We believe that existing cash and cash equivalents and funds available under the current and proposed credit facilities will be sufficient to satisfy our anticipated working capital requirements for at least the next 12 months. From time to time, we consider the acquisition of other businesses, products or technologies complementary to our current business, although we have no current commitments or agreements with respect to any such transactions. Should we decide to pursue such a transaction, we may need to borrow additional funds.
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 our stockholders may lose all or part of their 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.
The closing of the offer is subject to certain conditions including our receipt of funds sufficient to pay for all of the shares of common stock of DTM and other outstanding equity interests of DTM and the tender to us of at least 67% of those shares, among other customary closing conditions. The closing of the merger also is subject to customary closing conditions. Pursuant to a letter agreement dated April 24, 2001, U.S. Bank N.A. has committed to make us loans in amounts sufficient to fund the acquisition of the shares of common stock of DTM. Funding of these credit facilities is subject to customary closing conditions. If these conditions are not satisfied and we are unable to obtain the necessary financing or if shareholders holding at least 67% of the shares do not tender those shares to us, the merger agreement may be terminated. If the Merger Agreement is terminated because we do not meet one or all of these conditions, we will not be entitled to recoup the funds we spent in negotiating the offer and the merger or any of the related transaction costs. We cannot assure you that we will be able to satisfy these conditions or that each other condition to closing will be met. If we do not consummate the offer and the merger, we may not be able to identify an alternative strategic transaction acceptable to us and our operations and stock price may be materially adversely affected.
The Antitrust Division of the United States Department of Justice and the Federal Trade Commission may seek to enjoin the offer and the merger. This action may preclude or delay our consummation of the offer and the merger, or if consummated, may have an adverse affect on the combined company.
The Antitrust Division of the United States Department of Justice has contacted us seeking information about the offer and the merger. The Antitrust Division lawyers have indicated that their inquiry is directed to whether there are likely to be any anticompetitive effects resulting from the transaction. We are cooperating fully with the inquiry.
The Antitrust Division and the Federal Trade Commission frequently scrutinize the legality under the antitrust laws of transactions such as our proposed acquisition of DTM. At any time before or after our acquisition of the shares of common stock of DTM pursuant to the offer, the Antitrust Division or the Federal Trade Commission could take any action under the antitrust laws that it deems necessary or desirable in the public interest, including seeking to enjoin the purchase of the shares pursuant to the offer or the consummation of the merger or seeking the divestiture of shares acquired by us or the divestiture of substantial assets of DTM, or its subsidiaries, or us. Private parties may also bring legal action under the antitrust laws under certain circumstances. We cannot assure you that a challenge to the offer on antitrust grounds will not be made or, if a challenge is made, of the result of that challenge.
Certain parties have filed a lawsuit seeking, among other relief, to enjoin the offer and the merger and we may incur substantial costs defending this and any other similar lawsuit.
On April 6, 2001, a purported class action lawsuit under the caption Spinner v. Goldstein was filed in the 200th Judicial District Court of Travis County, Austin, Texas, naming as defendants DTM Corporation, certain of DTM’s directors and 3D Systems Corporation. The complaint was amended on May 2, 2001. The complaint as amended asserts that the $5.80 cash consideration to be paid in the merger is inadequate and does not represent the value of the assets and the future prospects of DTM. The amended complaint also alleges that the individual defendants breached their fiduciary obligations to the public shareholders of DTM in approving the merger agreement and that the tender offer documents distributed to the shareholders of DTM in connection with the tender fail to disclose material information.
The complaint seeks, among other things, preliminary and permanent injunctive relief prohibiting DTM from consummating the merger, and if the merger is consummated, an order rescinding the merger and awarding damages to the purported class. The complaint also seeks unspecified damages, attorney fees and other relief. The plaintiffs have requested document production from DTM and us on an expedited basis. None of the defendants have filed an answer to the complaint.
