UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES
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For the quarterly period ended June 30, 2004 |
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OR |
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o |
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TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES
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Commission File No. 0-22250
3D SYSTEMS CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE |
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95-4431352 |
(State or Other Jurisdiction of
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(I.R.S. Employer
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26081 AVENUE HALL
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91355 |
(Address of Principal Executive Offices) |
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(Zip Code) |
(661) 295-5600
(Registrants 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 reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ý No o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes ý No o
Shares of Common Stock, par value $0.001, outstanding as of July 31, 2004: 13,197,784
3D SYSTEMS CORPORATION
TABLE OF CONTENTS
PART I. |
FINANCIAL INFORMATION |
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ITEM 1. |
Condensed Consolidated Financial Statements |
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Condensed Consolidated Balance Sheets as of June 30, 2004 (unaudited) and December 31, 2003 |
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
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i
3D SYSTEMS CORPORATION
Condensed Consolidated Balance Sheets
As of June 30, 2004 and December 31, 2003
(amounts in thousands)
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June 30, 2004 |
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December 31, 2003 |
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(unaudited) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
19,971 |
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$ |
23,954 |
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Accounts receivable, net of allowance for doubtful accounts of $1,412 (2004) and $1,656 (2003) |
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18,035 |
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22,773 |
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Inventories, net of reserves of $2,634 (2004) and $2,924 (2003) |
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13,509 |
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9,694 |
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Prepaid expenses and other current assets |
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2,173 |
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2,751 |
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Total current assets |
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53,688 |
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59,172 |
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Property and equipment, net |
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10,137 |
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11,455 |
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Intangible assets, net |
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11,794 |
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13,210 |
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Goodwill |
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44,799 |
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44,900 |
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Restricted cash |
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1,200 |
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1,200 |
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Other assets, net |
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1,359 |
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1,528 |
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$ |
122,977 |
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$ |
131,465 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities: |
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Current portion of long-term debt |
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$ |
175 |
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$ |
165 |
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Accounts payable |
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7,530 |
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7,299 |
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Accrued liabilities |
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12,955 |
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16,466 |
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Customer deposits |
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709 |
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771 |
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Deferred revenues |
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14,750 |
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15,648 |
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Total current liabilities |
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36,119 |
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40,349 |
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Long-term debt, less current portion |
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3,835 |
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3,925 |
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Convertible subordinated debentures |
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32,704 |
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32,704 |
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Other liabilities |
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1,471 |
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2,579 |
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74,129 |
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79,557 |
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Authorized 5,000 preferred shares; Series B convertible redeemable preferred stock, authorized 2,670 shares, issued and outstanding 2,627 (2004) and 2,634 (2003) shares, mandatory redemption in 2013 (aggregate liquidation value of $15,427) |
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15,199 |
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15,210 |
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Stockholders equity: |
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Common stock, $0.001 par value, authorized 25,000 shares; issued and outstanding 13,190 (2004) and 12,903 (2003) |
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13 |
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13 |
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Additional paid-in capital |
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86,928 |
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85,588 |
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Notes receivable from employees for purchase of stock |
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(19 |
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Cumulative preferred stock dividends |
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(1,577 |
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(867 |
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Treasury stock, 8 shares (2004) and 6 shares (2003) at cost |
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(68 |
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(45 |
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Accumulated deficit in earnings |
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(50,483 |
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(47,442 |
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Accumulated other comprehensive loss |
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(1,164 |
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(530 |
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Total stockholders equity |
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33,649 |
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36,698 |
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$ |
122,977 |
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$ |
131,465 |
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See accompanying notes to condensed consolidated financial statements.
1
3D SYSTEMS CORPORATION
Condensed Consolidated Statements of Operations
For the Three Months and Six Months Ended June 30, 2004 and June 27, 2003
(amounts in thousands, except per share amounts)
(unaudited)
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Three Months Ended |
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Six Months Ended |
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June 30, 2004 |
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June 27, 2003 |
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June 30, 2004 |
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June 27, 2003 |
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(as restated) |
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(as restated) |
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Revenue: |
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Products |
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$ |
17,613 |
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$ |
18,010 |
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$ |
37,342 |
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$ |
32,746 |
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Services |
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10,280 |
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8,861 |
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20,066 |
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17,141 |
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Total revenue |
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27,893 |
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26,871 |
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57,408 |
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49,887 |
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Cost of sales: |
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Products |
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9,318 |
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9,623 |
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20,225 |
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18,204 |
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Services |
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6,272 |
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6,547 |
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12,846 |
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13,569 |
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Total cost of sales |
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15,590 |
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16,170 |
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33,071 |
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31,773 |
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Gross profit |
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12,303 |
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10,701 |
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24,337 |
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18,114 |
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Operating expenses: |
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Selling, general and administrative |
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9,504 |
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10,904 |
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20,132 |
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22,455 |
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Research and development |
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2,644 |
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2,564 |
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5,141 |
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5,163 |
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Severance and restructuring |
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8 |
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251 |
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141 |
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251 |
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Total operating expenses |
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12,156 |
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13,719 |
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25,414 |
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27,869 |
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Income (loss) from operations |
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147 |
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(3,018 |
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(1,077 |
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(9,755 |
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Interest and other expense, net |
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514 |
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993 |
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981 |
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1,887 |
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Loss before provision for income taxes |
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(367 |
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(4,011 |
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(2,058 |
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(11,642 |
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Provision for income taxes |
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501 |
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815 |
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983 |
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1,031 |
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Net loss before cumulative effect of changes in accounting principles |
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(868 |
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(4,826 |
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(3,041 |
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(12,673 |
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Cumulative effect on prior years (to December 31, 2002) of: |
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Expensing legal fees as incurred |
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5,964 |
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Change in amortization method for patent and license costs |
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1,076 |
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Net loss |
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(868 |
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(4,826 |
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(3,041 |
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(19,713 |
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Preferred stock dividends |
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381 |
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198 |
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710 |
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198 |
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Loss available to common stockholders |
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$ |
(1,249 |
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$ |
(5,024 |
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$ |
(3,751 |
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$ |
(19,911 |
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Shares used to calculate basic and diluted net loss per share |
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13,142 |
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12,734 |
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13,049 |
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12,730 |
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Basic and diluted loss available to common stockholders per share before cumulative effect of changes in accounting principles |
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$ |
(0.10 |
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$ |
(0.39 |
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$ |
(0.29 |
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$ |
(1.01 |
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Cumulative effect on prior years (to December 31, 2002) of: |
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Expensing legal fees as incurred per share |
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(0.47 |
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Change in amortization method for patents and license costs per share |
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(0.08 |
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Basic and diluted net loss available to common stockholders per share |
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$ |
(0.10 |
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$ |
(0.39 |
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$ |
(0.29 |
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$ |
(1.56 |
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See accompanying notes to condensed consolidated financial statements.
2
3D SYSTEMS CORPORATION
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2004 and June 27, 2003
(amounts in thousands)
(unaudited)
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June 30, 2004 |
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June 27, 2003 |
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(as restated) |
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Cash flows from operating activities: |
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Net loss |
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$ |
(3,041 |
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$ |
(19,713 |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Cumulative effect of changes in accounting principles |
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7,040 |
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Depreciation and amortization |
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3,349 |
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4,330 |
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Adjustment to receivable allowance accounts |
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195 |
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259 |
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Adjustment to inventory reserve |
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359 |
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568 |
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Stock compensation expense |
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355 |
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130 |
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Payment of interest on employee note with stock |
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(4 |
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Loss on disposition of property and equipment |
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121 |
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316 |
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Changes in operating accounts: |
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Accounts receivable |
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4,251 |
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10,329 |
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Inventories |
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(4,555 |
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(521 |
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Prepaid expenses and other current assets |
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680 |
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1,744 |
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Other assets |
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435 |
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Accounts payable |
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269 |
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(4,509 |
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Accrued liabilities |
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(3,472 |
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(1,443 |
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Customer deposits |
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(62 |
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(153 |
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Deferred revenues |
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(765 |
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(1,660 |
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Other liabilities |
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(850 |
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(187 |
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Net cash used in operating activities |
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(3,170 |
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(3,035 |
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Cash flows from investing activities: |
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Purchase of property and equipment |
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(283 |
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(397 |
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Additions to licenses and patents |
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(190 |
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(731 |
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Software development costs |
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(54 |
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Net cash used for investing activities |
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(527 |
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(1,128 |
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Cash flows from financing activities: |
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Exercise of stock options and purchase plan |
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1,442 |
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40 |
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Net borrowings against line of credit |
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6,100 |
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Repayment of long-term debt |
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(80 |
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(10,425 |
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Payments under obligation to former RPC stockholders |
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(217 |
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Proceeds from private placement of preferred stock, net |
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15,158 |
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Payment of preferred stock dividends |
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(632 |
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Stock registration costs |
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(388 |
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Payment of liquidated damages |
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(100 |
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Net cash provided by financing activities |
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25 |
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10,873 |
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Effect of exchange rate changes on cash |
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(311 |
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(4 |
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Net (decrease) increase in cash and cash equivalents |
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(3,983 |
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6,706 |
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Cash and cash equivalents at the beginning of the period |
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23,954 |
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2,279 |
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Cash and cash equivalents at the end of the period |
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$ |
19,971 |
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$ |
8,985 |
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Supplemental Cash Flow Information |
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Interest payments |
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$ |
1,077 |
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$ |
1,263 |
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Income tax payments |
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1,552 |
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794 |
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Non-cash items: |
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Accrued dividends on preferred stock |
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710 |
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198 |
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Accrued liquidated damages |
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385 |
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Issuance of stock (30 shares) as payment of accrued compensation expense |
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272 |
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Conversion of 7 shares of convertible preferred stock |
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44 |
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Receipt of treasury stock to settle employee note receivable |
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40 |
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Transfer of equipment from inventory to property and equipment, net(a) |
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753 |
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1,008 |
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Transfer of equipment to inventory from property and equipment, net (b) |
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478 |
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979 |
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(a) Inventory is transferred from inventory to property and equipment, net at cost when the Company requires additional machines for training, demonstration or short-term rentals.
(b) In general, an asset is transferred from property and equipment, net into inventory at its net book value when the Company has identified a potential sale for a used machine. The machine is removed from inventory upon recognition of the sale.
See accompanying notes to condensed consolidated financial statements.
