing of the our office in Austin, Texas, which we acquired as part of our acquisition of DTM and the closure of our sales office in Farmington Hills, Michigan. This was the second reduction in force we announced in 2002. On April 9, 2002, the Company announced that it had eliminated approximately 10% of its total workforce. It is impossible to determine the effect of these reductions and restructurings on the morale of our remaining employees and on our ability to retain those employees and to recruit new employees. In addition, the reductions and reorganization may have an adverse impact on our ability to conduct research, to design and manufacture new platforms and materials, and to service existing customers and to attract new ones. Page 33 CAPITAL STRUCTURE OUR OPERATING RESULTS VARY FROM QUARTER TO QUARTER, WHICH COULD IMPACT OUR STOCK PRICE. Our operating results fluctuate from quarter to quarter and may continue to fluctuate in the future. In some quarters it is possible that results could be below expectations of analysts and investors. If so, the price of our common stock may decline. Many factors, some of which are beyond our control, may cause these fluctuations in operating results. These factors include: Acceptance and reliability of new products in the market, Size and timing of product shipments, Currency and economic fluctuations in foreign markets and other factors affecting international sales, Price competition, Delays in the introduction of new products, General worldwide economic conditions, Changes in the mix of products and services sold, Impact of ongoing litigation, and Impact of changing technologies. In addition, certain of our components require an order lead time of three months or longer. Other components that currently are readily available may become more difficult to obtain in the future. We may experience delays in the receipt of some key components. To meet forecasted production levels, we may be required to commit to long lead time items prior to receiving orders for our products. If our forecasts exceed actual orders, we may hold large inventories of slow moving or unusable parts, which could have an adverse effect on our cash flows, profitability and results of operations. VOLATILITY OF STOCK PRICE. Our future earnings and stock price may be subject to significant volatility, particularly on a quarterly basis. Shortfalls in our revenues or earnings in any given period relative to the levels expected by securities analysts could immediately, significantly and adversely affect the trading price of our common stock. Historically, our stock price has been volatile. The prices of the common stock have ranged from $4.98 to $15.90 during the 52-week period ended October 23, 2002. Factors that may have a significant impact on the market price of our common stock include: Future announcements concerning our developments or those of our competitors, including the receipt of substantial orders for products, Quality deficiencies in services or products, Results of technological innovations, New commercial products, Changes in recommendations of securities analysts, Proprietary rights or product, patent or other litigation, and Sales or purchase of substantial blocks of stock. Page 34 TAKEOVER AND DEFENSE PROVISIONS MAY ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK. Various provisions of our corporate governance documents and of Delaware law, together with our shareholders rights plan, may inhibit changes in control not approved by our Board of Directors and may have the effect of depriving you of an opportunity to receive a premium over the prevailing market price of our common stock in the event of an attempted hostile takeover. The Board is authorized to issue up to five million shares of preferred stock. The Board also is authorized to determine the price, rights, preferences and privileges of those shares without any further vote or action by the stockholders. The rights of the holders of any preferred stock may adversely affect the rights of holders of common stock. Our ability to issue preferred stock gives us flexibility concerning possible acquisitions and financing, but it could make it more difficult for a third party to acquire a majority of our outstanding voting stock. In addition, any preferred stock to be issued may have other rights, including economic rights, senior to the common stock, which could have a material adverse effect on the market value of the common stock. In addition, provisions of our Certificate of Incorporation and Bylaws could have the effect of discouraging potential takeover attempts or making it more difficult for stockholders to change management. We are subject to Delaware laws that could have the effect of delaying, deterring or preventing a change in control of our company. One of these laws prohibits us from engaging in a business combination with any interested stockholder for a period of three years from the date that the person became an interested stockholder, unless certain conditions are met. In addition, we have adopted a Shareholders' Rights Plan. Under the Shareholders' Rights Plan, we distributed a dividend of one right for each outstanding share of our common stock. These rights will cause substantial dilution to the ownership of a person or group that attempts to acquire us on terms not approved by our Board of Directors and may have the effect of deterring hostile takeover attempts. THE NUMBER OF SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF OUR DEBENTURES COULD DILUTE YOUR OWNERSHIP AND NEGATIVELY IMPACT THE MARKET PRICE FOR OUR COMMON STOCK. Our debentures are convertible into common stock at the holders' option at a conversion price of $12.00 per share. If the holders elect to convert all $10 million principal amount of the debentures, we would be obligated to issue 833,333 shares of our common stock at $12.00 per share. To the extent that all of the debentures are converted, a significantly greater number of shares of our common stock will be outstanding and the interests of our existing stockholders may be diluted. Moreover, future sales of substantial amounts of our stock in the public market, or the perception that such sales could occur, could adversely affect the market price of our common stock. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to the impact of interest rate changes and foreign currency fluctuations. INTEREST RATE RISK. The information required to be disclosed related to interest rate risk is not significantly different from the information set forth in Item 7a Quantitative and Qualitative Disclosures About Market Risk included in the 2001 Form 10-K and is therefore not presented here. FOREIGN CURRENCY RISK. International revenues accounted for 49.4% of our total revenue in the third quarter of 2002. International sales are made primarily from our foreign sales subsidiaries in their respective countries and are denominated in United States dollars or the local currency of each country. These subsidiaries also incur most of their expenses in the local currency. Accordingly, all foreign subsidiaries use the local currency as their functional currency. Our international business is subject to risks typical of an international business, including, but not limited to differing economic conditions, changes in political climate, differing tax structures, other regulations and restrictions, and foreign exchange rate volatility. Accordingly, our future results could be materially adversely impacted by changes in these or other factors. Our exposure to foreign exchange rate fluctuations arises in part from inter-company accounts in which costs incurred in the United States are charged to our foreign sales subsidiaries. These inter-company accounts are typically denominated in United States dollars. We are also exposed to foreign exchange rate fluctuations as the financial results of foreign subsidiaries are translated into United States dollars in consolidation. As exchange rates vary, these results, when translated, may vary from expectations and adversely impact overall expected profitability. The realized effect of foreign exchange rate fluctuation in the third quarter of 2002 resulted in a $0.4 million gain. Page 35 As of September 27, 2002, we had investments in foreign operations that are sensitive to foreign currency exchange rates, including non-functional currency denominated receivables and payables. The net amount that is exposed in foreign currency when subjected to a 10% change in the value of the functional currency versus the non-functional currency produces an immaterial change in our balance sheet as of September 27, 2002. ITEM 4. CONTROLS AND PROCEDURES a. EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. Management of the Company, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, have evaluated the Company's disclosure controls and procedures pursuant to Rule 13a-14 promulgated by the Securities and Exchange Commission within 90 days of the date of filing of this Form 10-Q, and have determined that the disclosure controls and procedures are effective in timely alerting them to material information relating to the Company required to be included in the Company's periodic filings with the Securities and Exchange Commission. b. CHANGES IN INTERNAL CONTROLS. There were no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation. There were no significant deficiencies or material weaknesses identified in the system of internal controls. Page 36 PART II -- OTHER INFORMATION ITEM 1. Litigation Proceedings 3D SYSTEMS, INC. V. AAROFLEX, ET AL. On January 13, 1997, we filed a complaint in federal court in California, against Aarotech Laboratories, Inc., Aaroflex, Inc. and Albert C. Young. Aaroflex is the Parent Corporation of Aarotech. Young is the Chairman of the Board and Chief Executive Officer of both Aarotech and Aaroflex. The original complaint alleged that stereolithography equipment manufactured by Aaroflex infringes six of our patents. In August 2000, two additional patents were added to the complaint. The Company seeks damages and injunctive relief from the defendants, who have threatened to sue the Company for trade libel. To date, the defendants have not filed such a suit. Following decisions by the District Court and the Federal Circuit Court of Appeals on jurisdictional issues, Aarotech and Mr. Young were dismissed from the suit, and an action against Aaroflex is proceeding in the District Court. Motions for summary judgment by Aaroflex on multiple counts contained in our complaint and on Aaroflex's counterclaims have been dismissed and fact discovery in the case has been completed. Our motions for summary judgment for patent infringement and validity and Aaroflex's motion for patent invalidity were heard on May 10, 2001. In February 2002, the court denied Aaroflex's invalidity motions. On April 24, 2002, the court denied our motions for summary judgment on infringement, reserving the right to revisit on its own initiative the decisions following the determination of claim construction. The court also granted in part our motion on validity. The case is in the final stages of preparation for trial. The court indicated a trial date would be forthcoming shortly. DTM VS. EOS, ET AL. The plastic sintering patent infringement actions against EOS began in France, Germany and Italy in 1996. Legal actions in Germany and Italy are proceeding. EOS had challenged the validity of two patents related to thermal control of the powder bed in the European Patent Office, or EPO. Both of those patents survived the opposition proceedings after the original claims were modified. One patent was successfully challenged in an appeal proceeding and in January 2002, the claims were invalidated. The other patent successfully withstood the appeal process and the infringement hearings were re-started. In October 2001, a German district court ruled the patent was not infringed, and this decision is being appealed. In November 2001, we received a decision of a French court that the French patent was valid and infringed by the EOS product sold at the time of the filing of the action and an injunction was granted against future sales of the product. EOS filed an appeal of that decision in June 2002, but the appeal will not stay the injunction. In February 2002, we received a decision from an Italian court that the invalidation trial initiated by EOS was unsuccessful and the Italian patent was held valid. The infringement action in a separate Italian court has now been recommenced and a decision is expected based on the evidence that has been submitted. EOS VS. DTM AND 3D SYSTEMS, INC. In December 2000, EOS filed a patent infringement suit against DTM in federal court in California. EOS alleges that DTM has infringed and continues to infringe certain U.S. patents that we licenses to EOS. EOS has estimated its damages to be approximately $27 million for the period from the fourth quarter of 1997 through 2002. In April 2001, consistent with an order issued by the federal court in this matter, we were added as a plaintiff to the lawsuit. October 17, 2001, we were substituted as a defendant in this action because DTM's corporate existence terminated when it merged into our subsidiary, 3D Systems, Inc. on August 31, 2001. In February 2002, the court granted summary adjudication on our motion that any potential liability for patent infringement terminated with the merger of DTM into 3D Systems, Inc. Concurrently, the court denied EOS's motion for a fourth amended complaint to add counts related to EOS's claim that 3D Systems, Inc. is not permitted to compete in the field of laser sintering under the terms of the 1997 Patent License Agreement between 3D Systems, Inc. and EOS. 3D Systems, Inc. filed counterclaims against EOS for the sale of polyamide powders in the United States based on two of the patents acquired in the DTM acquisition. A motion by 3D Systems, Inc. for a preliminary injunction was denied by the court on May 14, 2002. The court rescheduled the trial date from February 2003 to April 29, 2003, and set a cut-off date for all discovery of January 20, 2003. 