We have reached an agreement in principle with the representative of the purported class in this lawsuit, providing for the settlement of the action. The terms of the settlement are confidential, but, in general, are not expected to have a material adverse effect on us or otherwise delay the completion of the offer or the merger. In connection with the agreement, the plaintiff has cancelled his request for expedited discovery. At the date of this filing, we have not yet entered into a written agreement embodying the terms of our understanding but expect to do so shortly. We cannot assure you that we will enter into an agreement to settle the class action or that any written agreement entered into to settle the action will reflect the terms of our agreement in principle. If we do not settle the action, a court may determine to enjoin the offer and the merger or subject us to an adverse judgment in a substantial amount. In addition, the litigation process is costly and may divert management's attention from our daily operations. If a court permanently enjoins the offer or requires us to pay damages, we will not be entitled to recoup our transaction costs associated with the offer and our business may be materially adversely affected. Alternatively, if a court temporarily enjoins the offer, we also may incur substantial litigation costs, the closing of the offer and merger will be delayed, which will increase our transaction costs and our operations and financial condition may be materially adversely affected.
Integrating DTM’s operations with ours may be difficult and may cause disruptions to our business; we may not achieve the synergies we expect from the acquisition or maintain DTM’s customers.
To attain the benefits of the merger, we will have to effectively integrate our operations, technologies and products. In particular, we must integrate management and other personnel, our sales and marketing teams, our information systems, and our financial, accounting and other operational procedures. In addition, we must effectively coordinate our combined research and development activities. Our success in this process will be significantly influenced by our ability to retain key management and marketing and development personnel. The difficulties of this integration may be increased by the necessity to coordinate geographically separated organizations with distinct cultures. The integration of operations will require the dedication of management resources, which temporarily may distract the attention of management and other personnel from our day-to-day business activities. In addition, employees of DTM may be less productive as a result of uncertainty during the integration process, which also may disrupt our business. These disruptions or any other difficulties with integration could seriously harm the combined company. In addition, even if the operations of the combined companies are integrated successfully, we anticipate accomplishing the integration over time and, in the interim, the combination may have an adverse effect on our business, results of operations and financial condition.
We expect the combination to result in synergies and operating efficiencies, including reduced overhead costs as a percentage of combined revenue, expanded operations, and enhanced purchasing leverage. We may not achieve these benefits and whether we ultimately realize these benefits will depend on a number of factors, many of which are beyond our control. In addition, we cannot assure you that our current and potential customers and those of DTM will continue to do business with us. If we are not able to obtain these synergies or maintain DTM’s client base, our financial condition and results of operations will be materially adversely affected.
DTM currently is involved in intellectual property litigation, the outcome of which could materially and adversely affect the combined company.
DTM faces direct competition for selective laser sintering equipment and materials outside the United States from EOS GmbH of Planegg, Germany ("EOS"). DTM has been involved for a number of years in significant litigation with EOS in France, Germany, Italy and Japan with regard to its proprietary rights to selective laser sintering technology and is pursuing injunctive relief against EOS where applicable. Recently, EOS brought a patent infringement suit against DTM in a U.S. court.
DTM vs. EOS, et al
The plastic sintering patent infringement actions against EOS began in France, Germany, and Italy in 1996. Legal actions in France, Germany, and Italy are proceeding. EOS had challenged the validity of certain plastic patents in the European Patent Office (EPO). Both of those patents survived the opposition appeals, after the original claims were modified, and the infringement hearings have been re-started.
In 1997, DTM initiated action against Hitachi Zosen Joho Systems, the EOS distributor in Japan. In May 1998, EOS initiated two invalidation trials in the Japanese Patent Office attempting to have DTM's patent invalidated on two separate bases. The Japanese Patent Office ruled in DTM's favor in both trials in July 1998, effectively ruling that DTM's patent was valid. In September 1999, the Tokyo District Court then ruled in DTM's favor and granted a preliminary injunction prohibiting further importation and selling of the infringing plastic sintering EOS machine. In connection with this preliminary injunction, DTM was required to place 20 million yen (approximately $200,000) on deposit with the court towards potential damages that EOS might claim should the injunction be reversed. Based on the Tokyo District Court's ruling, EOS then filed an appeal in the Tokyo High Court to have the rulings of the Japanese Patent Office revoked. On March 6, 2001, the Tokyo High Court ruled in EOS's favor that the rulings of the Japanese Patent Office were in error. This ruling is being appealed by DTM to the Tokyo Supreme Court.
EOS vs. DTM and 3D Systems
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 licensed to EOS by us. In a February 2001 press release related to EOS’s filing of the suit, EOS claimed damages of $20 million. On April 10, 2001, consistent with an order issued by the federal court in this matter, we were added as a party to the lawsuit. These proceeding are in the pre-discovery stage. EOS recently has threatened us with a breach of contract claim if, following the acquisition of DTM, we compete with EOS in the laser sintering field.