3
3D SYSTEMS CORPORATION
Condensed Consolidated Statements of Comprehensive Income (Loss)
For the Three Months and Six Months Ended June 30, 2004 and June 27, 2003
(amounts in thousands)
(unaudited)
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Three Months Ended |
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Six Months Ended |
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June 30, 2004 |
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June 27, 2003 |
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June 30, 2004 |
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June 27, 2003 |
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(as restated) |
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(as restated) |
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Net loss |
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$ |
(868 |
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$ |
(4,826 |
) |
$ |
(3,041 |
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$ |
(19,713 |
) |
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Foreign currency translation |
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46 |
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1,210 |
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(634 |
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1,486 |
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Comprehensive loss |
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$ |
(822 |
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$ |
(3,616 |
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$ |
(3,675 |
) |
$ |
(18,227 |
) |
4
3D SYSTEMS CORPORATION
Notes to Condensed Consolidated Financial Statements
For the Three Months and Six Months Ended June 30, 2004 and June 27, 2003
(amounts in thousands, except per share amounts)
(unaudited)
(1) Basis of Consolidation
The condensed consolidated financial statements include the accounts of 3D Systems Corporation and its subsidiaries (the Company). All significant intercompany transactions and balances have been eliminated in consolidation. In managements opinion, all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the condensed consolidated financial position as of June 30, 2004 and the condensed consolidated results of operations for the three months and six months ended June 30, 2004 and June 27, 2003, respectively, have been made. The results set forth in the condensed consolidated statement of operations for the three months and six months ended June 30, 2004 are not necessarily indicative of the results to be expected for the full year. All amounts are approximate due to rounding.
Effective January 1, 2004, the Company began reporting its interim financial results on a calendar-quarter basis. In prior periods, the Company reported its interim financial information for the first three quarters on a 13-week basis ending the last Friday of each quarter. The Company reports its annual financial information on a calendar-year basis. This change did not have a material effect on the comparability of the period-to-period interim financial information.
Certain amounts in the 2003 condensed consolidated financial statements have been reclassified to conform to the 2004 presentation.
The condensed consolidated financial statements were prepared following the requirements of the Securities and Exchange Commission (SEC) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. generally accepted accounting principles can be condensed or omitted.
The Company is responsible for the unaudited condensed consolidate financial statements included in this document. As these are condensed financial statements, they should be read in conjunction with the consolidated financial statements and notes included in the Companys Annual Report on Form 10-K for the year ended December 31, 2003.
(2) Restatement of 2003 Interim Results
At December 31, 2003, the Company changed its method of accounting for legal fees incurred in the defense of its patents and license rights and its method of amortizing one of its patent licenses. See Note 2, Changes in Accounting Principles, to the Consolidated Financial Statements for the year ended December 31, 2003, filed with the Companys Annual Report on Form 10-K for the year ended December 31, 2003. The accompanying condensed consolidated statements of operations for the three months and six months ended June 27, 2003 and the condensed consolidated statement of cash flows for the six months ended June 27, 2003 have been restated to reflect these changes in accounting principles, applied retroactively each period. The effects on previously reported amounts are as follows:
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Amount as
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Effect of
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Effect of
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Amount
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Three Months Ended June 27, 2003: |
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Effect on condensed consolidated statement of operations: |
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Effect on cost of sales products |
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$ |
9,543 |
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$ |
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$ |
80 |
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$ |
9,623 |
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Effect on selling, general and administrative expense |
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9,719 |
|
1,185 |
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10,904 |
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Effect on loss from operations |
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(1,753 |
) |
(1,185 |
) |
(80 |
) |
(3,018 |
) |
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Effect on net loss available to common stockholders |
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(3,759 |
) |
(1,185 |
) |
(80 |
) |
(5,024 |
) |
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Effect on basic and diluted net loss available to common stockholders per share |
|
(0.30 |
) |
(0.09 |
) |
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(0.39 |
) |
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Six Months Ended June 27, 2003: |
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Effect on condensed consolidated statement of operations: |
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|
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Effect on cost of sales products |
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$ |
18,044 |
|
$ |
|
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$ |
160 |
|
$ |
18,204 |
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Effect on selling, general and administrative expense |
|
20,375 |
|
2,080 |
|
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|
22,455 |
|
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Effect on loss from operations |
|
(7,515 |
) |
(2,080 |
) |
(160 |
) |
(9,755 |
) |
||||
Cumulative effect of changes in accounting principles |
|
|
|
(5,964 |
) |
(1,076 |
) |
(7,040 |
) |
||||
Effect on net loss available to common stockholders |
|
(10,631 |
) |
(8,044 |
) |
(1,236 |
) |
(19,911 |
) |
||||
Effect on basic and diluted net loss available to common shareholders per share |
|
(0.84 |
) |
(0.63 |
) |
(0.09 |
) |
(1.56 |
) |
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|
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Effect on condensed consolidated statement of cash flows: |
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|
|
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|
|
|
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|
||||
Effect on net cash used in operations |
|
$ |
(535 |
) |
$ |
(2,500 |
) |
$ |
|
|
$ |
(3,035 |
) |
Effect on net cash used in investing activities |
|
(3,628 |
) |
2,500 |
|
|
|
(1,128 |
) |
5
3D SYSTEMS CORPORATION
Notes to Condensed Consolidated Financial Statements
For the Three Months and Six Months Ended June 30, 2004 and June 27, 2003
(amounts in thousands, except per share amounts)
(unaudited)
There was no tax effect arising from these changes in accounting principles for the three months and six months ended June 27, 2003 as the effect of these changes was to increase the Companys loss before provision for income taxes and the Company had fully reserved for its net deferred tax assets at that date.
(3) Inventories:
Components of inventories were as follows:
|
|
June 30, 2004 |
|
December 31, 2003 |
|
||
Raw materials |
|
$ |
3,141 |
|
$ |
2,290 |
|
Work in process |
|
1,244 |
|
1,059 |
|
||
Finished goods |
|
9,124 |
|
6,345 |
|
||
|
|
$ |
13,509 |
|
$ |
9,694 |
|
(4) Property and Equipment, net:
Property and equipment are summarized as follows:
|
|
June 30, 2004 |
|
December 31, 2003 |
|
Useful Life (in
|
|
||
|
|
|
|
|
|
|
|
||
Land |
|
$ |
436 |
|
$ |
436 |
|
|
|
Building |
|
4,202 |
|
4,202 |
|
30 |
|
||
Machinery and equipment |
|
24,226 |
|
25,389 |
|
3-5 |
|
||
Office furniture and equipment |
|
3,601 |
|
3,716 |
|
5 |
|
||
Leasehold improvements |
|
4,306 |
|
4,307 |
|
Life of Lease |
|
||
Rental equipment |
|
1,192 |
|
1,123 |
|
5 |
|
||
Construction in progress |
|
187 |
|
97 |
|
N/A |
|
||
|
|
38,150 |
|
39,270 |
|
|
|
||
Less: Accumulated depreciation |
|
(28,013 |
) |
(27,815 |
) |
|
|
||
|
|
$ |
10,137 |
|
$ |
11,455 |
|
|
|
Depreciation expense was $810 and $1,029 for the three months and $1,692 and $2,077 for the six months ended June 30, 2004 and June 27, 2003, respectively.
(5) Intangible Assets:
(a) Licenses and patent costs are summarized as follows:
|
|
June 30, 2004 |
|
December 31, 2003 |
|
Weighted average
|
|
||
Licenses, at cost |
|
$ |
2,333 |
|
$ |
2,333 |
|
fully amortized |
|
Patent costs |
|
17,592 |
|
17,428 |
|
8.9 |
|
||
|
|
19,925 |
|
19,761 |
|
|
|
||
Less: Accumulated amortization |
|
(13,235 |
) |
(12,611 |
) |
|
|
||
|
|
$ |
6,690 |
|
$ |
7,150 |
|
|
|
6
3D SYSTEMS CORPORATION
Notes to Condensed Consolidated Financial Statements
For the Three Months and Six Months Ended June 30, 2004 and June 27, 2003
(amounts in thousands, except per share amounts)
(unaudited)
During the three months ended June 30, 2004 and June 27, 2003, the Company capitalized $97 and $105, respectively, and for the six months ended June 30, 2004 and June 27, 2003, capitalized $190 and $731, respectively, of costs to acquire, develop and extend patents in the United States, Japan, Europe and certain other countries. The Company amortized previously capitalized patent costs of $236 and $431 for the three months and $648 and $1,008 for the six months ended June 30, 2004 and June 27, 2003, respectively.
(b) Acquired Technology
Acquired technology is summarized as follows:
|
|
June 30, 2004 |
|
December 31, 2003 |
|
||
Acquired technology |
|
$ |
10,169 |
|
$ |
10,210 |
|
Less: Accumulated amortization |
|
(5,430 |
) |
(4,713 |
) |
||
|
|
$ |
4,739 |
|
$ |
5,497 |
|
Acquired technology is amortized based upon a useful life of six years. The Company amortized acquired technology of $379 and $421 for the three months ended June 30, 2004 and June 27, 2003, respectively, and $758 and $840 for the six months ended June 30, 2004 and June 27, 2003, respectively.
(c) Other Intangible Assets
The Company had other net intangible assets of $365 and $563 as of June 30, 2004 and December 31, 2003, respectively. Amortization expense related to other intangible assets for the three months ended June 30, 2004 and June 27, 2003 was $113 and $137, respectively, and for the six-month periods was $251 and $280, respectively.
(6) Hedging Activities and Derivative Instruments
The Company has an outstanding note payable to the former stockholders of RPC, Ltd. which is denominated in Swiss francs and had a carrying value at June 30, 2004 of CHF 1,275 (approximately $1,019). At June 30, 2004, the Company had purchased forward exchange contracts for Swiss francs to hedge the payments of principal and interest that are due pursuant to this note due through June 30, 2005. These contracts have an aggregate notional amount of $925. Subsequent to June 30, 2004, the Company purchased additional contracts to hedge its Swiss franc exposure under the remaining CHF 184 (approximately $146) of monthly installments of principal and interest that are due under this note.
During June, 2004 the Company also purchased foreign exchange contracts for Swiss francs to hedge its payment obligations for materials from a supplier through November 2004. The total amount of the future payments hedged was CHF 2,010 (approximately $1,608) at June 30, 2004. These contracts have an aggregate notional amount of $1,613.
The market value of the foregoing contracts approximated their carrying value at June 30, 2004. These contracts qualified and were designated as fair value hedges as defined by SFAS No. 133, Derivative Instruments and Hedging Activities. In connection with these hedging activities, the Company recorded $4 as cost of sales for the three-month and six-month periods and $9 and $15 in interest and other expenses, net for three months and six months ended June 30, 2004, respectively.