3D SYSTEMS, INC. VS. AMES. In April 2002, the Company filed suit for patent infringement against Advanced Manufacturing Engineering Systems of Nevada, Iowa for patent infringement related to AMES' purchase and use of EOS powders in the Company's SLS system. On June 24, 2002, upon motion by the defendants, this matter was stayed pending trial of the EOS vs. DTM and 3D Systems, Inc. matter described immediately above. On May 22, 2002, EOS GmbH announced in a press release that it had filed a lawsuit against the Company in a German court seeking damages for the alleged breach of the 1997 Patent License Agreement. To date the Company has not been served with any pleadings relating to this matter and is therefore unable to make any evaluation of potential liability with respect to it. Page 37 The Company is engaged in certain additional legal actions arising in the ordinary course of business. On the advice of legal counsel, the Company believes it has adequate legal defenses and that the ultimate outcome of these actions will not have a material adverse effect on the Company's consolidated financial position, results of operations or cash flows. ITEM 6. Exhibits and Reports on Form 8-K a. Exhibits 10.1 Amendment Agreement Number One to Loan and Security Agreement dated July 26, 2001. 10.2 Amendment Agreement Number Two to Loan and Security Agreement dated August 16, 2001. 10.3 Amendment Agreement Number Three to Loan and Security Agreement dated October 1, 2001. 10.4 Amendment Agreement Number Four to Loan and Security Agreement dated November 1, 2001. 10.5 Amendment Agreement Number Five to Loan and Security Agreement dated December 20, 2001. 10.6 Amendment Agreement Number Six to Loan and Security Agreement dated August 30, 2002. 10.7 Amendment Agreement Number Seven to Loan and Security Agreement dated October 1, 2002. 10.8 Amendment Agreement Number Eight to Loan and Security Agreement dated November 12, 2002. 10.9 Employment Agreement for Brian Service dated October 15, 2002. 10.10 Sixth Amendment to Reimbursement Agreement dated November 8, 2002. 99.1 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 dated November 12, 2002. 99.2 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 dated November 12, 2002. b. Reports on Form 8-K - Current report on Form 8-K, Items 5 and 7, filed July 24, 2002. Page 38 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/ E. JAMES SELZER - ----------------------------- E. James Selzer Date: November 12, 2002 Senior Vice President Global Finance & Administration Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) (Duly authorized to sign on behalf of Registrant) Page 39 Certification of Chief Executive Officer Of 3D Systems Corporation I, Brian K. Service, certify that: 1. I have reviewed this quarterly report on Form 10-Q of 3D Systems Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 12, 2002 /S/ BRIAN K. SERVICE - -------------------------------- By: Brian K. Service Title: Chief Executive Officer Page 40 Certification of Chief Financial Officer Of 3D Systems Corporation I, E. James Selzer, certify that: 1. I have reviewed this quarterly report on Form 10-Q of 3D Systems Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 12, 2002 /S/ E. JAMES SELZER - -------------------------------- By: E. James Selzer Title: Chief Financial Officer Page 41 EX-10 3 exhibit_10-1.txt AMENDMENT NO. 1 EXHIBIT 10.1 AMENDMENT AGREEMENT NUMBER ONE TO LOAN AND SECURITY AGREEMENT THIS AMENDMENT AGREEMENT NUMBER ONE TO LOAN AND SECURITY AGREEMENT (this "Amendment"), dated as of July 26, 2001, is entered into between and among, on the one hand U.S. BANK NATIONAL ASSOCIATION, as a lender and as the arranger and administrative agent ("Agent") for the lenders that become members of the Lender Group pursuant to the terms of the Agreement (as that term is defined below) (such lenders, together with their respective successors and assigns, are referred to hereinafter each individually as a "Lender" and collectively as the "Lenders"), and, on the other hand, 3D SYSTEMS CORPORATION, a Delaware corporation ("Parent"), and each of Parent's Subsidiaries identified on the signature page hereof (such Subsidiaries, together with Parent, are referred to hereinafter each individually as a "Borrower," and individually and collectively, jointly and severally, as the "Borrowers") and amends that certain Loan and Security Agreement, dated as of May 21, 2001, between and among Agent and Borrowers (the "Agreement"). All terms which are defined in the Agreement shall have the same definition when used herein unless a different definition is ascribed to such term under this Amendment, in which case, the definition contained herein shall govern. This Amendment is entered into in light of the following facts: RECITALS WHEREAS, Section 3.1(a) of the Agreement is a condition precedent to the initial Advance that the Closing Date occur on or before July 31, 2001; and WHEREAS, the Agent and Borrowers have agreed that the Closing Date be permitted to occur on or before August 31, 2001; NOW, THEREFORE, the parties agree as follows: 1. Section 3.1(a) of the Agreement is deleted in its entirety and is replaced with a new Section 3.1(a) as follows: (a) The Closing Date shall occur on or before August 31, 2001. 2. This Amendment shall be deemed effective as of the date first hereinabove written and shall have no retroactive effect whatsoever. Except as specifically amended herein, the Agreement shall remain in full force and effect without any other changes, amendments or modifications. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered as of the date first above written. 3D SYSTEMS CORPORATION, a Delaware corporation, as Administrative Borrower and as a Borrower By: /S/ E. JAMES SELZER ---------------------------------------------- Title: CFO -------------------------------------------- 3D SYSTEMS, INC. a California corporation, as a Borrower By: /S/ E. JAMES SELZER ---------------------------------------------- Title: CFO -------------------------------------------- TIGER DEALS, INC., a Delaware corporation, as a Borrower By: /S/ E. JAMES SELZER ---------------------------------------------- Title: CFO -------------------------------------------- 3D CAPITAL CORPORATION, a California corporation, as a Borrower By: /S/ E. JAMES SELZER ---------------------------------------------- Title: CFO -------------------------------------------- DTM CORPORATION, a Texas corporation, as a Borrower effective upon consummation of the Merger By: ---------------------------------------------- Title: -------------------------------------------- U.S. BANK NATIONAL ASSOCIATION, as Agent and as a Lender By: /S/ FRANCIS S. LIM ---------------------------------------------- Francis S. Lim, Vice President EX-10 4 exhibit_10-2.txt AMENDMENT NO. 2 EXHIBIT 10.2 AMENDMENT AGREEMENT NUMBER TWO TO LOAN AND SECURITY AGREEMENT THIS AMENDMENT AGREEMENT NUMBER TWO TO LOAN AND SECURITY AGREEMENT (this "Amendment"), dated as of August 16, 2001, is entered into between and among, on the one hand U.S. BANK NATIONAL ASSOCIATION, as a lender and as the arranger and administrative agent ("Agent") for the lenders that become members of the Lender Group pursuant to the terms of the Agreement (as that term is defined below) (such lenders, together with their respective successors and assigns, are referred to hereinafter each individually as a "Lender" and collectively as the "Lenders"), and, on the other hand, 3D SYSTEMS CORPORATION, a Delaware corporation ("Parent"), and each of Parent's Subsidiaries identified on the signature pages hereof (such Subsidiaries, together with Parent, are referred to hereinafter each individually as a "Borrower," and individually and collectively, jointly and severally, as the "Borrowers") and amends that certain Loan and Security Agreement, dated as of May 21, 2001, between and among Agent and Borrowers, as amended by that certain Amendment Agreement Number One to Loan and Security Agreement, dated July 26, 2001, between Agent, on the one hand, and Borrowers, on the other hand (the "Agreement"). All terms which are defined in the Agreement shall have the same definition when used herein unless a different definition is ascribed to such term under this Amendment, in which case, the definition contained herein shall govern. This Amendment is entered into in light of the following facts: RECITALS WHEREAS, subsequent to the execution of the Agreement, Agent and Borrowers have agreed that certain technical corrections are required to the definition of Eligible Accounts and the Fixed Charge Coverage Ratio, and certain conditions precedent need to be changed into conditions subsequent; WHEREAS, the completion of the Tender Offer and Merger was delayed for a period in excess of two months, causing a delay in the Closing Date and requiring that certain dates contained in the Loan Agreement be adjusted; NOW, THEREFORE, the parties agree as follows: 1. The reference to SECTION 9.3 in the definition of "Additional Collateral" contained in Section 1.1 of the Agreement is deleted and is replaced with a reference to SECTION 9.2. 2. The definition of "Accounts" contained in SECTION 1.1 is deleted in its entirety and shall be replaced with a new definition of "Accounts" as follows: "ACCOUNTS" means all of Borrowers' now owned or hereafter acquired right, title, and interest with respect to "accounts" (as that term is defined in the Code), and any and all supporting obligations in respect thereof; provided, however, that to the extent a Foreign Subsidiary has executed a Foreign Subsidiary Guaranty and the accounts of such Foreign Subsidiary have become Additional Collateral, then such accounts of the Foreign Subsidiary, so long as they are Additional Collateral, and any and supporting obligations in respect thereof, shall be deemed included in the term "Accounts". Page 1 3. The definition of "Borrower" and "Borrowers" is deleted in its entirety and shall be replaced with new definitions of "Borrower" and "Borrowers" as follows: "BORROWER" AND "BORROWERS" have the respective meanings set forth in the introductory paragraph to this Agreement; provided, however, that to the extent a Foreign Subsidiary has executed a Foreign Subsidiary Guaranty, then so long as such Foreign Subsidiary Guaranty remains in effect, the Foreign Subsidiary shall be deemed a Borrower for all purposes under this Agreement. 4. New definition of "Divestiture Assets", "Final Judgment" and "RP Assets" are added to SECTION 1.1 as follows: "DIVESTITURE ASSETS" means (1) a perpetual, assignable, transferable, fully paid-up (except as permitted by Section IV(E) of the Final Judgment), non-exclusive license (without the right to sublicense, except for establishing distribution and contracting out manufacturing) under the RP Patents (as that term is defined in the Final Judgment) to develop, test, produce, market, sell, or distribute, or to supply any support or maintenance services for, products for use only in the field of either (but not both) the SL Technology (as that term is defined in the Final Judgment) or the LS Technology (as that term is defined in the Final Judgment), which technology shall be the technology currently used by the Acquirer (as that term is defined in the Final Judgment) to manufacture RP Industrial Equipment (as that term is defined in the Final Judgment) (the "Selected Technology"); and (2) the RP Assets. "FINAL JUDGMENT" means the Final Judgment issued on August 16, 2001 in connection with the civil action No. 1:01CV01237(GK) commenced in the United States District Court for the District of Columbia and captioned United States of America v. 3D Systems Corporation and DTM Corporation. "RP ASSETS" means (1) a list of all North American (as that term is defined in the Final Judgment) purchasers of RP Industrial Equipment from 3D Systems, Inc. ("3D"), if the Selected Technology is SL Technology, or from DTM Corporation ("DTM"), if the Selected Technology is LS Technology; (2) all software copyright licenses needed by Acquirer to purchase and resell both 3D's and DTM's used RP Industrial Equipment in North America, and (3) at the option of the Acquirer, DTM's plant located at 1611 Headway Circle, Bldg. 1, Austin, Texas. 5. Clause (a) of the definition of "Eligible Accounts" contained in SECTION 1.1 of the Agreement is deleted in its entirety and is replaced with a new clause (a) as follows: (a) Domestic Accounts that have selling terms of more than 90 days or the Account Debtor has failed to pay (i) within 60 days of original invoice due date or (ii) within 90 days of the date of the original invoice, 6. The first sentence of SECTION 2.1(A) of the Agreement is deleted in its entirety and is replaced with a new first sentence as follows: Page 2 Subject to the terms and conditions of this Agreement, (i) from and after the closing of the Tender Offer through December 31, 2001, each Lender with a Revolver Commitment shall make advances (collectively, the "Advances") to Borrowers of its Pro Rata Share of the amount required to finance Borrowers' financial obligations arising in connection with the consummation of the Tender Offer, the Merger, and the other transactions contemplated by the Merger Agreement and the Merger, as well as any other use of proceeds permitted under SECTION 7.17; provided, however, that the aggregate outstanding amount of all such Advances shall not exceed the lesser of (1) the Maximum Revolver Commitment, and (2) the amount that would be calculated as the Borrowing Base (as defined below) if the assets of DTM Corporation and the accounts of the Foreign Subsidiaries were deemed assets of Borrowers and (ii) commencing on January 1, 2002 and at all times thereafter during the first 3 years of the term of this Agreement, each Lender with a Revolver Commitment agrees (severally, not jointly or jointly and severally) to make additional Advances to Borrowers in an amount at any one time outstanding not to exceed such Lender's Pro Rata Share of an amount equal to THE LESSER OF (i) the Maximum Revolver Amount LESS the amount of the outstanding Advances, LESS the Letter of Credit Usage and LESS the Foreign Exchange Reserve, or (ii) the Borrowing Base LESS the amount of the outstanding Advances, LESS the Letter of Credit Usage and LESS the Foreign Exchange Reserve. 