We cannot assure you that we will successfully defend against the claims of past infringement of the patents that are the subject of the dispute with EOS or a breach of contract claim, if asserted. The combined company's inability to resolve the claims of patent infringement or to prevail in any related litigation could result in a finding of infringement of our licensed patents that are the subject of the litigation. Additionally, one EOS patent is asserted which, if found valid and infringed, could preclude the continued development and sale of certain of DTM's products that incorporate the intellectual property which is the subject of the patents. In addition, the combined company may become obligated to pay substantial monetary damages for past infringement. Regardless of the outcome of these actions, DTM has incurred, and following the merger, the combined company may continue to incur, significant related expenses and costs that could have a material adverse effect on the business and operations of the combined company. Furthermore, these actions could involve a substantial diversion of the time of some members of management. The failure to preserve DTM's intellectual property rights and the costs associated with these actions and any future breach of contract claim could have a material adverse effect on the results of operations, liquidity and financial condition of the combined company and could cause significant fluctuations in results from quarter to quarter.
DTM currently is involved in a contract dispute with The University of Texas the outcome of which could materially and adversely affect the combined company.
The University of Texas ("the University") system licenses certain key intellectual property used in the selective laser sintering process to DTM. As a licensee, DTM's rights to practice the technology are not absolute. In February 2000, DTM gave notice to the University of changes DTM had made in its royalty calculations to reflect business practices DTM adopted in the fall of 1999. DTM informed the University that these changes had the effect of reducing the average royalty due the University per machine sold. The University communicated in writing to DTM that they do not accept these changes. DTM met with representatives of the University to provide them a better understanding of DTM's position and of the methodologies that the Company now uses in its calculation of royalties due them. DTM currently is in discussions with the University to resolve their differences. The University could terminate, attempt to terminate or amend the license if DTM could be shown to be in material default of the terms of the license. Even if DTM had a basis for objection, defense of DTM's rights as a licensee could be costly, and the outcome would be uncertain. Loss of significant rights as a licensee under this license could have a material adverse effect on DTM's business and financial performance, and as a result, on the operation of the business and the financial condition of the combined company.
Certain Risks Associated With Our Business
Fluctuations in Quarterly Results – 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
General world economic conditions
Changes in the mix of products and services sold
Currency and economic fluctuations in foreign markets and other factors affecting international sales
Delays in the introduction of new services/products
Price competition
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 cannot assure you that we will not experience delays in the receipt of certain key components. To meet forecasted production levels, we may be required to commit to certain 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 and results of operations.
Because of all of these and other factors, we cannot assure you that we will achieve or sustain quarterly or annual profitability in the future.
The Mix of Products Sold Affects Our Overall Profit Margins
We continuously expand our product offerings and work to increase the number of geographic markets in which we operate and the distribution channels we use in order to reach the various markets and customers. This variety of products, markets and channels results in a range of gross margins and operating income which can cause substantial quarterly fluctuations depending on the mix of product shipments 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. Also, the changing mix of products sold over time may result in lower average gross margins and returns.
We Must Keep Pace with Technological Change and Introduce New Products to Remain Competitive
To remain competitive, we must continue to enhance and improve the functionality and features of our products, services and technologies. The solid imaging industry is characterized 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 industry 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
Retain key technology employees
Also, our competitors may develop new technologies or materials that render our existing products and services obsolete. We believe that our future success will depend on our ability to deliver products that meet changing technology and customer needs. As part of our strategy of continuous development, we acquired the stock and intellectual property of OptoForm SARL in February 2001. In addition, we expect that the merger with DTM and the acquisition of OptoForm SARL will allow us to expand our product offering and increase capabilities to expand into the rapid manufacturing, rapid tooling and niche customization market segments. We cannot assure you however that we will successfully develop the OptoForm technology or if developed, that it will lead to commercially viable products. In addition, we cannot assure you that we will complete the acquisition of DTM, or if completed, that these acquisitions will enable us to increase our capabilities to expand into the rapid manufacturing, rapid tooling and niche customization market segments.