(7) Borrowings
Total outstanding borrowings were as follows:
|
|
June 30, 2004 |
|
December 31, 2003 |
|
||
Current portion of long-term debt: |
|
|
|
|
|
||
Industrial development bonds |
|
$ |
175 |
|
$ |
165 |
|
Senior debt: |
|
|
|
|
|
||
Long-term debt, less current portion - |
|
|
|
|
|
||
Industrial development bonds |
|
$ |
3,835 |
|
$ |
3,925 |
|
Subordinated debt: |
|
|
|
|
|
||
7% convertible debentures |
|
$ |
10,000 |
|
$ |
10,000 |
|
6% convertible debentures |
|
22,704 |
|
22,704 |
|
||
Total subordinated debt |
|
$ |
32,704 |
|
$ |
32,704 |
|
7
3D SYSTEMS CORPORATION
Notes to Condensed Consolidated Financial Statements
For the Three Months and Six Months Ended June 30, 2004 and June 27, 2003
(amounts in thousands, except per share amounts)
(unaudited)
Senior debt
The Companys Colorado facility is subject to a $4,900 industrial development bond financing. Interest on the bonds is payable monthly at a variable interest rate. The interest rate at June 30, 2004 was 1.2% per annum. Principal payments are payable in semi-annual installments through August 2016. The bonds are collateralized by, among other things, a first mortgage on the facility, a security interest in certain equipment, and a standby letter of credit in the original principal amount of $4,900 in favor of Wells Fargo Bank, N. A. (Wells Fargo), as bond trustee, and is further collateralized by restricted cash held by Wells Fargo as letter of credit issuer in the amount of $1,200. At June 30, 2004, $4,010 of such industrial development bonds were outstanding.
The Company is subject to certain financial covenants contained in the reimbursement agreement relating to the standby letter of credit mentioned above. Such financial covenants require, among other things, that the Company maintain a minimum tangible net worth (as defined in the reimbursement agreement) of $23,000 plus 50% of net income since July 1, 2001 and a fixed charge coverage ratio (as defined in the reimbursement agreement) of no less than 1.25. At December 31, 2003 and June 30, 2004, the Company was in compliance with these financial ratios.
On March 4, 2004, the Company and Wells Fargo entered into an amendment to the reimbursement agreement which states that, with respect to defaults under such covenants in 2003, the Company is no longer in default of the financial covenants referred to above and that therefore Wells Fargo will no longer require the Company to replace the Wells Fargo letter of credit or to retire $1,200 of the industrial development bonds. Such amendment also amended certain of the criteria used to measure compliance with such financial covenants. It also added a provision that provides that the Company acknowledges that, upon the occurrence of any future event of default under the reimbursement agreement, Wells Fargo will not consider waiving such event of default unless and until the Company complies with all requirements imposed by Wells Fargo, which shall include but not be limited to the immediate retirement of $1,200 of the industrial development bonds. The amendment provides that funds for such repayment shall come first from the funds of the Company then held by Wells Fargo, if any, and the balance from additional funds to be provided to the trustee of such bonds by the Company promptly upon notice from Wells Fargo to the Company. In addition, any event of default would result in an increase to the letter of credit fee from 1% of the stated amount of the letter of credit to 1.5% of the stated amount of the letter of credit prorated from the occurrence of such event of default until the next August 1, when the fee is due, and continuing for the life of the letter of credit.
(8) Preferred Stock
The Companys Series B Convertible Preferred Stock accrues dividends, on a cumulative basis, at $0.60 per share each year from May 6, 2004 (at a rate of $0.48 per share per year prior thereto). The increase in the dividend rate became effective on May 6, 2004 as a registration statement covering the resale of the shares of common stock issuable upon conversion of the Series B Convertible Preferred Stock was not declared effective by the Securities and Exchange Commission before the close of business on May 5, 2004. Such dividend increase remains in effect as long as the Series B Convertible Preferred Stock remains outstanding.
(9) Stock Option Plans
The Company maintains various employee stock benefit plans, which are described more fully in Note 18, Stockholders Equity and Stockholders Rights Plan, to the Consolidated Financial Statements for the year ended December 31, 2003, filed with the Companys Annual Report on Form 10-K for the year ended December 31, 2003. The Company terminated its Shareholder Rights Plan effective March 3, 2004.
As permitted by SFAS No. 123, Accounting for Stock-Based Compensation, the Companys stock option plans are accounted for under the intrinsic value recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations.
8
3D SYSTEMS CORPORATION
Notes to Condensed Consolidated Financial Statements
For the Three Months and Six Months Ended June 30, 2004 and June 27, 2003
(amounts in thousands, except per share amounts)
(unaudited)
Effective May 19, 2004, the Company adopted the 2004 Incentive Stock Plan (the 2004 Stock Plan) and the 2004 Restricted Stock Plan for Non-Employee Directors (the 2004 Director Plan). Effective upon the adoption of the 2004 Stock Plan, the Companys previous stock option plans, including the 1996 Stock Incentive Plan (the 1996 Plan) and the 2001 Stock Incentive Plan (the 2001 Plan) but excluding the Companys employee stock purchase plan, terminated except with respect to options outstanding under those plans on May 19, 2004. On that date, the aggregate number of shares of common stock underlying outstanding options issued under the 1996 Plan and the 2001 Plan were 2,191 and 83 at an average exercise price per share of $10.32 and $10.53, with expiration dates through January 2014 and April 2011, respectively. A total of 526 and 400 shares of common stock remained available for grant, respectively, under the terms of those plans at the time they were terminated, which shares may no longer be issued under those plans.
Effective upon the adoption of the 2004 Director Plan, the Companys 1996 Director Stock Option Plan (the 1996 Director Plan) terminated except with respect to options outstanding under that plan on May 19, 2004. On that date, the aggregate number of shares of common stock underlying outstanding options issued under the 1996 Director Plan were 218, at an average exercise price per share of $12.00, with expiration dates through August 2013. A total of 82 shares remained available for grant under the terms of the 1996 Director Plan at the time it terminated, which shares may no longer be issued under that plan.
A maximum of 1,000 shares of common stock are reserved for issuance under the 2004 Stock Plan, subject to adjustment in accordance with the terms of the Plan. The purpose of this Plan is to provide an incentive that permits the persons responsible for the Companys growth to share directly in that growth and to further the identity of their interests with the interests of the Companys stockholders. Any person who is an employee of or consultant to the Company, or a Subsidiary or an Affiliate of the Company is eligible to be considered for the grant of restricted stock awards, stock options or performance awards pursuant to the 2004 Stock Plan. The 2004 Stock Plan is administered by the Compensation Committee of the Board of Directors, which, pursuant to the provisions of the 2004 Stock Plan, has the sole authority to determine recipients of the restricted stock awards, stock options or performance awards, the number of shares to be covered by such awards and the terms and conditions of each award. The 2004 Stock Plan may be amended, altered or discontinued at the sole discretion of the Board of Directors at any time. No awards were made under this Plan during the second quarter of 2004. The Company will account for the fair value of restricted stock awards made under the 2004 Stock Plan in accordance with the disclosure provisions of SFAS No.123.
The 2004 Director Plan provides for the grant of up to 200 shares of common stock to non-employee directors (as defined in the Plan) of the Company, subject to adjustment in accordance with the terms of the Plan. The purpose of this Plan is to attract, retain and motivate non-employee directors of exceptional ability and to promote the common interests of directors and stockholders in enhancing the value of the Companys common stock. Each non-employee director of the Company is eligible to participate in this Plan upon their election to the Board of Directors. The Plan provides for initial grants of 1 shares of common stock to each newly elected non-employee director, annual grants of 3 shares of common stock as of the close of business on the date of each annual meeting, and interim grants of 3 shares of common stock, or a pro rata fraction thereof, to non-employee directors elected at meetings other than the annual meeting. The issue price of common stock awarded under this Plan is equal to the par value per share of the common stock. The Company accounts for the fair value of awards of common stock made under this Plan, net of the issue price, as director compensation expense in the period in which the stock is issued. At June 30, 2004, the Company had recorded $168 as director compensation expense in connection with awards of 3 shares of common stock made to each of the five non-employee directors of the Company following the annual meeting of the stockholders on May 19, 2004.
The following pro forma net loss and loss per share information is presented as if the Company accounted for stock-based compensation awarded under the stock incentive plans using the fair value method. Under the fair value method, the estimated fair value of stock-based incentive awards is charged against income on a straight-line basis over the vesting period.
|
|
Three Months Ended |
|
Six Months Ended |
|
||||||||
|
|
June 30,
|
|
June 27,
|
|
June 30,
|
|
June 27,
|
|
||||
|
|
|
|
(as restated) |
|
|
|
(as restated) |
|
||||
Net loss available to common stockholders, as reported |
|
$ |
(1,249 |
) |
$ |
(5,024 |
) |
$ |
(3,751 |
) |
$ |
(19,911 |
) |
Add: Stock based employee compensation expense included in reported net earnings net of related tax benefits |
|
51 |
|
|
|
51 |
|
|
|
||||
Deduct: Stock-based employee compensation expense determined under the fair value method for all awards, net of related tax effects |
|
(574 |
) |
(523 |
) |
(1,179 |
) |
(1,108 |
) |
||||
|
|
|
|
|
|
|
|
|
|
||||
Pro forma net loss |
|
$ |
(1,772 |
) |
$ |
(5,547 |
) |
$ |
(4,879 |
) |
$ |
(21,019 |
) |
Basic and diluted net loss available to common stockholders per share: |
|
|
|
|
|
|
|
|
|
||||
As reported |
|
$ |
(0.10 |
) |
$ |
(0.39 |
) |
$ |
(0.29 |
) |
$ |
(1.56 |
) |
Pro forma |
|
$ |
(0.13 |
) |
$ |
(0.44 |
) |
$ |
(0.37 |
) |
$ |
(1.65 |
) |
9
3D SYSTEMS CORPORATION
Notes to Condensed Consolidated Financial Statements
For the Three Months and Six Months Ended June 30, 2004 and June 27, 2003
(amounts in thousands, except per share amounts)
(unaudited)
The Company accounts for option grants to non-employees using the guidance of SFAS No. 123, as amended by SFAS No. 148, and Emerging Issues Task Force (EITF) No. 96-18, whereby the fair value of such options is determined using the Black-Scholes option pricing model at the earlier of the date at which the non-employees performance is complete or a performance commitment is reached. No option grants were made to non-employees in the first six months of 2004, and $130 of expense was recorded for the three and six months ended June 30, 2003 related to non-employee stock option grants.
SFAS No. 123 requires the use of option pricing models that were not developed for use in valuing employee stock options. The Black-Scholes option pricing model was developed for use in estimating the fair value of short-lived exchange-traded options that have no vesting restrictions and are fully transferable. In addition, option pricing models require the input of highly subjective assumptions, including the options expected life and the price volatility of the underlying stock. Because the Companys employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in the opinion of management, the existing models do not necessarily provide a reliable single measure of the fair value of employee stock options. The fair values of options granted in 2004 and 2003 were estimated at the date of grant using a Black-Scholes option-pricing model with the following weighted average assumptions:
|
|
2004 |
|
2003 |
|
|
|
|
|
|
|
Expected life (in years) |
|
2.5 |
|
4.0 |
|
Risk-free interest rate |
|
2.36 |
% |
2.42 |
% |
Volatility |
|
0.68 |
|
0.83 |
|
Dividend yield |
|
0.00 |
% |
0.00 |
% |
(10) Computation of Loss Per Share
The following is a reconciliation of the numerator and denominator of the basic and diluted loss per share computations:
|
|
Three Months Ended |
|
Six Months Ended |
|
||||||||
|
|
June 30, 2004 |
|
June 27, 2003 |
|
June 30, 2004 |
|
June 27, 2003 |
|
||||
Numerator for basic and diluted net loss per share: |
|
|
|
|
|
|
|
|
|
||||
Net loss available to common stockholders |
|
$ |
(1,249 |
) |
$ |
(5,024 |
) |
$ |
(3,751 |
) |
$ |
(19,911 |
) |
|
|
|
|
|
|
|
|
|
|
||||
Denominator for basic and diluted net loss per share: |
|
|
|
|
|
|
|
|
|
||||
Weighted average shares |
|
13,142 |
|
12,734 |
|
13,049 |
|
12,730 |
|
||||
Potential common shares related to convertible preferred stock, convertible debt, stock options and, in 2003, stock warrants were excluded from the calculation of diluted loss per share because their effects were anti-dilutive; that is, they would have reduced loss per share. The weighted average number of common shares excluded from the computation was approximately 6,658 and 3,777 for the three months and 6,670 and 3,760 for the six months ended June 30, 2004 and June 27, 2003, respectively.