7. SECTION 2.1 of the Agreement is amended by providing that for the seven (7) day period commencing on the Closing Date, the accounts of DTM Corporation shall not be deemed ineligible because they are subject to a prior perfected security interest in favor of Silicon Valley Bank. Following the conclusion of such seven (7) day period, the accounts of DTM Corporation must satisfy all conditions for eligibility as set forth in the definition of Eligible Accounts. 8. SECTION 2.2 of the Agreement is amended by replacing the payment grid contained in that Section with a new payment grid as follows: Date Installment Amount ==================================== ====================================== Commencing on September 1, 2001 and Accrued and unpaid interest continuing on the same day of each month until February 1, 2007 Commencing on March 1, 2002 and Quarterly principal installments equal continuing on the same day of every to the lesser of the outstanding third month thereafter principal balance of the Term Loan or $750,000 each On March 1, 2007 The unpaid principal balance, plus accrued interest 9. SECTION 3.1(G) of the Agreement is deleted in its entirety and is replaced with a new SECTION 3.1(G) as follows: Page 3 (g) Agent shall have received certificates of status with respect to each Borrower, each dated within 90 days of the Closing Date, updated by bring down certificates as of the Closing Date, such certificates to be issued for each of the jurisdictions (other than the jurisdiction of organization of such Borrower) in which its failure to be duly qualified or licensed would constitute a Material Adverse Change, which certificates shall indicate that such Borrower is in good standing in such jurisdictions; 10. SECTION 3.1(K) of the Agreement is deleted in its entirety. A new SECTION 3.2(G) is added to the Agreement to provide as follows: (g) within 15 days following the Closing Date, Agent shall have received satisfactory evidence that Borrowers have entered into an interest rate swap agreement for an amount equal to $7,500,000 for a term of not less than 3 years with a financial institution acceptable to the Agent, in its Permitted Discretion; 11. A new SECTION 3.2(H) is added to the Agreement to provide as follows: (h) within 10 days following the Closing Date, Agent shall have received an opinion of Borrowers' Colorado counsel in form and substance reasonably satisfactory to Agent and all information and opinions reasonably required by Agent's United Kingdom counsel in order to issue an opinion reasonably satisfactory to Agent shall have been delivered by Borrowers to Agent's United Kingdom counsel. 12. SECTION 4.1 of the Agreement is amended by adding a new sentence to the end of that Section as follows: The rights of the Lender Group in the Collateral shall not include any of the rights comprising the Divestiture Assets, but shall include the proceeds arising from divestiture transactions arising pursuant to the Final Judgment. In this connection, Agent shall take such actions and execute such documents as may be reasonably required by the United States of America or its designee to comply with the terms of the Final Judgment. 13. SECTION 4.8 of the Agreement is deleted in its entirety and is replaced with a new SECTION 4.8 as follows: Notwithstanding anything to the contrary in this Agreement, Borrowers shall have the right but not the obligation to effect the release of the Additional Collateral prior to March 31, 2002 by: (a) Effecting a Direct Bill Restructuring prior to such date; or (b) Remedying to the satisfaction of Agent, in its Permitted Discretion, any non-compliance with the Borrowing Base and any Overadvances. 14. SECTION 6.2 of the Agreement is amended by replacing the reporting grid contained in that Section with a new reporting grid as follows: Page 4 Monthly (not later (a) a detailed calculation of the Borrowing Base than the 30th of including detail regarding those Accounts that are not each month) Eligible Accounts), (b) a detailed aging, by total, of the Accounts, together with a reconciliation to the detailed calculation of the Borrowing Base previously provided to Agent, (c) a summary aging, by vendor, of Borrowers' accounts payable and any book overdraft, and (d) Inventory reports specifying Borrowers' cost of its Inventory, by category and location, with additional detail showing additions to and deletions from the Inventory. Upon request by (e) copies of invoices in connection with the Accounts, Agent credit memos, remittance advices, deposit slips, shipping and delivery documents in connection with the Accounts and, for Inventory and Equipment acquired by Borrowers, purchase orders and invoices, and (f) such other reports as to the Collateral, or the financial condition of Borrowers, as Agent may request. 15. SECTION 7.20(A)(III) of the Agreement is deleted in its entirety and is replaced with a new SECTION 7.20(A)(III) as follows: FIXED CHARGE COVERAGE RATIO. A Fixed Charge Coverage Ratio of not less than 1.25:1.00, for each fiscal quarter commencing with the fiscal quarter ending June 30, 2001, and concluding with the fiscal quarter ending September 30, 2003, and for all fiscal quarters thereafter, no less than 1.40:1.00. 16. SECTION 8.14 of the Agreement is deleted in its entirety and is replaced with a new SECTION 8.14 as follows: If on January 1, 2002, the Borrowers are not in compliance with the Borrowing Base or have Overadvances and such non-compliance or Overadvances are not cured by January 2, 2002, pursuant to Section 9.2; or 17. Borrowers agree that all costs, fees and expenses incurred in connection with the issuance of the opinion of Agent's United Kingdom counsel, including all attorneys' fees charged by such United Kingdom counsel, shall be included in the Lender Group Expenses. 18. This Amendment shall be deemed effective as of the date first hereinabove written and shall have no retroactive effect whatsoever. Except as specifically amended herein, the Agreement shall remain in full force and effect without any other changes, amendments or modifications. Page 5 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered as of the date first above written. 3D SYSTEMS CORPORATION, a Delaware corporation as Administrative Borrower and as a Borrower By: /S/ E. JAMES SELZER ---------------------------------------- Title: CFO ------------------------------------- 3D SYSTEMS, INC., a California corporation as a Borrower By: /S/ E. JAMES SELZER ---------------------------------------- Title: CFO ------------------------------------- TIGER DEALS, INC., a Delaware corporation, as a Borrower By: /S/ E. JAMES SELZER ---------------------------------------- Title: CFO ------------------------------------- 3D CAPITAL CORPORATION, a California corporation, as a Borrower By: /S/ E. JAMES SELZER ---------------------------------------- Title: CFO ------------------------------------- DTM CORPORATION, a Texas corporation, As a Borrower effective upon consummation of the Merger By: ---------------------------------------- Title: ------------------------------------- U.S. BANK NATIONAL ASSOCIATION, as Agent and as a Lender By: /S/ FRANCIS S. LIM ---------------------------------------- Francis S. Lim, Vice President Page 6 EX-10 5 exhibit_10-3.txt AMENDMENT NO. 3 EXHIBIT 10.3 AMENDMENT AGREEMENT NUMBER THREE TO LOAN AND SECURITY AGREEMENT THIS AMENDMENT AGREEMENT NUMBER THREE TO LOAN AND SECURITY AGREEMENT (this "Amendment"), dated as of October _, 2001, is entered into between and among, on the one hand U.S. BANK NATIONAL ASSOCIATION, as a lender and as the arranger and administrative agent ("Agent") for the lenders that become members of the Lender Group pursuant to the terms of the Agreement (as that term is defined below) (such lenders, together with their respective successors and assigns, are referred to hereinafter each individually as a "Lender" and collectively as the "Lenders"), and, on the other hand, 3D SYSTEMS CORPORATION, a Delaware corporation ("Parent"), and each of Parent's Subsidiaries identified on the signature pages hereof (such Subsidiaries, together with Parent, are referred to hereinafter each individually as a "Borrower," and individually and collectively, jointly and severally, as the "Borrowers") and amends that certain Loan and Security Agreement, dated as of May 21, 2001, between and among Agent and Borrowers, as amended by that certain Amendment Agreement Number One to Loan and Security Agreement, dated July 26, 2001, that certain Amendment Agreement Number Two to Loan and Security Agreement, dated August 16, 2001, and that certain letter agreement, dated August 30, 2001, between Agent, on the one hand, and Borrowers, on the other hand (as amended, the "Agreement"). All terms which are defined in the Agreement shall have the same definition when used herein unless a different definition is ascribed to such term under this Amendment, in which case, the definition contained herein shall govern. This Amendment is entered into in light of the following facts: RECITALS WHEREAS, Borrowers, among other things, have requested that Lenders agree to (i) extend the deadline for Borrowers to complete certain unsatisfied conditions subsequent contained in the Agreement, and (ii) change the account in which Borrower's Collections are swept. WHEREAS, Lenders have agreed to Borrowers' requests on the terms and conditions set forth herein. NOW, THEREFORE, the parties agree as follows: 1. SECTION 1.1 of the Agreement is amended by adding the following definition: "OPERATING ACCOUNT means account number 1534 918 10963 maintained with U.S. Bank and is an operating account of Administrative Borrower." 2. SECTION 2.5 of the Agreement is deleted in its entirety and replaced with the following: "If, at any time or for any reason, the amount of Obligations owed by Borrowers to the Lender Group pursuant to SECTIONS 2.1, 2.12 AND 2.13 is greater than either the Dollar or percentage limitations set forth in SECTIONS 2.1, 2.12 OR 2.13 (an "OVERADVANCE"), then, subject to the immediately succeeding sentence, Borrowers Page 1 immediately shall pay to Agent, in cash, the amount of such excess, which amount shall be used by Agent to reduce the Obligations in accordance with the priorities set forth in SECTION 2.4(B). The preceding sentence shall not apply to (i) that portion of the Overadvances, if any, that arises between the Closing Date and the date the Merger is consummated which would be eliminated if DTM Corporation was a Borrower hereunder from and after the Closing Date and its "Eligible" accounts and "Eligible" inventory (based upon the standards for Eligible Accounts and Eligible Inventory) were included in the Borrowing Base, and (ii) that portion of the Overadvances, if any, that arises between the Closing Date and January 1, 2002, which would be eliminated if the accounts of the Foreign Subsidiaries arising from the sale of goods or rendition of services were deemed to be Accounts of the Borrowers. In addition, Borrowers hereby promise to pay the Obligations (including principal, interest, fees, costs, and expenses) in Dollars in full to the Lender Group as and when due and payable under the terms of this Agreement and the other Loan Documents." 3. SECTION 2.7(B) of the Agreement is deleted in its entirety and is replaced with the following: "(b) Each Cash Management Bank shall establish and maintain Cash Management Agreements with Agent and Borrowers, in form and substance acceptable to Agent. Each such Cash Management Agreement shall provide, among other things, that (i) all items of payment deposited in such Cash Management Account and proceeds thereof are held by such Cash Management Bank as agent or bailee-in-possession for Agent, (ii) the Cash Management Bank has no rights of setoff or recoupment or any other claim against the applicable Cash Management Account other than for payment of its service fees and other charges directly related to the administration of such Cash Management Account and for returned checks or other items of payment, and (iii) the Cash Management Bank immediately will forward by daily sweep all amounts in the applicable Cash Management Account to the Operating Account so long as it has not received notice from Agent that a Default or Event of Default has occurred and is continuing, in which case, upon its receipt of such notice from Agent, the Cash Management Bank will immediately begin forwarding such daily sweeps to Agent's Account." 4. SECTION 3.2(B) of the Agreement is deleted in its entirety and is replaced with the following: "(b) on or before October 31, 2001, deliver to Agent the duly executed Control Agreements, and each such Control Agreement shall be in full force and effect;" 5. SECTION 3.2(C) of the Agreement is deleted in its entirety and is replaced with the following: "(c) on or before November 30, 2001, deliver to Agent the duly executed Cash Management Agreements, and each such Cash Management Agreement shall be in full force and effect;" Page 2 6. SECTION 3.2(F) of the Agreement is deleted in its entirety and is replaced with the following: "(f) on or before October 31, 2001, deliver to Agent such Collateral Access Agreements from lessors, warehousemen, bailees, and other third persons as Agent may require in its Permitted Discretion." 