Our New Products May Not Be Commercially Accepted
During 2000, we introduced several new products to the market, primarily software and materials. In addition, in March 2001 we announced the introduction of our newest SLA system. These products undergo thorough quality assurance testing; however, problems have arisen in connection with prior new product introductions, and we cannot assure you that we will be able to fix any new problems that arise in a timely manner, or at all. Also, we cannot assure you that any new products we develop will be commercially accepted. If there are many problems with our new products, or if the marketplace does not accept these products, our results of operations and financial condition could be materially and adversely affected.
We Depend on a Single or Limited Suppliers for Certain of our Components
There are several potential suppliers of the material components, parts and subassemblies for our 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. Vantico supplies us with the resins we distribute pursuant to the Photopolymer Distribution Agreement, which either party has the right to terminate with six months advance notice. If the agreement were to be terminated, we would be unable to locate an immediate alternative source of the full range of resins, which would result in a material adverse effect on our revenues, results of operations, liquidity and financial position. Our reliance on a limited number of vendors involves many risks including:
Shortages of certain key components
Product performance shortfalls
Reduced control over delivery schedules, manufacturing capabilities, quality and costs
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 that 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 Rely on Regent Pacific Management Corporation for our Executive Management
Regent Pacific Management Corporation (“Regent Pacific”) provides management services for us. The management services provided under our agreement with Regent Pacific include the services of Brian K. Service as President and Chief Executive Officer, and four other Regent Pacific personnel as part of our management team. On September 9, 2000, we extended our agreement with Regent Pacific from 12 months to 24 months, with the potential for additional extensions beyond that period. The extended agreement also provides for the availability of up to two additional executives to provide management services on an as needed basis. All other terms of the agreement remain substantially unchanged. If the agreement with Regent Pacific were canceled or not renewed, the loss of the Regent Pacific personnel could have a material adverse effect on our operations, especially during any transition phase to new management after a cancellation or non-renewal. Similarly, if any adverse change in our relationship with Regent Pacific occurs, it could hinder management’s ability to direct our business and materially and adversely affect our results of operations and financial condition.
There are Many Risks Associated with International Business
A material portion of our sales is to customers in foreign countries. There are many risks inherent in our international business activities. 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
Other factors, depending on the country in which an opportunity arises
In order to manage our exposure to risks associated with fluctuations in foreign currency exchange rates, we have entered into hedging transactions. These hedging transactions include purchases of options or forward contracts to minimize the risk associated with cash payments from foreign subsidiaries to 3D Systems, Inc. However, we cannot assure you that our hedging transactions will provide us adequate protection in our foreign operations, and consequently our overall revenues and results of operations may be adversely affected.
The Adoption of the Euro Presents Uncertainties
In January 1999, the new “Euro” currency was introduced in certain European countries that are part of the European Monetary Union, or EMU. Beginning in 2003, all EMU countries are expected to be operating with the Euro as their single currency. A significant amount of uncertainty exists as to the effect the Euro will have on the marketplace generally. Some of the rules and regulations relating to the governance of the currency have not yet been defined and finalized.
We believe that our internal systems and financial institution vendors will not be materially affected by the Euro conversion, and we are examining current marketing and pricing policies and strategies that we may put in place upon conversion to the Euro. The cost of our effort is not expected to materially affect our results of operations or financial condition. However, we cannot assure you that we have identified all issues related to the Euro conversion and that any additional issues would not materially affect our results of operations or financial condition. For example, the conversion to the Euro may have competitive implications on our pricing and marketing strategies, and we may be at risk to the extent our principal European customers are unable to respond effectively to the impact of the Euro conversion.
Patents and Proprietary Rights are Critical to Our Success
We regard our copyrights, service marks, trademarks, trade secrets, patents and similar intellectual property as critical to our success. As of December 31, 2000, we held 232 patents, which include 114 in the United States, 64 in Europe, 12 in Japan, and 42 in other foreign jurisdictions. At that date, we had 36 pending patent applications with the United States, 51 in the Pacific Rim, 29 in Europe, 6 in Canada and 1 in Latin America. As we discover new developments and components to the 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 be certain 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. Moreover, 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.
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 could 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 results from quarter to quarter. We are currently pursuing patent infringement actions in the Central District of California against Aaroflex, Inc., and in Japan against Teijin Seiki Co. Ltd.