10
3D SYSTEMS CORPORATION
Notes to Condensed Consolidated Financial Statements
For the Three Months and Six Months Ended June 30, 2004 and June 27, 2003
(amounts in thousands, except per share amounts)
(unaudited)
(11) Segment Information
The Company develops, manufactures and markets worldwide solid imaging systems designed to reduce the time it takes to produce three-dimensional objects. The Company manages its resources globally as one segment, and conducts its business through administrative, sales, service, manufacturing and customer-support operations in the United States and sales and service offices in the European Community (France, Germany, the United Kingdom, Italy and Switzerland) and in Asia (Japan, Hong Kong and Singapore). Revenues from unaffiliated customers attributed to Germany include sales by the Companys German unit to customers in countries other than Germany. The management of the Company is evaluating its internal measures of these geographic areas and may change the determination of the information disclosed as segment information for the geographic regions in the future. However, the Company has historically disclosed summarized financial information for the geographic areas of operations as if they were segments in accordance with Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information.
Such summarized financial information concerning the Companys geographical operations is shown in the following tables:
|
|
Three Months Ended |
|
Six Months Ended |
|
||||||||
|
|
June 30, 2004 |
|
June 27, 2003 |
|
June 30, 2004 |
|
June 27, 2003 |
|
||||
Revenue from unaffiliated customers: |
|
|
|
|
|
|
|
|
|
||||
North America |
|
$ |
12,647 |
|
$ |
13,137 |
|
$ |
26,097 |
|
$ |
24,195 |
|
Germany |
|
4,758 |
|
5,652 |
|
10,494 |
|
11,123 |
|
||||
Other Europe |
|
6,540 |
|
3,992 |
|
12,750 |
|
7,702 |
|
||||
Asia |
|
3,948 |
|
4,090 |
|
8,067 |
|
6,867 |
|
||||
Total |
|
$ |
27,893 |
|
$ |
26,871 |
|
$ |
57,408 |
|
$ |
49,887 |
|
All revenue between geographic areas is recorded at transfer prices, which are above cost and provide for an allocation of profit between entities.
|
|
Three Months Ended |
|
Six Months Ended |
|
||||||||
|
|
June 30, 2004 |
|
June 27, 2003 |
|
June 30, 2004 |
|
June 27, 2003 |
|
||||
Revenue from or transfers between geographic areas: |
|
|
|
|
|
|
|
|
|
||||
North America |
|
$ |
4,158 |
|
$ |
1,982 |
|
$ |
8,913 |
|
$ |
4,038 |
|
Germany |
|
926 |
|
1,074 |
|
1,989 |
|
1,983 |
|
||||
Other Europe |
|
2,371 |
|
1,624 |
|
4,256 |
|
3,213 |
|
||||
Asia |
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
7,455 |
|
$ |
4,680 |
|
$ |
15,158 |
|
$ |
9,234 |
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|||||||||
|
|
June 30, 2004 |
|
June 27, 2003 |
|
June 30, 2004 |
|
June 27, 2003 |
|
|||||
|
|
|
|
(as restated) |
|
|
|
(as restated) |
|
|||||
(Loss)/income from operations: |
|
|
|
|
|
|
|
|
|
|||||
North America |
|
$ |
(3,693 |
) |
$ |
(5,626 |
) |
$ |
(8,424 |
) |
$ |
(14,274 |
) |
|
Germany |
|
184 |
|
370 |
|
793 |
|
465 |
|
|||||
Other Europe |
|
1,992 |
|
513 |
|
3,882 |
|
888 |
|
|||||
Asia |
|
1,275 |
|
1,658 |
|
2,285 |
|
2,496 |
|
|||||
Subtotal |
|
(242 |
) |
(3,085 |
) |
(1,464 |
) |
(10,425 |
) |
|||||
Inter-company elimination |
|
(389 |
) |
(67 |
) |
(387 |
) |
(670 |
) |
|||||
Total |
|
$ |
147 |
|
$ |
(3,018 |
) |
$ |
(1,077 |
) |
$ |
(9,755 |
) |
|
|
|
June 30, 2004 |
|
December 31,
|
|
||
Assets: |
|
|
|
|
|
||
U.S. |
|
$ |
75,060 |
|
$ |
72,752 |
|
Germany |
|
28,143 |
|
28,305 |
|
||
Other Europe |
|
21,933 |
|
27,143 |
|
||
Asia |
|
10,764 |
|
13,365 |
|
||
Subtotal |
|
135, 900 |
|
141,565 |
|
||
Inter-company elimination |
|
(12,923 |
) |
(10,100 |
) |
||
Total assets |
|
$ |
122,977 |
|
$ |
131,465 |
|
11
3D SYSTEMS CORPORATION
Notes to Condensed Consolidated Financial Statements
For the Three Months and Six Months Ended June 30, 2004 and June 27, 2003
(amounts in thousands, except per share amounts)
(unaudited)
The Companys revenues from unaffiliated customers by type were as follows:
|
|
Three Months Ended |
|
Six Months Ended |
|
||||||||
|
|
June 30, 2004 |
|
June 27, 2003 |
|
June 30, 2004 |
|
June 27, 2003 |
|
||||
Systems |
|
$ |
8,706 |
|
$ |
9,963 |
|
$ |
19,742 |
|
$ |
17,271 |
|
Materials |
|
8,907 |
|
8,047 |
|
17,600 |
|
15,475 |
|
||||
Services |
|
10,280 |
|
8,861 |
|
20,066 |
|
17,141 |
|
||||
Total revenues |
|
$ |
27,893 |
|
$ |
26,871 |
|
$ |
57,408 |
|
$ |
49,887 |
|
(12) Commitments and Contingencies
(a) 3D Systems, Inc. vs. Aaroflex, et al. On January 13, 1997, the Company filed a complaint in U.S. District Court, Central District of 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 Companys 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 had 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 Companys complaint and on Aaroflexs counterclaims have been dismissed and fact discovery in the case has been completed. The Companys motions for summary judgment for patent infringement and validity and Aaroflexs motions for patent invalidity were heard on May 10, 2001. In February 2002, the court denied Aaroflexs invalidity motions. On April 24, 2002, the court denied the Companys 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 Companys motion on validity. On July 25, 2003, the court notified the Company that rulings on all patents in issue would be decided prior to September 30, 2003. However, as of June 30, 2004, the court has not issued any new rulings concerning any of the patents or other trial issues, and the court has postponed the trial date of the case. In March 2004, the Company filed a motion with the court to dismiss this case without prejudice. The defendant subsequently filed an opposition to the motion to dismiss, requesting that the case be dismissed with prejudice and requesting that the court award $800 to the defendant. As of June 30, 2004, the Court had not yet ruled on the Companys motion.
(b) Hitachi Zosen vs. 3D Systems, Inc. On November 25, 2002, the Company was served with a complaint through the Japanese Consulate General from Hitachi Zosen, a distributor of products produced by EOS GmbH (EOS), seeking damages in the amount of approximately 535,293 yen (approximately $4,939 at June 30, 2004), alleging lost sales during the period in which DTM Corporation, which the Company acquired in 2001, had an injunction in Japan prohibiting the sale of EOSs EOSint P350 laser sintering systems. The Company filed an answer on March 11, 2003. Several court hearings have been held in this matter, the most recent one in July 2004. The Company intends to defend its position in this litigation vigorously.
(c) SEC Investigation. On October 20, 2003, the Company received a subpoena for documents from the SEC, stating that the agency is conducting a formal investigation of the Company pertaining to the Companys historical revenue recognition practices. The Company is cooperating fully with the SEC, has furnished documents requested by the subpoena and is otherwise complying with the subpoena.
(d) The Company has an obligation to compensate certain stockholders who acquired shares of its common stock in a private placement transaction in 2001 for the Companys failure to maintain an effective registration statement that would permit such holders to resell such shares. The accrued amount of such obligation was $477 at December 31, 2003. Additional amounts under such obligation ceased to accrue on May 5, 2004. On June 18, 2004, the Company entered into an agreement with such holders pursuant to which the Company will pay such obligation in installments through February 2005, with interest at a rate of 6% per annum from July 2003. The amount of such obligation was $740 at June 30, 2004, which amount is included in accrued liabilities at such date.
12
3D SYSTEMS CORPORATION
Notes to Condensed Consolidated Financial Statements
For the Three Months and Six Months Ended June 30, 2004 and June 27, 2003
(amounts in thousands, except per share amounts)
(unaudited)
(e) On May 6, 2003, the Company received a subpoena from the U.S. Department of Justice to provide certain documents to a grand jury investigating antitrust and related issues within its industry. The Company was advised that it was not a target of the grand jury investigation and has not been informed that this status has changed. The Company has furnished documents required by the subpoena and it is otherwise complying with the subpoena.
(f) At this time, the Company cannot reasonably estimate its liability related to various litigation, and accordingly, under the guidance of SFAS No. 5, no amounts have been recorded.
(g) The Company also is involved in various other legal actions incidental to its business. The Companys management believes, after consulting with counsel, that the disposition of these other legal matters will not have a material effect on the Companys consolidated results of operations or consolidated financial position.
(h) Under the terms of a sale agreement for certain lease receivables in 2001, the Company is required to guarantee to the purchaser certain cash payments in the event of default on those receivables. At June 30, 2004, the Company had fully reserved the $273 maximum amount of payments under the guarantee.