7. SECTION 3.2(H) of the Agreement is deleted in its entirety and is replaced with the following: "(h) on or before October 31, 2001, Agent shall have received an opinion of Borrowers' Colorado counsel in form and substance reasonably satisfactory to Agent and all information and opinions reasonably required by Agent's United Kingdom counsel in order to issue an opinion reasonably satisfactory to Agent shall have been delivered by Borrowers to Agent's United Kingdom counsel." 8. A new Section 3.2(i) is added to the Agreement to provide as follows: "(i) on or before October 31, 2001, deliver to Agent a completed Schedule 5.8(c) of this Agreement respecting the Capitalization of Borrower's Subsidiaries." 9. This Amendment may be executed in any number of counterparts and by different parties on separate counterparts, each of which when so executed and delivered shall be deemed to be an original. All such counterparts, taken together, shall constitute but one and the same Amendment. This Amendment shall become effective upon the execution of a counterpart of this Amendment by each of the parties hereto. 10. This Amendment shall be deemed effective as of the date first hereinabove written and shall have no retroactive effect whatsoever. Except as specifically amended herein, the Agreement shall remain in full force and effect without any other changes, amendments or modifications. [Remainder of Page Intentionally Left Blank] Page 3 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered as of the date first above written. 3D SYSTEMS CORPORATION, a Delaware corporation as Administrative Borrower and as a Borrower By: /S/ E. JAMES SELZER ------------------------------------- Title: CFO ---------------------------------- 3D SYSTEMS, INC., a California corporation as a Borrower By: /S/ E. JAMES SELZER ------------------------------------- Title: CFO ---------------------------------- 3D CAPITAL CORPORATION, a California corporation, as a Borrower By: /S/ E. JAMES SELZER ------------------------------------- Title: CFO ---------------------------------- U.S. BANK NATIONAL ASSOCIATION, as Agent and as a Lender By: /S/ FRANCIS S. LIM ------------------------------------- Francis S. Lim, Vice President UNITED CALIFORNIA BANK, as a Lender By: /S/ DAVID G. KRONEN ------------------------------------- Title: VICE PRESIDENT ---------------------------------- Page 4 REAFFIRMATION OF GUARANTY The undersigned has executed a Continuing Guaranty ("Guaranty") in favor of Lenders respecting the obligations of Borrowers owing to Lenders. The undersigned acknowledges the terms of the above Amendment and reaffirms and agrees that the Guaranty remains in full force and effect; nothing in such Continuing Guaranty obligates Lenders to notify the undersigned of any changes in the financial accommodations made available to Borrowers or to seek reaffirmations of the Guaranty; and no requirement to so notify the undersigned or to seek reaffirmations in the future shall be implied by the execution of this reaffirmation. 3D HOLDINGS, LLC, a Delaware limited liability company By: /S/ E. JAMES SELZER ---------------------------------- Title: CFO ------------------------------- Page 5 EX-10 6 exhibit_10-4.txt AMENDMENT NO. 4 EXHIBIT 10.4 AMENDMENT AGREEMENT NUMBER FOUR TO LOAN AND SECURITY AGREEMENT THIS AMENDMENT AGREEMENT NUMBER FOUR TO LOAN AND SECURITY AGREEMENT (this "Amendment"), dated as of November _, 2001, is entered into between and among, on the one hand U.S. BANK NATIONAL ASSOCIATION, as a lender and as the arranger and administrative agent ("Agent") for the lenders that become members of the Lender Group pursuant to the terms of the Agreement (as that term is defined below) (such lenders, together with their respective successors and assigns, are referred to hereinafter each individually as a "Lender" and collectively as the "Lenders"), and, on the other hand, 3D SYSTEMS CORPORATION, a Delaware corporation ("Parent"), and each of Parent's Subsidiaries identified on the signature pages hereof (such Subsidiaries, together with Parent, are referred to hereinafter each individually as a "Borrower," and individually and collectively, jointly and severally, as the "Borrowers") and amends that certain Loan and Security Agreement, dated as of May 21, 2001, between and among Agent and Borrowers, as amended by that certain Amendment Agreement Number One to Loan and Security Agreement, dated July 26, 2001, that certain Amendment Agreement Number Two to Loan and Security Agreement, dated August 16, 2001, that certain letter agreement, dated August 30, 2001, and that certain Amendment Agreement Number Three to Loan and Security Agreement, dated October __, 2001 , between Agent, on the one hand, and Borrowers, on the other hand (as amended, the "Agreement"). All terms which are defined in the Agreement shall have the same definition when used herein unless a different definition is ascribed to such term under this Amendment, in which case, the definition contained herein shall govern. This Amendment is entered into in light of the following facts: RECITALS WHEREAS, Borrowers, among other things, have requested that Lenders agree to extend the deadline for Borrowers to complete certain unsatisfied conditions subsequent contained in the Agreement. WHEREAS, Lenders have agreed to Borrowers' requests on the terms and conditions set forth herein. NOW, THEREFORE, the parties agree as follows: 1. SECTION 3.2(B) of the Agreement is deleted in its entirety and is replaced with the following: "(b) on or before November 30, 2001, deliver to Agent the duly executed Control Agreements, and each such Control Agreement shall be in full force and effect;" 2. SECTION 3.2(F) of the Agreement is deleted in its entirety and is replaced with the following: Page 1 "(f) on or before November 30, 2001, deliver to Agent such Collateral Access Agreements from lessors, warehousemen, bailees, and other third persons as Agent may require in its Permitted Discretion." 3. SECTION 3.2(H) of the Agreement is deleted in its entirety and is replaced with the following: "(h) on or before November 30, 2001, Agent shall have received an opinion of Borrowers' Colorado counsel in form and substance reasonably satisfactory to Agent and all information and opinions reasonably required by Agent's United Kingdom counsel in order to issue an opinion reasonably satisfactory to Agent shall have been delivered by Borrowers to Agent's United Kingdom counsel." 4. SECTION 3.2(I) of the Agreement is deleted in its entirety and is replaced with the following: "(i) on or before November 30, 2001, deliver to Agent a completed Schedule 5.8(c) of this Agreement respecting the Capitalization of Borrower's Subsidiaries." 5. This Amendment may be executed in any number of counterparts and by different parties on separate counterparts, each of which when so executed and delivered shall be deemed to be an original. All such counterparts, taken together, shall constitute but one and the same Amendment. This Amendment shall become effective upon the execution of a counterpart of this Amendment by each of the parties hereto. 6. This Amendment shall be deemed effective as of the date first hereinabove written and shall have no retroactive effect whatsoever. Except as specifically amended herein, the Agreement shall remain in full force and effect without any other changes, amendments or modifications. [Remainder of Page Intentionally Left Blank] Page 2 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered as of the date first above written. 3D SYSTEMS CORPORATION, a Delaware corporation as Administrative Borrower and as a Borrower By: /S/ E. JAMES SELZER ------------------------------------- Title: CFO ---------------------------------- 3D SYSTEMS, INC., a California corporation as a Borrower By: /S/ E. JAMES SELZER ------------------------------------- Title: CFO ---------------------------------- 3D CAPITAL CORPORATION, a California corporation, as a Borrower By: /S/ E. JAMES SELZER ------------------------------------- Title: CFO ---------------------------------- U.S. BANK NATIONAL ASSOCIATION, as Agent and as a Lender By: /S/ FRANCIS S. LIM ------------------------------------- Francis S. Lim, Vice President UNITED CALIFORNIA BANK, as a Lender By: /S/ DAVID G. KRONEN ------------------------------------- Title: VICE PRESIDENT ---------------------------------- Page 3 REAFFIRMATION OF GUARANTY The undersigned has executed a Continuing Guaranty ("Guaranty") in favor of Lenders respecting the obligations of Borrowers owing to Lenders. The undersigned acknowledges the terms of the above Amendment and reaffirms and agrees that the Guaranty remains in full force and effect; nothing in such Continuing Guaranty obligates Lenders to notify the undersigned of any changes in the financial accommodations made available to Borrowers or to seek reaffirmations of the Guaranty; and no requirement to so notify the undersigned or to seek reaffirmations in the future shall be implied by the execution of this reaffirmation. 3D HOLDINGS, LLC, a Delaware limited liability company By: /S/ E. JAMES SELZER ------------------------------------- Title: CFO ---------------------------------- Page 4 EX-10 7 exhibit_10-5.txt AMENDMENT NO. 5 EXHIBIT 10.5 AMENDMENT AGREEMENT NUMBER FIVE TO LOAN AND SECURITY AGREEMENT THIS AMENDMENT AGREEMENT NUMBER FIVE TO LOAN AND SECURITY AGREEMENT (this "Amendment"), dated as of December 20, 2001, is entered into between and among, on the one hand U.S. BANK NATIONAL ASSOCIATION, as a lender and as the arranger and administrative agent ("Agent") for the lenders that become members of the Lender Group pursuant to the terms of the Agreement (as that term is defined below) (such lenders, together with their respective successors and assigns, are referred to hereinafter each individually as a "Lender" and collectively as the "Lenders"), and, on the other hand, 3D SYSTEMS CORPORATION, a Delaware corporation ("Parent"), and each of Parent's Subsidiaries identified on the signature pages hereof (such Subsidiaries, together with Parent, are referred to hereinafter each individually as a "Borrower," and individually and collectively, jointly and severally, as the "Borrowers") and amends that certain Loan and Security Agreement, dated as of May 21, 2001, between and among Agent and Borrowers, as amended by that certain Amendment Agreement Number One to Loan and Security Agreement, dated July 26, 2001, that certain Amendment Agreement Number Two to Loan and Security Agreement, dated August 16, 2001, that certain letter agreement, dated August 30, 2001, that certain Amendment Agreement Number Three to Loan and Security Agreement, dated October 1, 2001, and that certain Amendment Agreement Number Four to Loan and Security Agreement, dated as of November 1, 2001 (as amended, the "Agreement"). All terms which are defined in the Agreement shall have the same definition when used herein unless a different definition is ascribed to such term under this Amendment, in which case, the definition contained herein shall govern. This Amendment is entered into in light of the following facts: RECITALS WHEREAS, Borrowers have requested that Lenders agree (i) to the issuance by Parent of convertible subordinated debentures in the aggregate principal amount of $10,000,000, (ii) to change the maximum amount of the Credit Facility to be allocated to Agent, as a lender, for the purposes of determining if there has been a successful syndication, (iii) to change the Senior Debt to EBITDA Ratio and the Leverage Ratio, and (iv) to extend the deadline for Borrowers to complete certain unsatisfied conditions subsequent contained in the Agreement. WHEREAS, Lenders have agreed to Borrowers' requests on the condition that Borrowers agree to a permanent reduction in the Maximum Revolver Amount and to the other terms and conditions contained in this Amendment. WHEREAS, Borrowers have agreed to a permanent reduction in the Maximum Revolver Amount and to the other terms and the conditions required by Lenders. NOW, THEREFORE, the parties agree as follows: 1. The definitions of DOMESTIC ACCOUNT and MAXIMUM REVOLVER AMOUNT contained in SECTION 1.1 of the Agreement are deleted in their entirety and are replaced with new definitions of DOMESTIC ACCOUNT and MAXIMUM REVOLVER AMOUNT as follows: Page 1 "DOMESTIC ACCOUNT" means an Account which is not a Foreign Account. "MAXIMUM REVOLVER AMOUNT" means (i) $26,500,000 from the Closing Date up to and in including January 31, 2002, (ii) $21,500,000 from February 1, 2002, up to and including April 30, 2002, and (iii) $18,500,000 from May 1, 2002, up to and including the Maturity Date. 2. SECTION 1.1 of the Agreement is amended by adding a new definition of "Permitted Debentures" as follows: "PERMITTED DEBENTURES" means convertible subordinated debentures, in an aggregate principal amount of $10,000,000, issued or to be issued by Parent, and which are in the form of EXHIBIT P-1. 