We are Subject to Intense Competition
The solid imaging industry is highly competitive and subject to technological change, innovation, and new product introductions. Certain of our existing and potential competitors are researching, designing, developing and marketing other types of equipment, materials and services. Some 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.
We expect future competition may arise from the development of allied or related techniques 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. Increased competition could result in price reductions for our products, reduced margins, and loss of market share, any of which could adversely impact our business. We have determined to follow a strategy of continuing product development and aggressive patent prosecution to protect our competitive position to the extent practicable. We cannot assure you that we will be able to maintain our leading position in the field of rapid prototyping or continue to compete successfully against current and future sources of competition. These competitive pressures may adversely affect our profitability and financial performance.
Volatility of Stock Price
Historically, our stock price has been volatile. The prices of the common stock have ranged from $9.38 to $14.00 during the three-month period ended March 30, 2001.
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 or patent litigation
Sales or purchase of substantial blocks of stock
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.
We are Subject to Anti-Takeover Provisions
The Board of Directors is authorized to issue up to 5 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.
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, 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.
In addition, we have adopted a Shareholders Rights Plan. Under the 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.
3D SYSTEMS CORPORATION
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 2000 Form 10-K and is therefore not presented here.
Foreign Currency Risk. International revenues accounted for 46.5% of our total revenue in the first quarter of 2001. 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 first quarter of 2001 resulted in a $100,000 gain.
As of March 30, 2001, 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 March 30, 2001.
PART II – OTHER INFORMATION
ITEM 1. Litigation Proceedings
Spinner v. Goldstein On April 6, 2001, a purported class action lawsuit was filed in the 200th Judicial District Court of Travis County, Austin, Texas, naming as defendants DTM Corporation, certain of DTM’s directors and 3D Systems Corporation. The complaint was amended on May 2, 2001. The complaint as amended asserts that the $5.80 cash consideration to be paid in the merger is inadequate and does not represent the value of the assets and the future prospects of DTM. The amended complaint also alleges that the individual defendants breached their fiduciary obligations to the public shareholders of DTM in approving the merger agreement and that the tender offer documents distributed to the shareholders of DTM in connection with the tender fail to disclose material information.
The complaint seeks, among other things, preliminary and permanent injunctive relief prohibiting DTM from consummating the merger, and if the merger is consummated, an order rescinding the merger and awarding damages to the purported class. The complaint also seeks unspecified damages, attorney fees and other relief. The plaintiffs have requested document production from DTM and us on an expedited basis. None of the defendants have filed an answer to the complaint.
We have reached an agreement in principle with the representative of the purported class in this lawsuit, providing for the settlement of the action. The terms of the settlement are confidential, but, in general, are not expected to have a material adverse effect on us or otherwise delay the completion of the offer or the merger. In connection with the agreement, the plaintiff has cancelled his request for expedited discovery. At the date of this filing, we have not yet entered into a written agreement embodying the terms of our understanding but expect to do so shortly.
EOS v. DTM and 3D Systems 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 licensed to EOS by us. In a February 2001 press release related to EOS’s filing of the suit, EOS claimed damages of $20 million. On April 10, 2001, consistent with an order issued by the federal court in this matter, we were added as a party to the lawsuit. These proceedings are in the pre-discovery stage. EOS has recently threatened us with a breach of contract claim if, following the acquisition of DTM, we compete with EOS in the laser sintering field.
3D Systems, Inc. v. Aaroflex et al. On January 13, 1997, we filed a complaint in the United States District Court, Central District of California, against Aarotech Laboratories, Inc. (“Aarotech”), Aaroflex, Inc. (“Aaroflex”) and Albert C. Young (“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. We seek damages and injunctive relief from the defendants, who have threatened to sue us 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 Albert C. 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, fact discovery in the case has been completed, and we have filed motions for summary judgment for patent infringement and patent validity were filed. A hearing was held May 9, 2001 on these motions. A decision on these motions is pending. Trial on any remaining undecided issues will be scheduled by the Court.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Reports on Form 8-K
Current Report on Form 8-K, Items 5 and 7, filed on April 10, 2001.
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: May 14, 2001 |
| Chief Financial Officer and VP, Finance | |
| (Principal Financial Officer and Principal | |
| Accounting Officer) | |
(Duly authorized to sign on behalf of Registrant)