(13) Subsequent Events
Effective July 15, 2004, the Company entered into a two-year loan and security agreement and certain related credit documents with Silicon Valley Bank (SVB). The loan agreement provides for up to $15,000 of borrowings and includes sub-limits for letter of credit and foreign exchange facilities. The credit is secured by a first lien in favor of SVB on certain of the Companys assets, including domestic accounts receivable, inventory and certain fixed assets. Interest will accrue on outstanding borrowings at either SVBs prime rate in effect from time to time or at a spread of 2.75% above prevailing LIBOR rates. The Company is obligated to pay a commitment fee from time to time equal to 0.375% per annum of the undrawn amount of the facility. The facility imposes certain limitations on the Companys activities, including limitations on the incurrence of debt and other liens, limitations on the disposition of assets and limitations on the payment of dividends on the Companys common stock. The facility also requires the Company to remain in compliance with certain financial covenants, which include requirements to maintain specific levels of minimum liquidity on a consolidated basis and a requirement as to the Companys domestic assets as a percentage of its total assets. In addition, if there are borrowings outstanding under the facility, the Company is required to maintain a ratio of adjusted total liabilities to tangible net worth and a minimum tangible net worth. If more than $5,000 is borrowed, the Company is required to maintain minimum cash levels pursuant to a formula in the loan agreement. The Company was in compliance with these requirements at the effective date of the credit facility.
During July 2004, the Company announced its intention to begin to engage selected design and manufacturing companies to assemble its equipment portfolio. The Company is currently in the process of formulating a specific plan of implementation under which it expects to discontinue its equipment assembly activities at its Grand Junction, Colorado facility. The Company anticipates a reduction in work force during the implementation of its plan, which it expects to be completely implemented in 12 to 18 months, and estimates its costs for employee termination and relocation related to this plan to be approximately $200, which will be recognized ratably over the implementation period. In addition, commencing in July 2004, the Company began to transfer approximately $1,926 of its raw material inventory, at net book value, to a manufacturing partner to be used in the assembly of certain system products. Currently, the Company expects to continue to conduct its materials blending and customer support activities in its Grand Junction facility. As of June 30, 2004, the Company had not accrued for any costs nor recorded any asset impairment reserves associated with this transition as it believes the fair market value of assets associated with this transition exceeds their book value.
13
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
This discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto included in Item 1 of this Quarterly Report on Form 10-Q. All amounts and percentages are approximate due to rounding.
The Company is subject to a number of risks and uncertainties that may affect its future performance, as discussed in greater detail in the section entitled Forward-Looking Statements at the end of this Item 2.
The Companys condensed consolidated statements of operations and of cash flows for the quarter and the six months ended June 27, 2003 have been restated to give effect to the changes in accounting principles that the Company adopted as of December 31, 2003 with respect to the treatment of legal fees incurred in defense of its patents and license rights and the amortization of one of its patent licenses. See Note 2 to the condensed consolidated financial statements set forth in Item 1. Such note includes a reconciliation of the effects of such changes in accounting principles on the condensed consolidated financial statements for the three months and six months ended June 27, 2003, and references to such financial statements in the discussion that follows are to such financial statements as so restated.
Overview
The Company develops, manufactures and markets solid imaging systems and related products and materials that are designed to reduce the time it takes to produce three-dimensional objects. The Companys consolidated revenues are derived primarily from the sale of its systems, the related materials used by the systems to produce solid objects and the provision of services to its customers.
Since the fourth quarter of 2003, the Company has introduced several new systems and materials, including:
the InVision 3-D printer;
VisiJet, Amethyst and LaserForm A6 materials for 3-D printing, stereolithography and selective laser sintering applications, respectively;
In June 2004, the InVision HR 3-D printer, a new model of 3-D printer that has a high-resolution capability that enables jewelry, dental, medical implant and precision alloy manufacturers to produce fine-feature, highly detailed parts rapidly;
In July 2004, the Sinterstation® HiQ SLS® system, a new manufacturing-capable selective laser sintering system; and
In July 2004, Bluestone SL material, a new engineered nano-composite resin for SLA® systems.
The Company also announced the availability of other new products, including LS 3.3 software for SLS® systems, the InVision Finisher for the InVision 3-D printer, and the ProClean SL part washer for stereolithography parts. During the first six months of 2004, the Company also introduced several service contract alternatives to offer additional, flexible service contract options to its customers, and the Company entered into distribution agreements with certain suppliers of stereolithography resins that should enable the Company to broaden the range of materials that it can supply to its stereolithography customers.
In July 2004, the Company announced that it has begun to engage selected design and manufacturing companies to assemble its equipment portfolio, including its InVision 3-D printers and its Viper SLA® systems. As this program is implemented, the Company expects to discontinue its equipment-assembly activities at its Grand Junction, Colorado facility. The Company anticipates completing this program within the next 12 to 18 months. Currently, the Company plans to continue its materials blending and customer support activities in its Grand Junction facility. The Company believes that transitioning non-core activities such as assembly operations to specialty companies that have developed equipment assembly as one of their core competencies should enable the Company to improve the quality and cost of its systems and should lead to an improvement in its financial operating profile. The Company does not expect the cost of implementing these outsourcing activities to be material.
14
Results of Operations
The following table sets forth, for the periods indicated, revenues and percentages of revenues by class of product and service:
|
|
Three months ended |
|
Six months ended |
|
|||||||||||||||||
|
|
June 30, 2004 |
|
June 27, 2003 |
|
June 30, 2004 |
|
June 27, 2003 |
|
|||||||||||||
|
|
(dollars in thousands) |
|
|||||||||||||||||||
Systems |
|
$ |
8,706 |
|
31.2 |
% |
$ |
9,963 |
|
$ |
37.1 |
% |
$ |
19,742 |
|
34.4 |
% |
$ |
17,271 |
|
34.6 |
% |
Materials |
|
8,907 |
|
31.9 |
|
8,047 |
|
29.9 |
|
17,600 |
|
30.7 |
|
15,475 |
|
31.0 |
|
|||||
Services |
|
10,280 |
|
36.9 |
|
8,861 |
|
33.0 |
|
20,066 |
|
34.9 |
|
17,141 |
|
34.4 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total revenues |
|
$ |
27,893 |
|
100 |
% |
$ |
26,871 |
|
100.0 |
% |
$ |
57,408 |
|
100.0 |
% |
$ |
49,887 |
|
100.0 |
% |
|
Revenues by geographic area in which the Company operates are shown in the following table:
Three Months and Six Months Ended June 30, 2004 Compared to the Respective 2003 Periods
Consolidated revenue
The principal factors affecting the Companys consolidated revenue in the second quarter and first six months of 2004 compared to 2003 were changes in unit volume, changes in product mix, changes in average selling prices and foreign currency translation. In the 2004 periods, the Company also benefited from its introduction of new systems and materials over the past several months, including the InVision 3-D printer and VisiJet, Amethyst and LaserForm A6 materials. Revenue from other new products was not material to the second quarter or the first six months of 2004.
Consolidated revenue increased in both the second quarter and first six months of 2004 compared to the respective 2003 periods. For the second quarter of 2004, consolidated revenue increased 3.8% to $27.9 million from $26.9 million for the second quarter of 2003. Consolidated revenue for the first six months of 2004 increased 15.1% to $57.4 million from $49.9 million for the first six months of 2003.
The relatively slower rate of growth in revenue for the second quarter compared to the first six months of 2004 arose from a decline in systems revenue in the second quarter that partially offset higher revenue in the quarter from materials and services. Systems revenue increased 14.3% during the first half of 2004 despite a 12.6% decline during the second quarter that arose from lower unit sales for mature systems, which partially offset stronger performance by these systems in the first quarter of 2004.
The increase in consolidated revenue for the second quarter was aided by $2.6 million in unit volume from new products introduced in the past several months, including principally the new products mentioned above. Average selling prices contributed $0.7 million, and the favorable effect of foreign currency translation contributed $0.9 million to the second-quarter increase in revenue.
Every geographic region and product class contributed to revenue growth in the first six months of 2004. Higher revenues from new products introduced in the past several months, including principally the new products mentioned above, added $4.5 million in revenue, and favorable foreign currency translation accounted for $2.8 million. Before giving effect to foreign currency translation, systems revenue increased $2.5 million, materials revenue increased $2.1 million and service revenue increased $2.9 million.
System and other product revenues
15
Consolidated revenue from systems and related products for the first six months of 2004 increased 14.3% to $19.7 million from $17.3 million in the 2003 period, representing 34.4% and 34.6% of consolidated revenue for the respective periods. This increase in systems revenue arose from a $3.2 million increase in revenue from new systems, $0.9 million from the favorable effect of foreign currency translation and $0.3 million attributable to higher average selling prices. These increases were partially offset by a $1.7 million decrease in unit sales of mature systems and a modest decrease in revenue from other products.
Systems orders and sales tend to fluctuate on a quarterly basis as a result of a number of factors, including the types of systems ordered by customers, customer acceptance of new products, the timing of product shipments, world economic conditions and fluctuations in foreign exchange rates. The Companys systems are generally purchased by its customers as capital equipment items, and purchasing decisions may have a long lead time. Due to the price of certain systems, including the Companys mature systems, and the overall low unit volumes, the acceleration or delay of shipments of a small number of mature systems from one period to another can significantly affect the Companys system sales for the periods involved.
In the second quarter of 2004, as part of the Companys strategy to improve operating results over time, the Company ceased offering customers large quarter-end discounts to promote the sale of mature systems. In the absence of this change, systems revenues may have been higher in the second quarter of 2004 compared to the second quarter of 2003. While the implementation of this strategy adversely impacted revenue in the quarter, it contributed to the Companys higher gross profit margin in the second quarter and first six months of 2004. While this change in marketing approach might continue to adversely impact systems revenue in future quarters, the Company believes that it will ultimately prove to be beneficial by reducing the proportion of the Companys system sales that are made in the last month of each quarter and by improving gross profit margins.
Materials revenue
Consolidated revenue from materials for the second quarter of 2004 increased 10.7% to $8.9 million from $8.0 million for the 2003 period, representing 31.9% and 29.9% of consolidated revenue for the respective periods. This increase was due to $0.6 million of higher unit volume, primarily from new products recently introduced by the Company, and the favorable effect of foreign currency translation.
Consolidated revenue from materials for the first six months of 2004 increased 13.7% to $17.6 million compared to $15.5 million for the 2003 period, representing 30.7% and 31.0% of consolidated revenue for the respective periods. This increase was primarily due to $2.0 million of higher unit volume, including $1.1 million from new products, and a $1.0 million favorable effect of foreign currency translation, partially offset by the $0.9 million effect of lower average selling prices arising from competitive circumstances.
Service revenue
Consolidated revenue from services for the second quarter of 2004 increased 16.0% to $10.3 million from $8.9 million for the 2003 quarter, representing 36.9% and 33.0% of consolidated revenue for the respective periods. For the first six months of 2004, consolidated revenue from services increased 17.1% to $20.1 million from $17.1 million for the first six months of 2003, representing 34.9% and 34.4% of consolidated revenue for the respective periods. The increase in each period was primarily due to higher unit volume arising from a larger installed base and, to a lesser extent, the favorable effect of foreign currency translation.