3. The first sentence of SECTION 2.1(A) of the Agreement is deleted in its entirety and is replaced with a new first sentence as follows: Subject to the terms and conditions of this Agreement, (i) from and after the closing of the Tender Offer through January 31, 2002, each Lender with a Revolver Commitment shall make advances (collectively, the "Advances") to Borrowers of its Pro Rata Share of the amount required to finance Borrowers' financial obligations arising in connection with the consummation of the Tender Offer, the Merger, and the other transactions contemplated by the Merger Agreement and the Merger, as well as any other use of proceeds permitted under SECTION 7.17; provided, however, that the aggregate outstanding amount of all such Advances shall not exceed the lesser of (1) the Maximum Revolver Commitment, and (2) the amount that would be calculated as the Borrowing Base (as defined below) if the accounts of the Foreign Subsidiaries were deemed assets of Borrowers and (ii) commencing on February 1, 2002 and at all times thereafter during the first 3 years of the term of this Agreement, each Lender with a Revolver Commitment agrees (severally, not jointly or jointly and severally) to make additional Advances to Borrowers in an amount at any one time outstanding not to exceed such Lender's Pro Rata Share of an amount equal to THE LESSER OF (i) the Maximum Revolver Amount LESS the amount of the outstanding Advances, LESS the Letter of Credit Usage and LESS the Foreign Exchange Reserve, or (ii) the Borrowing Base LESS the amount of the outstanding Advances, less the Letter of Credit Usage and LESS the Foreign Exchange Reserve. 4. The second sentence of SECTION 2.5 of the Agreement is deleted in its entirety and is replaced with a new second sentence as follows: Page 2 The preceding sentence shall not apply to that portion of the Overadvances, if any, that arises between the Closing Date and February 1, 2002, which would be eliminated if the accounts of the Foreign Subsidiaries arising from the sale of goods or rendition of services were deemed to be Accounts of the Borrowers. 5. The last sentence of SECTION 2.16 is deleted in its entirety and is replaced with the following: Furthermore, as used herein a "successful syndication" means that after the completion of the general syndication, Bank shall be allocated no more than Twenty Eight Million Five Hundred Eighty Five Thousand Dollars ($28,585,000) as of January 31, 2002, and no more than Twenty Six Million Two Hundred Thirty Thousand Dollars ($26,230,000) as of April 30, 2002, and at all times thereafter. 6. SECTION 3.2(B) of the Agreement is deleted in its entirety and is replaced with the following: (b) on or before January 31, 2002, deliver to Agent the duly executed Control Agreements, and each such Control Agreement shall be in full force and effect; 7. SECTION 3.2(F) of the Agreement is deleted in its entirety and is replaced with the following: (f) on or before January 31, 2002, deliver to Agent such Collateral Access Agreements from lessors, warehousemen, bailees, and other third persons as Agent may require in its Permitted Discretion. 8. SECTION 3.2(H) of the Agreement is deleted in its entirety and is replaced with the following: (h) on or before January 31, 2002, all information and opinions reasonably required by Agent's United Kingdom counsel in order to issue an opinion reasonably satisfactory to Agent shall have been delivered by Borrowers to Agent's United Kingdom counsel. 9. SECTION 7.1 of the Agreement is amended by adding a new subpart (f) as follows: (f) Indebtedness evidenced by the Permitted Debentures. 10. SECTION 7.8(A) of the Agreement is deleted in its entirety and is replaced with the following: Page 3 (a) Except in connection with a refinancing permitted by SECTION 7.1(D) and the conversion of the Indebtedness evidenced by the Permitted Debentures into common stock of Borrower pursuant to the terms of the Permitted Debentures, prepay, redeem, defease, purchase, or otherwise acquire any Indebtedness of Borrower, other than the Obligations in accordance with this Agreement, and 11. SECTION 7.20(A)(I) of the Agreement is deleted in its entirety and is replaced with the following: SENIOR DEBT TO EBITDA RATIO. A Senior Debt to EBITDA Ratio of not more than of 2.5:1, for each of those fiscal quarters during the term of this Agreement commencing with the fiscal quarter ending June 30, 2001, and concluding with the fiscal quarter ending September 30, 2002, and a Senior Debt to EBITDA Ratio of not more that 2.0:1 for each fiscal quarter commencing with fiscal quarter ending December 31, 2002, and for each fiscal quarter thereafter for the remaining term of this Agreement. 12. SECTION 7.20(A) of the Agreement is amended by adding a new subpart (vii) as follows: MAXIMUM LEVERAGE RATIO. A Leverage Ratio of not more than of 3.5:1, for each of those fiscal quarters during the term of this Agreement commencing with the fiscal quarter ending June 30, 2001, and concluding with the fiscal quarter ending September 30, 2001, and a Leverage Ratio of not more that 3.0:1 for each fiscal quarter commencing with the fiscal quarter ending December 31, 2001, and for each fiscal quarter thereafter for the remaining term of this Agreement. 13. SECTION 8.14 of the Agreement is deleted in its entirety and is replaced with a new SECTION 8.14 as follows: If on February 1, 2002, the Borrowers are not in compliance with the Borrowing Base or have Overadvances and such non-compliance or Overadvances are not cured by February 2, 2002, pursuant to Section 9.2; or 14. This Amendment shall be deemed effective as of the date first hereinabove written and shall have no retroactive effect whatsoever. Except as specifically amended herein, the Agreement shall remain in full force and effect without any other changes, amendments or modifications. [Remainder of Page Intentionally Left Blank] Page 4 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered as of the date first above written. 3D SYSTEMS CORPORATION, a Delaware corporation as Administrative Borrower and as a Borrower By: /S/ E. JAMES SELZER -------------------------------------- Title: CFO ----------------------------------- 3D SYSTEMS, INC., a California corporation as a Borrower By: /S/ E. JAMES SELZER -------------------------------------- Title: CFO ----------------------------------- 3D CAPITAL CORPORATION, a California corporation, as a Borrower By: /S/ E. JAMES SELZER -------------------------------------- Title: CFO ----------------------------------- U.S. BANK NATIONAL ASSOCIATION, as Agent and as a Lender By: /S/ FRANCIS S. LIM -------------------------------------- Francis S. Lim, Vice President UNITED CALIFORNIA BANK, as a Lender By: /S/ DAVID G. KRONEN -------------------------------------- Title: VICE PRESIDENT ----------------------------------- Page 5 REAFFIRMATION OF GUARANTY The undersigned has executed a Continuing Guaranty ("Guaranty") in favor of Lenders respecting the obligations of Borrowers owing to Lenders. The undersigned acknowledges the terms of the above Amendment and reaffirms and agrees that the Guaranty remains in full force and effect; nothing in such Continuing Guaranty obligates Lenders to notify the undersigned of any changes in the financial accommodations made available to Borrowers or to seek reaffirmations of the Guaranty; and no requirement to so notify the undersigned or to seek reaffirmations in the future shall be implied by the execution of this reaffirmation. 3D HOLDINGS, LLC, a Delaware limited liability company By: /S/ E. JAMES SELZER -------------------------------------- Title: CFO ----------------------------------- Page 6 EX-10 8 exhibit_10-6.txt AMENDMENT NO. 6 EXHIBIT 10.6 AMENDMENT AGREEMENT NUMBER SIX TO LOAN AND SECURITY AGREEMENT THIS AMENDMENT AGREEMENT NUMBER SIX TO LOAN AND SECURITY AGREEMENT (this "Amendment"), dated as of August 30, 2002, is entered into between and among, on the one hand U.S. BANK NATIONAL ASSOCIATION, as a lender and as the arranger and administrative agent ("Agent") for the lenders that become members of the Lender Group pursuant to the terms of the Agreement (as that term is defined below) (such lenders, together with their respective successors and assigns, are referred to hereinafter each individually as a "Lender" and collectively as the "Lenders"), and, on the other hand, 3D SYSTEMS CORPORATION, a Delaware corporation ("Parent"), and each of Parent's Subsidiaries identified on the signature pages hereof (such Subsidiaries, together with Parent, are referred to hereinafter each individually as a "Borrower," and individually and collectively, jointly and severally, as the "Borrowers") and amends that certain Loan and Security Agreement, dated as of May 21, 2001, between and among Agent and Borrowers, as amended by that certain Amendment Agreement Number One to Loan and Security Agreement, dated July 26, 2001, that certain Amendment Agreement Number Two to Loan and Security Agreement, dated August 16, 2001, that certain letter agreement, dated August 30, 2001, that certain Amendment Agreement Number Three to Loan and Security Agreement, dated October 1, 2001, that certain Amendment Agreement Number Four to Loan and Security Agreement, dated as of November 1, 2001, and that certain Amendment Agreement Number Five to Loan and Security Agreement, dated as of December 20, 2001 (as amended, the "Agreement"). All terms which are defined in the Agreement shall have the same definition when used herein unless a different definition is ascribed to such term under this Amendment, in which case, the definition contained herein shall govern. This Amendment is entered into in light of the following facts: RECITALS WHEREAS, Borrowers have requested that Lenders agree (i) to include in the Borrowing Base the accounts of Foreign Subsidiaries which satisfy criteria for eligibility as may be established by Lenders, (ii) to the sale by 3D Systems, Inc., from time to time of certain Accounts in an aggregate amount not to exceed $5,000,000 with the proceeds being used to reduce the outstanding Advances, (iii) to the inclusion of Subordinated Debt in the calculation of Tangible Net Worth, and (iv) to extend the deadline for Borrowers to complete certain unsatisfied conditions subsequent contained in the Agreement. WHEREAS, Lenders have agreed to Borrowers' requests on the condition that Borrowers agree to a change in the definition of "Required Lenders," that the Foreign Subsidiaries whose accounts are to be considered for the Borrowing Base become "Borrowers" under the Agreement and to the other terms and conditions contained in this Amendment. WHEREAS, Borrowers have agreed to a change in the definition of "Required Lenders," to the requirement that the Foreign Subsidiaries whose accounts are to be considered for the Borrowing Base become "Borrowers" under the Agreement and to the other terms and the conditions required by Lenders. Page 1 NOW, THEREFORE, the parties agree as follows: 1. AMENDMENTS. 1.1 The definitions of "MAXIMUM REVOLVER AMOUNT" and "REQUIRED LENDERS" and "TANGIBLE NET WORTH" contained in SECTION 1.1 of the Agreement are deleted in their entirety and are replaced with new definitions of "MAXIMUM REVOLVER AMOUNT" and "REQUIRED LENDERS" and "TANGIBLE NET WORTH" as follows: "MAXIMUM REVOLVER AMOUNT" means $13,500,000. "REQUIRED LENDERS" means, at any time, (i) if there are only two Lenders, then both Lenders, and (ii) if there are more than two Lenders, Lenders whose Pro Rata Shares aggregate 66-2/3% of the Total Commitments, or if the Commitments have been terminated irrevocably, 66-2/3% of the Obligations then outstanding. "TANGIBLE NET WORTH" means, as of any date of determination, the result of (a) the sum of (i) the total stockholder's equity of Parent and its Subsidiaries, and (ii) the aggregate amount of the outstanding Subordinated Debt, MINUS (b) the sum of (i) all Intangible Assets of Parent and its Subsidiaries, and (ii) all amounts due to Parent and its Subsidiaries from Affiliates, PROVIDED that the affect of any cumulative foreign currency translation adjustments shall be excluded from Tangible Net Worth. 1.2 Subpart (i) of the definition of COLLATERAL is deleted in its entirety and is replaced with a new subpart (i) as follows: (i) the lesser of (i) 65% of the shares of each class of Stock of each direct or indirect Subsidiary (whether present or future) of Borrowers; provided, however, that if a Foreign Subsidiary becomes a Borrower, then the foregoing percentage shall be immediately increased to 100%, or (ii) all of the shares of each class of Stock of each such Subsidiary, in each case owned as of the Closing Date or thereafter acquired by Borrowers or any direct or indirect Subsidiary of Borrowers, 1.3 The definitions of "ADDITIONAL COLLATERAL" and "FOREIGN SUBSIDIARY GUARANTIES" are deleted in their entirety. 1.4 New definitions of "ELIGIBLE FOREIGN SUBSIDIARY," "ELIGIBLE FOREIGN SUBSIDIARY Account," "FOREIGN SUBSIDIARY ACCOUNT" and "MANAGEMENT BODY" are added to the Agreement as follows: "ELIGIBLE FOREIGN SUBSIDIARY" means a Foreign Subsidiary (i) that is formed under the laws of, and maintains its principal place of Page 2 business, registered office or chief executive office in, the United Kingdom, Germany or France, (ii) that has executed and delivered to Agent documentation required by Lender in order for such Foreign Subsidiary to become a Borrower under the Agreement and other Loan Documents, (iii) that has executed and delivered to Agent security agreements, fixed charges, floating charges and any other agreements or documents necessary to create and perfect Agent's Lien on the Foreign Subsidiary's present and future assets, including without limitation, the Foreign Subsidiary Accounts and inventory to secure the Obligations as a Borrower, and any other documents necessary to perfect Agent's Lien on present and future assets of such Foreign Subsidiary, including without limitation, its Foreign Subsidiary Accounts and inventory, (iv) the Secretary of which, or a member of the Board of Directors or Management Body of which, has executed and delivered to Agent certificates attesting to the resolutions of such Foreign Subsidiary's Board of Directors or Management Body authorizing its execution, delivery, and performance of loan documents and security documents in favor of Agent on behalf of the Lender Group and authorizing specific officers, directors or members of its Management Body of such Foreign Subsidiary to execute the same, and (v) that has delivered to Agent an opinion of legal counsel acceptable to Agent for such Foreign Subsidiary which contains, without limitation, opinions as to the validity and enforceability of the loan documents and related security documents, and the perfection and priority of Agent's Lien on the Foreign Subsidiary's present and future assets, including, without limitation, its Foreign Subsidiary Accounts and inventory. "ELIGIBLE FOREIGN SUBSIDIARY ACCOUNT" means a Foreign Subsidiary Account (i) created by one of the Eligible Foreign Subsidiaries in the ordinary course of its business and the corresponding Account Debtor's principal place of business, registered office or chief executive office is located in a country that is a member of the European Union, (ii) that arises out of such Foreign Subsidiary's sale of goods or rendition of services, (iii) that complies with each of the representations and warranties respecting Eligible Accounts made by Borrowers under the Loan Documents, and (iv) that is not excluded as eligible by virtue of one or more of the ineligibility criteria set forth in clauses (a) through (q) contained in the definition of Eligible Accounts (without regard to the ineligibility criterion contained in clause (g) of the definition of Eligible Account). "FOREIGN SUBSIDIARY ACCOUNTS" means all of a Foreign Subsidiary's now owned or hereafter acquired right, title, and interest with Page 3 respect to "accounts" (as that term is defined in the Code), and any and all supporting obligations in respect thereof. "MANAGEMENT BODY" means any governing or management body of a Foreign Subsidiary that has the authority to bind such Foreign Subsidiary. 