U.S. operations
Consolidated revenue from U.S. operations for the second quarter of 2004 declined 3.7% to $12.6 million from $13.1 million for the 2003 period, representing approximately 45.3% and 48.9% of consolidated revenue for those respective periods. This decrease resulted primarily from a $1.1 million decrease in systems revenue that was partially offset by increases in service revenue and other product revenue. The decrease in systems revenue was due primarily to a $1.3 million decrease in unit volume of the Companys mature systems, partially offset by a $0.2 million increase in average selling prices and by higher unit sales of new systems products. Materials revenue remained relatively consistent for the second quarter of 2004 compared to the second quarter of 2003, as unit volume increases were offset by decreases in average selling prices. Service revenue increased $0.5 million due to higher volume.
Consolidated revenue from U.S. operations for the first six months of 2004 increased 7.9% to $26.1 million from $24.2 million for the first six months of 2003, representing approximately 45.5% and 48.5% of consolidated revenue for those respective periods. This increase was due to a $0.4 million increase in systems and other product revenue, a $0.6 million increase in materials revenue and a $0.9 million increase in service revenue. The increase in systems revenue was the result of a $0.8 million
16
increase in average selling prices and a $0.2 million increase in other product revenue, which was partially offset by a $0.6 million decrease in unit volume. The materials revenue increase was due primarily to a $1.0 million increase in unit volume, partially offset by a $0.4 million decrease in average selling prices. Service revenues increased due to higher service volumes.
Operations outside the U.S.
Consolidated revenue from operations outside the United States, primarily in Europe and the Asia-Pacific region, increased 11.0% to $15.2 million for the second quarter of 2004 from $13.7 million for the prior-year period, representing 54.7% and 51.1% of consolidated revenue for those respective periods. For the first six months of 2004, consolidated revenue from operations outside the United States increased 21.9% to $31.3 million from $25.7 million for the first six months of 2003, representing 54.5% and 51.5% of consolidated revenue for those respective periods.
European operations
For the second quarter of 2004, European revenue increased 17.2% to $11.3 million from $9.6 million for the second quarter of 2003, representing 40.5% and 35.9% of consolidated revenue for those respective periods. This increase resulted from increases in revenue from each product class. Systems revenue increased $0.5 million, primarily from more favorable pricing and foreign currency translation. Materials revenue also increased by $0.5 million primarily due to increased volume as the favorable effects of foreign currency translation were substantially offset by lower average selling prices. Service revenue increased $0.7 million due to higher volume and a $0.3 million favorable effect of foreign currency translation.
European revenue for the first six months of 2004 increased 23.5% to $23.2 million compared to $18.8 million for the first six months of 2003, representing 40.4% and 37.7% of consolidated revenue for those respective periods. This increase resulted from an increase in revenue from each product class. Systems revenue increased by $2.1 million, materials revenue increased by $1.0 million and service revenue increased by $1.4 million. In each case, those increases were due primarily to foreign currency translation and, to a lesser extent, higher unit volume.
Asia-Pacific Operations
Asia-Pacific revenue for the second quarter of 2004 declined 3.5% to $3.9 million from $4.1 million for the second quarter of 2003, representing 14.2% and 15.2% of consolidated revenue for the respective periods. This decrease resulted from lower systems revenue, partially offset by increases in materials and service revenues. Systems and other product revenue declined by $0.8 million, primarily due to lower unit volume. Materials revenue increased by $0.4 million as higher average selling prices more than offset a decrease in unit volume, and service revenue increased by $0.2 million primarily due to higher unit volume.
Asia-Pacific revenue for the first six months of 2004 increased 17.5% to $8.1 million from $6.9 million for the first six months of 2003, representing 14.1% and 13.8% of consolidated revenue for the respective periods. Systems revenue increased by $0.1 million, and materials revenue and service revenue increased by $0.5 million and $0.6 million, respectively. Each of these increases was due to higher unit volume and, to a lesser extent, the favorable effect of foreign currency translation. The increase in systems revenue was aided modestly by higher average selling prices while lower average selling prices partially offset the increase in materials revenue.
Costs and margins
The Company experienced improvements in its gross profit and gross profit margin in both the second quarter and the first six months of 2004 compared to the respective 2003 periods.
Cost of sales declined 3.6% to $15.6 million for the second quarter of 2004 from $16.2 million for the 2003 quarter, representing 55.9% and 60.2% of consolidated revenue for the respective periods. As a result, the Companys gross profit increased to $12.3 million or 44.1% of total revenue for the 2004 quarter from $10.7 million or 39.8% of total revenue for the second quarter of 2003. The Companys gross profit margin for its products increased to 47.1% in the second quarter of 2004 from 46.6% for the second quarter of 2003, while its gross profit margin on services increased to 39.0% for the second quarter of 2004 from 26.1% for the second quarter of 2003. Service margins benefited globally from lower warranty costs and greater performance efficiencies, while increases in product margins were partially offset by production ramp-up costs associated with the introduction of new products. Foreign currency translation had a $0.4 million favorable effect on gross profit margin in the second quarter.
For the first six months of 2004, cost of sales increased 4.1% to $33.1 million from $31.8 million for the 2003 period, representing 57.6% and 63.7% of consolidated revenue for the respective periods. Notwithstanding this increase, as a result of the relatively higher increase in revenue in the six-month period, the Companys gross profit increased to $24.3 million or 42.4% of total revenue for the first six months of 2004 from $18.1 million or 36.3% of total revenue for the 2003 period. For the six-month period,
17
the gross profit margin for products increased to 45.8% from 44.4% for the first six months of 2003, while service margins increased to 36.0% for the first six months of 2004 from 20.8% for the first six months of 2003, primarily for the same reasons that affected the second quarter of 2004. Foreign currency translation had a $1.2 million favorable effect on gross profit margin in the six-month period.
Selling, general and administrative expenses
The Company also experienced declines in selling, general and administrative expenses during the second quarter and first six months of 2004 compared to the comparable 2003 periods.
For the second quarter of 2004, selling, general and administrative expenses declined 12.8% to $9.5 million from $10.9 million in the second quarter of 2003. For the first six months of 2004, selling, general and administrative expenses declined 10.3% to $20.1 million or 35.1% of total revenue from $22.5 million or 45.0% of total revenue for the first six months of 2003. In the second quarter and the first six months of 2004, foreign currency translation had an unfavorable effect of $0.2 million and $0.7 million, respectively, on these expenses. In the first six months of 2004, these expenses also included $3.6 million of legal costs compared to an adjusted $3.3 million of legal costs in the 2003 period. Legal costs, which remained high in the second quarter of 2004, declined approximately $0.3 million to $1.5 million in that quarter compared to $1.8 million in the 2003 quarter. Legal costs in the first six months of 2004 included $2.7 million of fees and expenses associated with the completion of the settlement of the EOS litigation and with the Companys compliance with the SEC and Department of Justice subpoenas received in 2003. The Company expects legal costs to remain high until its legacy legal matters, including the SEC and DOJ matters, are resolved.
During the second quarter and the first six months of 2004, the Company began to realize the benefit of replacing its previous self-insured medical benefit program with an insured program in February 2004. Employee benefit expenses declined by $0.8 million in the first six months of 2004 as a result of the adoption of this new program, including $0.4 million in the second quarter of 2004 as the Company decreased its reserve for future claims under the former self-insured program.
The Company also benefited in the second quarter and first six months of 2004 by lower depreciation and amortization expenses, lower accounting and professional fees, a decrease in advertising and promotional expenses and a decline in other expenses. These cost savings were partially offset by $1.0 million of higher compensation and commission expenses including stock-compensation expense.
Research and development expenses
Research and development expenses were $2.6 million in both the second quarter of 2004 and the second quarter of 2003. For the six-month periods, such expenses were $5.1 million in 2004 and $5.2 million in the first six months of 2003. The Company continues to anticipate that research and development expenses will be in the range of 10% of consolidated revenue for the full year 2004 due to increased activity with selected projects.
Severance and restructuring costs declined from the second quarter of 2003 to the second quarter of 2004 by $0.2 million. During the first six months of 2004, the Company increased by $0.1 million its restructuring reserve for leased buildings that it vacated during its restructuring activities in 2002 and had expected to sub-lease to third parties. No other severance or restructuring activities occurred in the 2004 periods. The Company expects to incur a modest amount of severance expenses during the second half of 2004 in connection with the outsourcing of its equipment assembly activities discussed above, but it does not currently expect to incur any other significant restructuring expenses for the remainder of 2004.
Income (loss) from operations
As a result of its higher revenues, its higher gross profit and its relatively lower costs and expenses discussed above in the second quarter and first six months of 2004, the Company had a modest operating profit in the second quarter of 2004 and a significantly reduced operating loss for the first six months of 2004 compared to the 2003 period.
Income from operations for the second quarter of 2004 was $0.1 million or 0.5% of total revenue compared to an operating loss of $3.0 million or 11.2% of total revenue for the second quarter of 2003. For the first six months of 2004, the Companys operating loss was $1.1 million compared to $9.8 million in the 2003 period.
Interest and other expense, net
Interest and other expense, net, which consists primarily of interest expense, decreased to $0.5 million for the second quarter of 2004 from $1.0 million in the second quarter of 2003. For the six-month periods, these expenses decreased to $1.0 million for the
18
first six months of 2004 from $1.9 million in the first six months of 2003.
The decreases were due primarily to the absence in 2004 of interest expense associated with borrowings under a credit facility with U.S. Bank, National Association that the Company repaid and terminated in the fourth quarter of 2003 and an increase in interest income arising from the short-term investment of excess cash, partially offset by added interest expense associated with the Companys 6% convertible subordinated debentures that were issued in the fourth quarter of 2003.
Provision for income taxes
The Company recorded a $0.5 million provision for income taxes for the second quarter of 2004 compared to $0.8 million for the second quarter of 2003. For the six-month periods, the Company recorded a $1.0 million provision for income taxes for each period. These amounts primarily reflect provisions for income taxes arising from foreign operations for each period. The Company had losses in the United States in each period. During the second quarter of 2004, the Company adopted certain tax-planning initiatives for its non-U.S. operations, including adjustments to its transfer prices that the Company charges to its European and Asian/Pacific operating units. The Company expects these tax-planning initiatives to be beneficial to the Company's overall tax position.
Cumulative effect of changes in accounting principles
As discussed above, as of December 31, 2003, the Company changed its method of accounting for legal fees incurred in the defense of its patents and license rights and of amortizing one of its patent licenses. The Company adopted such changes retroactively to January 1, 2003. See Note 2 to the condensed consolidated financial statements. As a result, for the first six months of 2003, the Company recorded a cumulative effect of such changes in accounting principles of approximately $7.0 million, net of applicable income tax effect.
Net loss
For the reasons set forth above, the Companys net loss improved to $0.9 million for the second quarter of 2004 compared to $4.8 million for the second quarter of 2003. Net loss available to common stockholders for the second quarters of 2004 and 2003 was $1.2 million and $5.0 million, or $0.10 and $0.39 per share of common stock (basic and diluted), respectively, after giving effect to dividends and accretion of preferred stock issuance costs accrued with respect to the Companys Series B Convertible Preferred Stock.