1.5 SECTION 2.1(A) of the Agreement is deleted in its entirety and is replaced with a new SECTION 2.1(A) as follows: (a) Subject to the terms and conditions of this Agreement, (i) from and after the closing of the Tender Offer through August 31, 2002, each Lender with a Revolver Commitment shall make advances (collectively, the "Advances") to Borrowers of its Pro Rata Share of the amount required to finance Borrowers' financial obligations arising in connection with the consummation of the Tender Offer, the Merger, and the other transactions contemplated by the Merger Agreement and the Merger, as well as any other use of proceeds permitted under SECTION 7.17; provided, however, that the aggregate outstanding amount of all such Advances shall not exceed the lesser of (1) the Maximum Revolver Commitment, and (2) the amount that would be calculated as the Borrowing Base (as defined below) if the accounts of the Foreign Subsidiaries were deemed assets of Borrowers and (ii) commencing on September 1, 2002 and at all times thereafter during the first 3 years of the term of this Agreement, each Lender with a Revolver Commitment agrees (severally, not jointly or jointly and severally) to make additional Advances to Borrowers in an amount at any one time outstanding not to exceed such Lender's Pro Rata Share of an amount equal to THE LESSER OF (i) the Maximum Revolver Amount LESS the amount of the outstanding Advances, LESS the Letter of Credit Usage and LESS the Foreign Exchange Reserve, or (ii) the Borrowing Base LESS the amount of the outstanding Advances, less the Letter of Credit Usage and LESS the Foreign Exchange Reserve. For purposes of this Agreement, "BORROWING BASE," as of any date of determination, shall mean the result of: (x) 80% of the amount of Eligible Foreign Accounts and Eligible Domestic Accounts, plus 60% of the amount of Eligible Foreign Subsidiary Accounts, PLUS (Y) THE LOWEST OF (i) $6,750,000, (ii) 50% of the value of Eligible Inventory, and Page 4 (iii) 100% of the amount of credit availability created by CLAUSE (X) above, MINUS (z) the aggregate amount of reserves, if any, established by Agent under SECTION 2.1(B). 1.6 The second sentence of SECTION 2.5 of the Agreement is deleted in its entirety and is replaced with a new second sentence as follows: The preceding sentence shall not apply to that portion of the Overadvances, if any, that arises between the Closing Date and September 1, 2002, which would be eliminated if the accounts of the Foreign Subsidiaries arising from the sale of goods or rendition of services were deemed to be Accounts of the Borrowers. 1.7 SECTION 3.2(B) of the Agreement is deleted in its entirety and is replaced with the following: (b) on or before October 1, 2002, deliver to Agent the duly executed Control Agreements, and each such Control Agreement shall be in full force and effect; PROVIDED, HOWEVER, that no Control Agreements shall be required with respect to the following accounts so long as total funds in each account does not exceed at any time the amount indicated in parentheses after such account: (i) Account Number 1465-3-01690 at Bank of America, Woodland Hills, California ($25,000); (ii) Account Number 89189018 at Bank of America, Hong Kong ($25,000); (iii) Account Number 606-8019524 at Wells Fargo Bank, Denver, Colorado ($50,000); (iv) Account number 800-922-7 at Royal Bank of Canada, Chelston Park, Collymore Rock, St. Michael ($25,000); and (v) Account Number 21105003738322 at Bank of America, San Francisco, California ($25,000; provided that if this account has not been closed by December 1, 2002, a Control Agreement must be in place with respect to such account by such date). 1.8 SECTION 3.2(F) of the Agreement is deleted in its entirety and is replaced with the following: (f) on or before October 1, 2002, deliver to Agent such Collateral Access Agreements from lessors, warehousemen, bailees, and other third persons as Agent may require in its Permitted Discretion. 1.9 SECTION 3.2(H) of the Agreement is deleted in its entirety and is replaced with the following: (h) on or before October 1, 2002, all information and opinions reasonably required by Agent's United Kingdom counsel in order Page 5 to issue an opinion reasonably satisfactory to Agent shall have been delivered by Borrowers to Agent's United Kingdom counsel. 1.10 SECTION 4.9 of the Agreement is deleted in its entirety and is replaced with a new SECTION 4.9 as follows: 4.9 [INTENTIONALLY OMITTED]. 1.11 Subsection (a)(iv) of SECTION 7.20 of the Agreement is deleted in its entirety and is replaced with a new SECTION 7.20 (A)(IV) as follows: (IV) [INTENTIONALLY OMITTED]. 1.12 SECTION 8.14 of the Agreement is deleted in its entirety and is replaced with a new SECTION 8.14 as follows: If on August 31, 2002, the Borrowers are not in compliance with the Borrowing Base or have Overadvances and such non-compliance or Overadvances are not cured by September 1, 2002; or 1.13 SECTION 9.2 of the Agreement is deleted in its entirety and is replaced with a new SECTION 9.2 as follows: 9.2 [INTENTIONALLY OMITTED]. 2. PERMITTED SALE OF ACCOUNTS. Notwithstanding the provisions of Sections 4.1 and 7.4 of the Agreement to the contrary, Borrowers have requested that the Required Lenders agree to a sale by Borrowers of certain Accounts, free and clear of any Agent Liens (the "PROPOSED SALE OF ACCOUNTS"). The Required Lenders consent to the request of Borrowers subject to the following terms and conditions: 2.1 Borrowers shall only be permitted to sell Accounts that are not Eligible Accounts. The amount (based upon the gross invoice amount) of uncollected Accounts sold by Borrowers shall not exceed, at any one time, $5,000,000. 2.2 Not less than 5 Business Days prior to the date the Proposed Sale of Accounts is to be completed, Borrower shall have delivered to Agent a copy of the proposed purchase agreement pursuant to which the Proposed Sale of Accounts is to be consummated (the "PURCHASE AGREEMENT"). Borrowers shall not complete the Proposed Sale of Accounts if the terms and conditions of the Purchase Agreement are not approved by Agent prior to the date the Proposed Sale of Accounts is to be completed. 2.3 Not less than 3 Business Days prior to the date the Proposed Sale of Accounts is to be completed, Borrower shall have delivered to Agent the following: 2.3.1 A schedule listing all of the Accounts to be sold (the "Sale Accounts"), which schedule shall include the identity of each Account Debtor, the amount of Page 6 each invoice corresponding to the Accounts being sold, a copy of each invoice and an explanation why such Accounts are not Eligible Accounts. 2.3.2 An assignment of sale proceeds executed by Borrowers and the purchaser of the Accounts being sold pursuant to the Proposed Sale of Accounts, which shall contain terms and conditions satisfactory to Agent, in its sole discretion, including, without limitation, an assignment in favor of Agent on behalf of the Lender Group of all proceeds payable to Borrowers under the Purchase Agreement (the "Sale Proceeds"), free and clear of any rights of offset that might exist in favor of such purchaser, and an acknowledgement from such purchaser that it shall not purchase any Accounts, other than the Sale Accounts, without the prior written consent of Agent, on behalf of the Required Lenders. 2.4 On the date Sale Accounts are sold pursuant to a corresponding Purchase Agreement, Agent shall receive a wire transfer of all Sale Proceeds. The Sale Proceeds shall be applied as follows: 2.4.1 First, to any costs, fees and expenses, if any, due and owing pursuant to Section 2.6(a) of the Agreement as the result of the prepayment of a LIBOR Rate Loan. 2.4.2 Second, to the outstanding Obligations arising under Section 2.1 of the Agreement. 3. EFFECTIVE DATE OF THIS AMENDMENT, COUNTERPARTS. This Amendment shall be deemed effective as of the date first hereinabove written and shall have no retroactive effect whatsoever. Except as specifically amended herein, the Agreement shall remain in full force and effect without any other changes, amendments or modifications. This Amendment may be executed in multiple counterparts, all of which shall be considered one and the same. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered as of the date first above written. 3D SYSTEMS CORPORATION, a Delaware corporation as Administrative Borrower and as a Borrower By: /S/ E. JAMES SELZER ------------------------------------- Title: CFO ---------------------------------- 3D SYSTEMS, INC., a California corporation as a Borrower By: /S/ E. JAMES SELZER ------------------------------------- Title: CFO ---------------------------------- Page 7 3D CAPITAL CORPORATION, a California corporation, as a Borrower By: /S/ E. JAMES SELZER ------------------------------------- Title: CFO ---------------------------------- U.S. BANK NATIONAL ASSOCIATION, as Agent and as a Lender By: /S/ FRANCIS S. LIM ------------------------------------- Francis S. Lim, Vice President UNITED CALIFORNIA BANK, as a Lender By: /S/ DAVID G. KRONEN ------------------------------------- Title: VICE PRESIDENT ---------------------------------- Page 8 REAFFIRMATION OF GUARANTY The undersigned has executed a Continuing Guaranty ("Guaranty") in favor of Lenders respecting the obligations of Borrowers owing to Lenders. The undersigned acknowledges the terms of the above Amendment and reaffirms and agrees that the Guaranty remains in full force and effect; nothing in such Continuing Guaranty obligates Lenders to notify the undersigned of any changes in the financial accommodations made available to Borrowers or to seek reaffirmations of the Guaranty; and no requirement to so notify the undersigned or to seek reaffirmations in the future shall be implied by the execution of this reaffirmation. 3D HOLDINGS, LLC, a Delaware limited liability company By: /S/ E. JAMES SELZER ------------------------------------- Title: CFO ---------------------------------- Page 9 EX-10 9 exhibit_10-7.txt AMENDMENT NO. 7 EXHIBIT 10.7 AMENDMENT AGREEMENT NUMBER SEVEN TO LOAN AND SECURITY AGREEMENT THIS AMENDMENT AGREEMENT NUMBER SEVEN TO LOAN AND SECURITY AGREEMENT (this "Amendment"), dated as of October 1, 2002, is entered into between and among, on the one hand U.S. BANK NATIONAL ASSOCIATION, as a lender and as the arranger and administrative agent ("Agent") for the lenders that become members of the Lender Group pursuant to the terms of the Agreement (as that term is defined below) (such lenders, together with their respective successors and assigns, are referred to hereinafter each individually as a "Lender" and collectively as the "Lenders"), and, on the other hand, 3D SYSTEMS CORPORATION, a Delaware corporation ("Parent"), and each of Parent's Subsidiaries identified on the signature pages hereof (such Subsidiaries, together with Parent, are referred to hereinafter each individually as a "Borrower," and individually and collectively, jointly and severally, as the "Borrowers") and amends that certain Loan and Security Agreement, dated as of May 21, 2001, between and among Agent and Borrowers, as amended by that certain Amendment Agreement Number One to Loan and Security Agreement, dated July 26, 2001, that certain Amendment Agreement Number Two to Loan and Security Agreement, dated August 16, 2001, that certain letter agreement, dated August 30, 2001, that certain Amendment Agreement Number Three to Loan and Security Agreement, dated October 1, 2001, that certain Amendment Agreement Number Four to Loan and Security Agreement, dated as of November 1, 2001, that certain Amendment Agreement Number Five to Loan and Security Agreement, dated as of December 20, 2001, that certain Amendment Agreement Number Six to Loan and Security Agreement, dated as of August 30, 2002, that certain Joinder Agreement, dated as of August 30, 2002, between 3D Systems France SARL ("3D SARL") and Agent (the "French Joinder Agreement"), and that certain Joinder Agreement, dated August 30, 2002, between 3D Systems GmbH ("3D Systems GmbH") and Agent (the "German Joinder Agreement") (the Loan and Security Agreement, as amended, shall be referred to herein as the "Agreement"). All terms which are defined in the Agreement shall have the same definition when used herein unless a different definition is ascribed to such term under this Amendment, in which case, the definition contained herein shall govern. This Amendment is entered into in light of the following facts: RECITALS WHEREAS, pursuant to that certain letter agreement, dated as of August 30, 2002 (the "Modification Letter"), Agent agreed that the delivery of each Lockbox Agreement (as defined in the French Joinder Agreement and the German Joinder Agreement, respectively) required under the French Joinder Agreement and the German Joinder Agreement would be deemed conditions subsequent and Agent waived the corresponding condition precedent contained in each such joinder agreement requiring the execution and delivery of each such Lockbox Agreement. WHEREAS, Borrowers have requested that Lenders agree to extend the deadline for Borrowers to complete certain unsatisfied conditions subsequent contained in the Agreement and the Modification Letter. WHEREAS, Lenders have agreed to Borrowers' requests, subject to the terms and conditions contained in this Amendment. Page 1 NOW, THEREFORE, the parties agree as follows: 1. Amendments. 