For the first six months of 2004, the Companys net loss improved to $3.0 million compared to $19.7 million for the first six months of 2003. The net loss for the first six months of 2003 included the $7.0 million cumulative effect of the changes in accounting principles discussed above. The net loss for the first six months of 2003 was $12.7 million, or $1.01 per share, before giving effect to such changes in accounting principles. Net loss available to common stockholders for the first six months of 2004 and 2003 was $3.8 million and $19.9 million, or $0.29 and $1.56 per share of common stock (basic and diluted), respectively, after giving effect to dividends and accretion of preferred stock issuance costs accrued with respect to the Companys Series B Convertible Preferred Stock.
The principal reasons for the improvement in the Companys net loss available to common stockholders in the second quarter and the first six months of 2004 were:
the reduction in the Companys loss from operations in each period;
the decrease in interest expense in each period;
the absence, in the six-month period, of the $7.0 million cumulative effect of the changes in accounting principles discussed above; and
a decrease in the Companys provision for income taxes,
partially offset by:
an increase in each period in dividends and accretion with respect to the Companys Series B Convertible Preferred Stock.
Liquidity and Capital Resources
The Companys principal sources of liquidity are the net proceeds from external financing transactions and cash flow from operations. As discussed below, effective July 15, 2004, the Company entered into a two-year loan and security agreement and certain related credit documents with Silicon Valley Bank to provide the Company with additional liquidity. No borrowings are outstanding under that credit facility, and, except for the forward currency contracts discussed below, the Company did not engage in any other
19
external financing transactions during the first six months of 2004.
Cash flow
The following table summarizes the cash used in or provided by operating activities, investing activities and financing activities for the first six months of 2004 and 2003:
|
|
Six months ended |
|
||||
|
|
June 30, 2004 |
|
June 27, 2003 |
|
||
|
|
|
|
(as restated) |
|
||
|
|
(in thousands) |
|
||||
Cash used in operating activities |
|
$ |
(3,170 |
) |
$ |
(3,035 |
) |
Cash used for investing activities |
|
(527 |
) |
(1,128 |
) |
||
Cash provided by financing activities |
|
25 |
|
10,873 |
|
||
Net increase (decrease) in cash and cash equivalents |
|
(3,983 |
) |
6,706 |
|
||
Cash flow from operations
Approximately $3.2 million of net cash was used in the Companys operations in the first six months of 2004. Such cash consisted of the Companys net loss of $3.0 million for the period and $0.2 million of net changes in operating assets, operating liabilities and other items, consisting of:
a $4.6 million increase in inventory;
a $3.5 million decrease in accrued liabilities;
a $0.8 million decrease in deferred revenues; and
a $0.9 million decrease in customer deposits and other liabilities
that arose in the ordinary course of business, partially offset by:
a $4.3 million reduction in accounts receivable; and
$4.4 million of non-cash expenses included in net loss.
The increase in inventory largely arose from higher levels of raw materials and finished goods acquired primarily in connection with the timing of the commercialization of the InVision HR 3-D printer and the Sinterstation® HiQ SLS® system that the Company introduced late in the second quarter and early in the third quarter of 2004. The decrease in accrued liabilities was primarily the result of scheduled payments during the first six months of the year for royalty obligations due annually, scheduled payments of dividends on the Companys Series B Convertible Preferred Stock and of interest payments on the Companys outstanding convertible subordinated debentures, payment of the Regent Pacific Management litigation settlement and employee insurance premiums. The decrease in accounts receivable arose primarily from changes in the Companys revenue from period to period. The non-cash expenses included in net loss consisted primarily of $3.3 million of depreciation and amortization expense, adjustments to reserve accounts for inventory and accounts receivable and equity compensation expense.
Net cash used in operations in the first six months of 2003 was $3.0 million as the Companys $19.7 million net loss was partially offset by a $10.3 million reduction in accounts receivable as the Company worked to improve its liquidity, the $7.0 million cumulative effect of the changes in accounting principles discussed above and other changes in operating assets, operating liabilities and non-cash expenses arising in the normal course of business.
Cash used for investing activities
Net cash used for investing activities in the first six months of 2004 was $0.5 million compared to $1.1 million in the first six months of 2003. In each period, the principal uses of cash for investment purposes were for additions to property and equipment and to patent and license rights.
Cash provided by financing activities
Cash provided by financing activities in the first six months of 2004 was less than $0.1 million. The principal changes in cash provided by financing activities in this period were:
$1.4 million from the exercise of employee stock options;
20
almost fully offset by:
the payment of $0.6 million of dividends on the Companys Series B Convertible Preferred Stock;
the payment of $0.4 million of stock registration costs;
$0.2 million of payments under the Companys obligation to the former RPC stockholders;
a $0.1 million scheduled payment for the Companys industrial development bonds; and
a $0.1 million payment for accrued liquidated damages related to registration rights agreements.
Net cash provided by financing activities for the first six months of 2003 amounted to $10.9 million as the Company privately placed $15.2 million (net of issuance costs of $0.6 million) of Series B Convertible Preferred Stock and repaid a net amount of $4.3 million of its then outstanding bank debt with U.S. Bank, National Association. The remainder of such bank debt was repaid in the fourth quarter of 2003.
Working capital
The Companys net working capital declined to $17.6 million at June 30, 2004 from $18.8 million at December 31, 2003. The $1.5 million decrease is primarily the result of:
a $4.0 million decrease in cash and cash equivalents due primarily to the Companys $3.0 million net loss for the first six months of 2004, an additional $0.7 million of net cash used in the six-month period for operating and investing activities and $0.3 million representing the effect of exchange rate changes on cash in the six-month period;
a $4.7 million decrease in accounts receivable, net due primarily to the reasons discussed above and to a $0.2 million reduction in the allowance for doubtful accounts at June 30, 2004;
a $0.6 million decrease in prepaid expenses and other current assets; and
a $0.2 million increase in accounts payable;
that more than offset:
a $3.8 million increase in inventory, net which occurred for the reasons discussed above and included a $0.3 million reduction in inventory reserves;
a $3.5 million decrease in accrued liabilities, which occurred for the reasons discussed above;
a $0.9 million decrease in deferred revenues; and
a $0.1 million decrease in customer deposits.
The changes in prepaid expenses and other current assets, accounts payable, deferred revenues, customer deposits and the other items of working capital not discussed above resulted from changes in the ordinary course of the Companys business.
Liquidity
As discussed above, the Companys principal sources of liquidity are the net proceeds from external financing transactions and cash flow from operations. As noted above, the Companys unrestricted cash and cash equivalents declined by $4.0 million to $20.0 million at June 30, 2004 due primarily to $3.2 million of cash used in its operations in the first six months of 2004 compared to $3.0 million of cash used in its operations in the first six months of 2003. The Company believes that its cash balance at June 30, 2004 together with its anticipated cash flow from operations for the balance of 2004 should be adequate to meet its cash requirements for the balance of 2004.
Nevertheless, effective July 15, 2004, the Company entered into a two-year loan and security agreement with Silicon Valley Bank under which the Company may make up to $15 million of revolving credit borrowings subject to the terms and conditions set forth in that credit agreement. The Company has not made any borrowings under that agreement as of the date of this Quarterly Report on Form 10-Q.
The Silicon Valley Bank credit facility discussed above provides for borrowings by the Company and certain of its subsidiaries of up to $15.0 million and includes sub-limits for letter of credit and foreign exchange facilities. The credit facility is secured by a first lien in favor of the Bank on certain of the Companys assets, including domestic accounts receivable, inventory and certain fixed assets. Interest will accrue on outstanding borrowings at either the Banks prime rate in effect from time to time or at a LIBOR rate plus 2.75%. The Company is obligated to pay a commitment fee from time to time equal to 0.375% per annum of the undrawn amount of the facility. The facility imposes certain limitations on the Companys activities, including limitations on the
21
incurrence of debt and other liens, limitations on the disposition of assets and limitations on the payment of dividends on the Companys common stock. The facility also requires the Company to remain in compliance with certain financial covenants, which include requirements to maintain specific levels of minimum liquidity on a consolidated basis and a requirement as to the Companys domestic assets as a percentage of its total assets. In addition, if there are borrowings outstanding under the facility, the Company is required to maintain a ratio of adjusted total liabilities to tangible net worth and a minimum tangible net worth. If more than $5.0 million is borrowed, the Company is required to maintain minimum cash levels pursuant to a formula in the loan agreement. The Company was in compliance with these requirements at the effective date of the credit facility.
The Company does not expect, at this time, to borrow under this credit facility due to its current cash position. However, the Company expects this credit facility to provide the Company with additional liquidity as the Company grows and that it will allow the Company to better manage its foreign exchange exposure.
Outstanding debt
The Companys outstanding debt at June 30, 2004 and December 31, 2003 was as follows:
|
|
June 30, 2004 |
|
December 31, 2003 |
|
||
|
|
(in thousands) |
|
||||
Current portion of long-term debt |
|
|
|
|
|
||
Industrial development bonds |
|
$ |
175 |
|
$ |
165 |
|
Senior debt: |
|
|
|
|
|
||
Long-term debt, less current portion |
|
|
|
|
|
||
Industrial development bonds |
|
$ |
3,835 |
|
$ |
3,925 |
|
Subordinated debt: |
|
|
|
|
|
||
7% convertible debentures |
|
$ |
10,000 |
|
$ |
10,000 |
|
6% convertible debentures |
|
22,704 |
|
22,704 |
|
||
Total subordinated debt |
|
$ |
32,704 |
|
$ |
32,704 |
|
The Companys Colorado facility was financed by $4.9 million of industrial development bonds. At June 30, 2004, the aggregate outstanding principal amount of these bonds was $4.0 million. Interest on the bonds accrues at a variable rate of interest and is payable monthly. The interest rate at June 30, 2004 was 1.2%. Principal payments are due in semi-annual installments through August 2016. The Company has made all required payments of principal and interest on these bonds. The bonds are collateralized by, among other things, a first mortgage on the facility, a security interest in certain equipment, and an irrevocable letter of credit issued by Wells Fargo Bank, N.A., that was established pursuant to the terms of a reimbursement agreement between the Company and Wells Fargo and that was further collateralized by a standby letter of credit issued by U.S. Bank, National Association in the amount of $1.2 million.
As the Company has previously disclosed, during 2003, the Company operated under waivers of default under certain financial covenants contained in the reimbursement agreement. Such financial covenants require, among other things, that the Company maintain a minimum tangible net worth (as defined in the reimbursement agreement) of $23.0 million plus 50% of net income from July 1, 2001 forward and a fixed charge coverage ratio (as defined in the reimbursement agreement) of no less than 1.25. In light of the Companys default under these covenants, Wells Fargo drew down the $1.2 million standby letter of credit issued by U. S. Bank and placed the cash in a restricted account. The Company repaid the amount owing to U.S. Bank as a result of this drawing. As of December 31, 2003 and June 30, 2004, the Company was in compliance with the fixed-charge coverage ratio and the minimum tangible net worth covenant under this reimbursement agreement.