1.1 Section 3.2(b) of the Agreement is deleted in its entirety and is replaced with the following: (b) on or before November 30, 2002, deliver to Agent the duly executed Control Agreements, and each such Control Agreement shall be in full force and effect; provided, however, that no Control Agreements shall be required with respect to the following accounts so long as total funds in each account do not exceed at any time the amount indicated in parentheses after such account: (i) Account Number 1465-3-01690 at Bank of America, Woodland Hills, California ($25,000); (ii) Account Number 89189018 at Bank of America, Hong Kong ($25,000); (iii) Account Number 606-8019524 at Wells Fargo Bank, Denver, Colorado ($50,000); (iv) Account number 800-922-7 at Royal Bank of Canada, Chelston Park, Collymore Rock, St. Michael ($25,000); and (v) Account Number 21105003738322 at Bank of America, San Francisco, California ($25,000; provided that if this account has not been closed by December 1, 2002, a Control Agreement must be in place with respect to such account by such date). 1.2 Section 3.2(f) of the Agreement is deleted in its entirety and is replaced with the following: (f) on or before November 30, 2002, deliver to Agent such Collateral Access Agreements from lessors, warehousemen, bailees, and other third persons as Agent may require in its Permitted Discretion. 1.3 Section 3.2(h) of the Agreement is deleted in its entirety and is replaced with the following: (h) on or before November 30, 2002, all information and opinions reasonably required by Agent's United Kingdom counsel in order to issue an opinion reasonably satisfactory to Agent shall have been delivered by Borrowers to Agent's United Kingdom counsel. 1.4 The deadline set forth in the Modification Letter for delivery of the duly executed Lockbox Agreement required under the French Joinder Agreement, as well as the commencement of lockbox services under such Lockbox Agreement, is extended to November 30, 2002. 1.5 The deadline set forth in the Modification Letter for delivery of the duly executed Lockbox Agreement required under the German Joinder Agreement, as well as the Page 2 commencement of lockbox services under such Lockbox Agreement, is extended to November 30, 2002. 2. Delivery of French and German Collateral Access Agreements. The obligation of the Lender Group (or any member thereof) to continue to make Advances, to issue Letters of Credit or to enter into Foreign Exchange Forward Contracts (or otherwise extend credit hereunder) is subject to the execution and delivery of Collateral Access Agreements with respect to the Collateral of 3D SARL and 3D GmbH, on or before November 30, 2002. The failure of this condition to be timely satisfied shall constitute an Event of Default. 3. Effective Date of this Amendment, Counterparts. This Amendment shall be deemed effective as of the date first hereinabove written and shall have no retroactive effect whatsoever. Except as specifically amended herein, the Agreement shall remain in full force and effect without any other changes, amendments or modifications. This Amendment may be executed in multiple counterparts, all of which shall be considered one and the same. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and delivered as of the date first above written. 3D SYSTEMS CORPORATION, a Delaware corporation as Administrative Borrower and as a Borrower By: /S/ E. JAMES SELZER ------------------------------------- Title: CFO ---------------------------------- 3D SYSTEMS, INC., a California corporation as a Borrower By: /S/ E. JAMES SELZER ------------------------------------- Title: CFO ---------------------------------- Page 3 3D SYSTEMS FRANCE SARL, as a Borrower By: ------------------------------------- Title: ---------------------------------- 3D SYSTEMS GMBH, as a Borrower By: ------------------------------------- Title: ---------------------------------- U.S. BANK NATIONAL ASSOCIATION, as Agent and as a Lender By: /S/ FRANCIS S. LIM ------------------------------------- Francis S. Lim, Vice President BANK OF THE WEST, as successor in interest to United California Bank, as a Lender By: /S/ DAVID G. KRONEN ------------------------------------- Title: VICE PRESIDENT ---------------------------------- Page 4 REAFFIRMATION OF GUARANTY The undersigned has executed a Continuing Guaranty ("Guaranty") in favor of Lenders respecting the obligations of Borrowers owing to Lenders. The undersigned acknowledges the terms of the above Amendment and reaffirms and agrees that the Guaranty remains in full force and effect; nothing in such Continuing Guaranty obligates Lenders to notify the undersigned of any changes in the financial accommodations made available to Borrowers or to seek reaffirmations of the Guaranty; and no requirement to so notify the undersigned or to seek reaffirmations in the future shall be implied by the execution of this reaffirmation. 3D HOLDINGS, LLC, a Delaware limited liability company By: /S/ E. JAMES SELZER ----------------------------------- Title: CFO -------------------------------- Page 5 EX-10 10 exhibit_10-8.txt AMENDMENT NO. 8 EXHIBIT 10.8 AMENDMENT AGREEMENT NUMBER EIGHT TO LOAN AND SECURITY AGREEMENT THIS AMENDMENT AGREEMENT NUMBER EIGHT TO LOAN AND SECURITY AGREEMENT (this "Amendment"), dated as of November 12, 2002, is entered into between and among, on the one hand U.S. BANK NATIONAL ASSOCIATION, as a lender and as the arranger and administrative agent ("Agent") for the lenders that become members of the Lender Group pursuant to the terms of the Agreement (as that term is defined below) (such lenders, together with their respective successors and assigns, are referred to hereinafter each individually as a "Lender" and collectively as the "Lenders"), and, on the other hand, 3D SYSTEMS CORPORATION, a Delaware corporation ("Parent"), and each of Parent's Subsidiaries identified on the signature pages hereof (such Subsidiaries, together with Parent, are referred to hereinafter each individually as a "Borrower," and individually and collectively, jointly and severally, as the "Borrowers") and amends that certain Loan and Security Agreement, dated as of May 21, 2001, between and among Agent and Borrowers, as amended by that certain Amendment Agreement Number One to Loan and Security Agreement, dated July 26, 2001, that certain Amendment Agreement Number Two to Loan and Security Agreement, dated August 16, 2001, that certain letter agreement, dated August 30, 2001, that certain Amendment Agreement Number Three to Loan and Security Agreement, dated October 1, 2001, that certain Amendment Agreement Number Four to Loan and Security Agreement, dated as of November 1, 2001, that certain Amendment Agreement Number Five to Loan and Security Agreement, dated as of December 20, 2001, that certain Amendment Agreement Number Six to Loan and Security Agreement, dated as of August 30, 2002, and that certain Amendment Agreement Number Seven to Loan and Security Agreement, dated October 1, 2002 (as amended, the "Agreement"). All terms which are defined in the Agreement shall have the same definition when used herein unless a different definition is ascribed to such term under this Amendment, in which case, the definition contained herein shall govern. This Amendment is entered into in light of the following facts: RECITALS WHEREAS, Borrowers have requested that Lenders agree to change (i) the Leverage Ratio, (ii) the Senior Debt to EBITDA Ratio, and (iii) Minimum Fixed Charge Coverage Ratio. WHEREAS, Lenders have agreed to Borrowers' requests on the condition that Borrowers agree to: (i) a permanent reduction in the Maximum Revolver Amount and agree to prepay a portion of the outstanding balance under the Term Loan, (ii) the addition of a Minimum Net Profit Covenant, (iii) a change in the pricing for the Advances and the Term Loan, and (iv) the other terms and conditions contained in this Amendment. WHEREAS, Borrowers have agreed to the terms and the conditions required by Lenders. NOW, THEREFORE, the parties agree as follows: 1. The definitions of "Applicable Margin", "EBITDA", "Fixed Charge Coverage Ratio", "Leverage Ratio", "Maximum Revolver Amount", and "Senior Debt to EBITDA Ratio" contained in Section 1.1 of the Agreement are deleted in their entirety and are replaced with the following: Page 1 'Applicable Margin' means, with respect to any Obligation on the first day of the first month following the delivery of financial statements pursuant to Section 6.3, the margin as provided below based upon the Leverage Ratio.
Applicable Margin For: Leverage Ratio LIBOR Rate Loans Prime Rate Loans - ------------------------------- ---------------- ---------------- Less than 1.5:1.0 2.00% .25% Less than 2.0:1.0, but equal to or greater than 1.5:1.0 2.25% .50% Less than 2.5:1.0, but equal to or greater than 2.0:1.0 2.50% .75% Equal to 2.5:1.0 2.75% 1.00% Less than 5.0:1.0, but equal to or greater than 2.51:1.0 5.00% 3.25% Less than 7.50:1.0, but equal to or greater than 5.0:1.0 5.25% 3.50% Less than 11.50:1.0, but equal to or greater than 7.50:1.0 5.50% 3.75% Equal to or greater than 11.50:1.0 5.75% 4.00%
'EBITDA' means, with respect to any fiscal period, Parent's and its Subsidiaries' consolidated net earnings (or loss) from normal business operations (as determined by Agent in its Permitted Discretion), plus interest expense, income taxes, and depreciation and amortization for such period, as determined in accordance with GAAP. 'Fixed Charge Numerator' means, as of the time that the Fixed Charge Coverage Ratio is being determined, the amount equal to EBITDA for the 12 month period then ended (except as provided in the definition of Excess Cash Flow above), minus all taxes paid during such period, minus all distributions to shareholders (other than shareholders that are also Borrowers) made during such period, minus unfinanced Capital Expenditures made during such period, provided, however, that solely for the four fiscal quarters commencing with the fiscal quarter ending on or about March 31, 2003 and ending with the fiscal quarter ending on December 31, 2003, for purposes of this calculation, EBITDA shall be annualized based upon calendar year to date results as of the fiscal quarter then ending. 'Fixed Charge Coverage Ratio' means, as of the end of the most recently concluded fiscal quarter of Parent, the ratio of (i) the Fixed Charge Numerator; to (ii) the aggregate amount of all regularly scheduled principal payments which will become due and payable in respect of long term debt by Borrowers during the immediately Page 2 succeeding four fiscal quarters, plus all interest payments due and payable by Borrowers during the 12 month period then ended (provided, however, that for the four fiscal quarters commencing with the fiscal quarter ending on or about March 31, 2003 and ending with the fiscal quarter ending on December 31, 2003 the interest payments shall be annualized based on actual payments made during such period). 'Leverage Ratio' means, as of the end of the most recently concluded fiscal quarter of Borrowers, the ratio of interest bearing Debt outstanding as of the end of such fiscal quarter to EBITDA calculated as follows: (y) for the fiscal year of Borrowers commencing on January 1, 2003 and ending on December 31, 2003, EBITDA shall be calculated as of the end of each fiscal quarter of Borrowers and shall be annualized based upon calendar year to date results as of the end of such fiscal quarter then ending, and (z) commencing with the fiscal quarter of Borrowers ending on or about March 31, 2004 and for each fiscal quarter of Borrowers thereafter, the EBITDA shall be calculated for the four fiscal quarter period of Borrowers ended with the most recent fiscal quarter of Borrowers in such financial statements. 'Maximum Revolver Amount' means $9,650,000. 'Senior Debt to EBITDA Ratio' means, as of the end of the most recently concluded fiscal quarter of Borrowers, the ratio of all then outstanding Senior Debt to EBITDA calculated as follows: (y) for the fiscal year of Borrowers commencing on January 1, 2003 and ending on December 31, 2003, EBITDA shall be calculated as of the end of each fiscal quarter of Borrowers and shall be annualized based upon calendar year to date results as of the end of such fiscal quarter then ending, and (z) commencing with the fiscal quarter of Borrowers ending on or about March 31, 2004 and for each fiscal quarter of Borrowers thereafter, the EBITDA shall be calculated for the four fiscal quarter period of Borrowers ended with the most recent fiscal quarter of Borrowers in such financial statements. 2. Section 2.1(a)(y)(i) of the Agreement is deleted and replaced with the following: (i) $4,825,000, 3. Section 2.2 of the Agreement is amended by replacing the payment grid contained in that Section with a new payment grid as follows: Date Installment Amount ==================================== ======================================= Commencing on December 1, 2002 and Accrued and unpaid interest continuing on the same day of each month until February 1, 2007 On November 12, 2002 A principal installment of $2,400,000 plus all accrued and unpaid interest on the portion of the Term Loan owing to Bank of the West Page 3 Commencing on March 1, 2003 and Quarterly principal installments equal continuing on the same day of to the lesser of the outstanding every third month thereafter outstanding principal balance of the Term Loan or $750,000 each On June 1, 2006 The unpaid principal balance, plus accrued interest 4. Section 7.20 (a) of the Agreement is deleted and replaced with the following: (a) Fail to maintain: (i) SENIOR DEBT TO EBITDA RATIO. A Senior Debt to EBITDA Ratio of not more than 2.0:1 for each fiscal quarter during the term of this Agreement. (ii) MAXIMUM LEVERAGE RATIO. A Leverage Ratio of not more than of 3.0:1, for each of the four fiscal quarters commencing with the fiscal quarter ending December 31, 2002, and ending with the fiscal quarter ending on or about September 30, 2003, and a Leverage Ratio of not more that 2.75:1 for each fiscal quarter commencing with the fiscal quarter ending December 31, 2003, and for each fiscal quarter thereafter for the remaining term of this Agreement. (iii) FIXED CHARGE COVERAGE RATIO. A Fixed Charge Coverage Ratio of not less than: (1) 1.00:1.00, for fiscal quarter ending on or about March 31, 2003, (2) 1.20:1.00, for fiscal quarter ending on or about June 30, 2003; (iii) 1.25:1.00, for fiscal quarter ending on or about September 30, 2003 and thereafter. (iv) TANGIBLE NET WORTH. Tangible Net Worth of at least $23,000,000, increased by 50% of Borrowers' net income for each fiscal quarter during the term of this Agreement. (v) MINIMUM NET INCOME. Commencing with the fiscal quarter ending on or about March 31, 2003 and as of the last day of each fiscal quarter thereafter, Borrowers shall have (on a consolidated basis) net income from normal business operations (as determined by Agent in its Permitted Discretion) of no less than $1.00. 5. Schedule C-1 to the Agreement is hereby replaced with the Schedule C-1 attached to this Amendment. 6. Borrowers shall pay Agent an amendment fee in the amount of $65,000 plus all costs, fees (including attorney's fees) and expenses incurred in connection with the drafting and negotiation of this Amendment. 7. This Amendment shall be deemed effective as of the date first hereinabove written and shall have no retroactive effect whatsoever. Except as specifically amended herein, the Agreement shall remain in full force and effect without any other changes, amendments or modifications. Page 4 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered as of the date first above written. 3D SYSTEMS CORPORATION, a Delaware corporation as Administrative Borrower and as a Borrower By: /S/ E. JAMES SELZER ---------------------------------------- Title: CFO ------------------------------------- 3D SYSTEMS, INC., a California corporation as a Borrower By: /S/ E. JAMES SELZER ---------------------------------------- Title: CFO ------------------------------------- 3D CAPITAL CORPORATION, a California corporation, as a Borrower By: /S/ E. JAMES SELZER ---------------------------------------- Title: CFO ------------------------------------- 3D SYSTEMS FRANCE SARL, as a Borrower By: ---------------------------------------- Title: ------------------------------------- 3D SYSTEMS GMBH, as a Borrower By: ---------------------------------------- Title: ------------------------------------- U.S. BANK NATIONAL ASSOCIATION, as Agent and as a Lender By: /S/ KAREN K. BROWN ---------------------------------------- Karen K. Brown, Sr. Vice President Page 5 REAFFIRMATION OF GUARANTY The undersigned has executed a Continuing Guaranty ("Guaranty") in favor of Lenders respecting the obligations of Borrowers owing to Lenders. The undersigned acknowledges the terms of the above Amendment and reaffirms and agrees that the Guaranty remains in full force and effect; nothing in such Continuing Guaranty obligates Lenders to notify the undersigned of any changes in the financial accommodations made available to Borrowers or to seek reaffirmations of the Guaranty; and no requirement to so notify the undersigned or to seek reaffirmations in the future shall be implied by the execution of this reaffirmation. 3D HOLDINGS, LLC, a Delaware limited liability company By: /S/ E. JAMES SELZER ---------------------------------------- Title: CFO ------------------------------------- Page 6
Schedule C-1 Commitments Revolver Term Loan Lender Commitment Commitment Total Commitment - ------------- -------------- ------------- ---------------- U.S. Bank $9,650,000 $10,350,000 $20,000,000 -------------- ------------- ---------------- All Lenders $9,650,000 $10,350,000 $20,000,000 ============== ============= ================
Page 7 EX-10 11 exhibit_10-9.txt B. SERVICE EMPL. AGMT. EXHIBIT 10.9 October 15, 2002 Mr. Brian K. Service 123 Red Hill Circle Tiburon, CA 94920 Dear Brian: 3D Systems, Inc. (the "Company") is pleased to offer you a position as Chief Executive Officer reporting directly to the Chairman of the Board of Directors, George W. Loewenbaum, starting on October 15, 2002. When executed by you in the space provided below, this letter will constitute an agreement between you and the Company. The compensation package includes a bi-weekly base salary of $17,809. There is no specific bonus associated with this position. In addition, management will recommend that the Compensation Committee of the Board of Directors grant you a fully-vested stock option of 350,000 common shares at the fair market value on the date of hire, with an option term of five years. As a mutually agreed condition of employment, you agree that you will waive, to the maximum extent permitted by law, any and all non-salary benefits you would normally enjoy as a 3D Systems employee, including without limitation group insurance, (including group health, dental, vision, life insurance, and long term disability insurance), a 401(k) plan, employee stock purchase plan, and flexible spending accounts. You will, however, be entitled to paid sick leave, ten paid holidays per year and two weeks vacation per year. 3D Systems maintains a strict drug-free workplace policy. Therefore, you will be required to undergo a drug screening examination at the Company's expense and this offer of employment is contingent upon a satisfactory result. Please contact the Human Resources Department to schedule an appointment. The term of this agreement (the "Term") shall be for eleven months and shall automatically be extended thereafter until terminated pursuant to the termination provisions set forth in this paragraph. Following the initial eleven month term of this agreement, either party may provide 90 days advance written notice to the other party terminating this agreement. In addition, your employment may be terminated at any time by 3D Systems for cause, which shall be defined as conduct involving moral turpitude or gross or habitual neglect of your duties. Any other agreement regarding your employment or any other matter between you and 3D Systems must be in writing signed by the Chairman of the Board, and approved by the Compensation Committee of the Board of Directors. Enclosed is a copy of our Employee Confidentiality Agreement and our Code of Employee Conduct. We request that you review and become familiar with the contents of these documents. As a condition of your employment with 3D Systems, you are required to sign the Agreement for Mandatory Arbitration, the Confidentiality Agreement, and the Code of Conduct. Please sign where indicated and initial each page, and return these signed documents with your acceptance of this offer. If you are in agreement with the terms of this offer, please sign and return a copy of this letter to us. We are enclosing a self-addressed envelope for your convenience. Should you have any questions about this offer or otherwise, please call me at (661) 295-5600, x 2211. Brian, it is a pleasure to make you this offer to join 3D Systems and we are looking forward to welcoming you on board. Sincerely, 3D SYSTEMS, INC. /S/ KEITH KOSCO Keith Kosco General Counsel & Corporate Secretary UH:tb Enclosures I accept the above offer on the stated terms and conditions and will start to work on 10/15/02 /S/ BRIAN SERVICE 10/15/02 - ------------------- -------------------------------- ------------------- Start Date Signed Date Page 2 I hereby represent, warrant and agree that I am free to accept this employment offer and to perform the job duties of Chief Executive Officer. I represent, warrant and agree that I am not bound by any restriction or covenant from any prior employer or other obligation that would interfere with my ability to perform the job duties of Chief Executive Officer at 3D Systems. I also represent, warrant and agree that I have returned all documents to my prior employers, and that I will not utilize any trade secrets or proprietary information of my prior employers in connection with my employment by 3D Systems. /S/ BRIAN SERVICE 10/15/02 - -------------------------------- --------------------------- Signed Date Page 3 EX-10 12 exhibit_10-10.txt EXHIBIT 10.10 SIXTH AMENDMENT TO REIMBURSEMENT AGREEMENT THIS SIXTH AMENDMENT TO REIMBURSEMENT AGREEMENT (this "Amendment") is entered into as of November 8, 2002, by and between 3D SYSTEMS CORPORATION, a Delaware corporation ("Company"), and WELLS FARGO BANK WEST, NATIONAL ASSOCIATION formerly known as Norwest Bank Colorado, National Association ("Reimbursement Bank"). RECITALS WHEREAS, Company and Reimbursement Bank have entered into that certain Reimbursement Agreement dated as of August 1, 1996, as amended from time to time ("Reimbursement Agreement") to provide for the reimbursement of a letter of credit issued to support the Issuance of Mesa County, Colorado, Industrial Development Revenue Bonds in the principal amount of $4,900,000.00. WHEREAS, Reimbursement Bank and Company have agreed to certain changes in the terms and conditions set for in the Reimbursement Agreement and have agreed to amend the Reimbursement Agreement to reflect said changes. NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree that the Reimbursement Agreement shall be amended effective January 1, 2003, as follows: 1. Section 8.6, is hereby deleted in its entirety, and the following substituted therefor: 8.6 Fixed Charge Coverage Ratio. Permit the Company's fixed Charge Coverage Ratio to be less than 1.0 at the end of the first quarter, March 2003; 1.20 at the end of the second quarter, June 2003; and 1.25 at the end of the third quarter, 2003 and for each quarter end thereafter. The Fixed Charge Coverage Ratio is defined as EBITDA, less distributions to shareholders, plus subordinated shareholder infusion, less taxes paid and less unfinanced capital expenditures; divided by the principal portion of long term debt payments, and interest expenses both measured cumulative year-to-date and annualized. "EBITDA" means net profit before tax from normal business operations, plus interest expense (net of capitalized interest expense), depreciation expense and amortization expense and is measured cumulative year-to-date and annualized. Except as specifically provided herein, all terms and conditions of the Reimbursement Agreement remain in full force anti effect, without waiver or modification. All terms defined in the Reimbursement Agreement shell have the same meaning when used in fids Agreement. This Amendment and the Reimbursement Agreement shall be read together, as one document. IN WITNESS WHEREOF, the parties hereto have caused the Amendment to be executed as of the day and year first written above. COMPANY: REIMBURSEMENT BANK 3D SYSTEMS CORPORATION WELLS FARGO BANK WEST, NATIONAL ASSOCIATION, f/k/a Norwest Bank Colorado, National Association By: /S/ E. JAMES SELZER By: /S/ KATIE AMES ----------------------------- ----------------------------- E. James Selzer Katie Ames Sr. Vice President, Vice President Chief Financial Officer EX-99 13 exhibit_99-1.txt CEO CERT. EXHIBIT 99.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER OF 3D SYSTEMS CORPORATION This certification is provided pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and accompanies the quarterly report on Form 10-Q (the "Form 10-Q") for the quarter ended September 27, 2002 of 3D Systems Corporation (the "Issuer"). I, Brian Service, the Chief Executive Officer of Issuer certify that, to the best of my knowledge: (i) the Form 10-Q fully complies with the requirements of section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and (ii) the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Issuer. Date: November 12, 2002 /S/ BRIAN SERVICE ------------------------------- Name: Brian Service EX-99 14 exhibit_99-2.txt CFO CERT. EXHIBIT 99.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER OF 3D SYSTEMS CORPORATION This certification is provided pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and accompanies the quarterly report on Form 10-Q (the "Form 10-Q") for the quarter ended September 27, 2002 of 3D Systems Corporation (the "Issuer"). I, E. James Selzer, the Chief Financial Officer of Issuer certify that, to the best of my knowledge: (i) the Form 10-Q fully complies with the requirements of section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and (ii) the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Issuer. Dated: November 12, 2002. /S/ E. JAMES SELZER ----------------------------- Name: E. James Selzer -----END PRIVACY-ENHANCED MESSAGE-----