On March 4, 2004, the Company and Wells Fargo entered into a further amendment to the reimbursement agreement which states that the Company is no longer in default of the financial covenants referred to above and that therefore Wells Fargo will no longer require the Company to replace the Wells Fargo letter of credit or to retire $1.2 million of the industrial development bonds. Such amendment also amended certain of the criteria used to measure compliance with such financial covenants. It also added a provision that provides that the Company acknowledges that, upon the occurrence of any future event of default under the reimbursement agreement, Wells Fargo will not consider waiving such event of default unless and until the Company complies with all requirements imposed by Wells Fargo, which shall include but not be limited to the immediate retirement of $1.2 million of the industrial development bonds. The amendment provides that funds for such repayment shall come first from the funds of the Company then held by Wells Fargo, if any, and the balance from additional funds to be provided to the trustee of such bonds by the Company promptly upon notice from Wells Fargo to the Company. In addition, any event of default would result in an increase to the letter of credit fee from 1% of the stated amount of the letter of credit to 1.50% of the stated amount of the letter of credit prorated from the occurrence of such event of default until the next August 1, when the fee is due, and continuing for the life of the letter of credit. The Company is required to demonstrate its compliance with these financial covenants as of the end of each calendar quarter.
22
Derivative financial instruments
Through June 30, 2004, the Company had entered into forward currency contracts through June 2005 in order to hedge a CHF 1.2 million (approximately $0.9 million) portion of its exposure to Swiss franc currency fluctuations related to its remaining obligations of CHF 1.3 million (approximately $1.0 million) to the former stockholders of RPC Ltd. These contracts had a notional amount of $0.9 million. Subsequent to June 30, 2004, the Company hedged the remaining monthly installments of principal and interest that are due under this note. The Company had also entered into forward currency exchange contracts with various maturity dates through November 2004 in order to hedge obligations under purchase orders to a supplier with a total value of CHF 2.0 million (approximately $1.6 million). The market value of the foregoing contracts approximated their carrying value at June 30, 2004. The contracts qualified and were designated as fair value hedges as defined in SFAS No. 133, Derivative Instruments and Hedging Activities.
Series B convertible preferred stock
Since May 6, 2004, the Series B Convertible Preferred Stock accrues dividends, on a cumulative basis, at $0.60 per share each year. Prior to that date, dividends on the Series B Convertible Preferred Stock accrued at a rate of $0.48 per share each year. The Company has agreed to register the resale by the holders of the shares of common stock into which the shares of Series B Convertible Preferred Stock are convertible. Since the registration statement was not declared effective by the Securities and Exchange Commission before the close of business on May 5, 2004, the dividend rate increased to $0.60 per share per year through its remaining term.
The Series B Convertible Preferred Stock is senior to the Companys common stock and any other stock that ranks junior to the Series B Convertible Preferred Stock. Dividends are payable semi-annually, when, as and if declared by the Board of Directors, on May 5 and November 5 of each year while the Series B Convertible Preferred Stock remains outstanding. In addition, the Series B Convertible Preferred Stock votes equally with the Companys common stock and is convertible at any time at the option of its holders on a 1:1 basis into approximately 2,626,683 shares of common stock. The Series B Convertible Preferred Stock is redeemable at the Companys option after May 5, 2006. The Company must redeem any shares of Series B Convertible Preferred Stock that remain outstanding on May 5, 2013. The redemption price in either case is $6.00 per share plus any accrued and unpaid dividends.
Stockholders equity
Stockholders equity declined 7.9% to $33.8 million at June 30, 2004 from $36.7 million at December 31, 2003. This reduction resulted from:
the Companys net loss of $3.0 million in the six-month period;
$0.7 million of dividends and accretion of preferred stock issuance costs relating to the Series B Convertible Preferred Stock;
$0.4 million of costs associated with filing a registration statement with the SEC for the Companys common stock;
$0.4 million of liquidated damages incurred under private placement agreements requiring the Company to maintain an effective registration statement permitting the resale of such shares of common stock; and
a $0.6 million cumulative translation adjustment.
These reductions were partially offset by increases in common stock and additional paid-in capital of $2.1 million arising from the exercise of stock options and issuance of stock grants.
Stockholder rights plan
On March 2, 2004, the Companys Board of Directors amended the Shareholder Rights Plan adopted in 1995 by accelerating the final expiration date of the purchase rights issued under the plan. Under the terms of the amendment, the purchase rights expired at the close of business on March 3, 2004. The plan terminated upon expiration of the purchase rights.
Critical Accounting Policies and Significant Estimates
For a discussion of the Companys critical accounting policies and estimates, refer to Managements Discussion and Analysis of Financial Condition and Results of Operations Critical Accounting Policies and Estimates in the Companys Annual Report on Form 10-K for the year ended December 31, 2003.
23
Forward-Looking Statements
Certain statements made by the Company in this Quarterly Report on Form 10-Q, in documents incorporated by reference herein, and in future oral and written statements by the Company may be forward-looking. These statements include comments as to the Companys beliefs and expectations as to future events and trends affecting the Companys business, its results of operations and its financial condition. These forward-looking statements are based upon managements current expectations concerning future events and discuss, among other things, anticipated future performance and future business plans. Forward-looking statements are identified by such words and phrases as expects, intends, believes, will continue, plans to, could be, estimates, and similar expressions.
Forward-looking statements are necessarily subject to risks and uncertainties, many of which are outside the control of the Company, which could cause actual results to differ materially from such statements.
The Company recognizes that it is subject to a number of risks and uncertainties that may affect its future performance, such as:
economic, political, business and market conditions in the geographic areas in which it conducts business;
factors affecting the customers, industries and markets that use the Companys materials and services;
competitive factors;
production capacity;
raw material availability and pricing;
the Companys ability to carry out a successful transition of its equipment assembly activities from its Grand Junction, Colorado facility to third parties, the ability of those third parties to perform in a satisfactory manner, and the risks to the Company of disruption in its supply of systems to its customers if such third parties fail to perform in a satisfactory manner;
the Companys success with distribution agreements with suppliers of materials or other products;
changes in energy-related expenses;
changes in the value of foreign currencies against the U.S. dollar;
changes in interest rates, credit availability or credit stature;
the effect on the Company of new pronouncements by accounting authorities;
the Companys ability to hire, develop and retain talented employees worldwide;
the Companys development and commercialization of successful new products;
the Companys success in entering new markets and acquiring and integrating new businesses;
the Companys access to financing and other sources of capital and its ability to generate cash flow from operations;
the Companys debt level;
the Companys compliance with financial covenants in financing documents;
the investigation initiated by the SEC in 2003 into the Companys revenue recognition practices;
the outcome of litigation or other proceedings to which the Company is a party;
the volatility of the Companys stock price;
the magnitude and timing of the Companys capital expenditures;
the Companys ability to forecasts its sales of systems and to manage its inventory efficiently;
changes in the Companys relationships with customers and suppliers;
acts and effects of war or terrorism; and
changes in domestic or foreign laws, rules or regulations, or governmental or agency actions.
For a discussion of such risks and uncertainties, see Managements Discussion and Analysis of Financial Condition and Results of Operations Cautionary Statements and Risk Factors in the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2003.
Except as required by the federal securities laws, the Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
For a discussion of market risks at December 31, 2003, refer to Item 7A, Quantitative and Qualitative Disclosures about Market Risk in the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2003. During the second quarter of 2004, there were no material changes or developments that would materially alter the market risk assessment performed as of December 31, 2003, except as discussed in the following paragraph.
The Company has an outstanding note payable to the former stockholders of RPC, Ltd. which is denominated in Swiss francs
24
and had a carrying value at June 30, 2004 of CHF 1,275,000 (approximately $1,019,000). At June 30, 2004, the Company had purchased forward exchange contracts for Swiss francs to hedge the payments of principal and interest that are due pursuant to this note through June 30, 2005. These contracts had an aggregate notional amount of $925,000. Subsequent to June 30, 2004, the Company purchased additional contracts to hedge its Swiss franc exposure under the remaining CHF 184,000 (approximately $146,000) installments of principal and interest that are due under this note.
The Company also purchased foreign exchange contracts for Swiss francs to hedge the payment for materials from a supplier through November 2004. The total amount of the future payments hedged was CHF 2,000,000 (approximately $1,608,000 at June 30, 2004). These contracts have an aggregate notional amount of $1,613,000.
The market value of the foregoing contracts approximated their carrying value at June 30, 2004. These contracts qualified as and were designated as fair value hedges as defined by SFAS No. 133, Derivative Instruments and Hedging Activities.
Item 4. Controls and Procedures
As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Companys management, including the Companys Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of the Companys disclosure controls and procedures pursuant to Rule 13a-15 and Rule 15d-15 of the Securities Exchange Act of 1934, as amended (the Exchange Act). Based on that evaluation, the Companys Principal Executive Officer and Principal Financial Officer concluded that the Companys disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms. There were no significant changes in the Companys internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
The Company is a party to several pending legal actions that are summarized below:
Hitachi Zosen v. 3D Systems, Inc.
On November 25, 2002, the Company was served with a complaint through the Japanese Consulate General from Hitachi Zosen, a distributor of products produced by EOS GmbH (EOS), seeking damages in the amount of 535,293,436 yen (approximately $4.9 million at June 30, 2004), alleging lost sales during the period in which DTM Corporation, which the Company acquired in 2001, had an injunction in Japan prohibiting the sale of EOSs EOSint P350 laser sintering systems. The Company filed an answer on March 11, 2003. Several court hearings have been held in this matter, the most recent one in July 2004. The Company intends to defend its position in this litigation vigorously.
3D Systems, Inc. v. Aaroflex, et al.
On January 13, 1997, the Company filed a complaint in U.S. District Court, Central District of California, against Aarotech Laboratories, Inc., Aaroflex, Inc. and Albert C. Young. Aaroflex is the parent corporation of Aarotech. Mr. 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 Companys 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 Companys complaint and on Aaroflexs counterclaims have been dismissed and fact discovery in the case has been completed. The Companys motions for summary judgment for patent infringement and validity and Aaroflexs motions for patent invalidity were heard on May 10, 2001. In February 2002, the court denied Aaroflexs invalidity motions. On April 24, 2002, the court denied the Companys 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 Companys motion on validity. On July 25, 2003, the court notified the Company that rulings on all patents in issue would be decided prior to September 30, 2003. However, as of March 31, 2004, the court has not issued any new rulings concerning any of the patents
25
or other trial issues, and the court has postponed the trial date of the case. In March 2004, the Company filed a motion with the court to dismiss this case without prejudice. The defendant subsequently filed an opposition to the motion to dismiss, requesting that the case be dismissed with prejudice and requesting that the court award $800,000 to the defendant. As of the date of this Quarterly Report on Form 10Q, the Court had not yet issued a ruling on the Companys motion.
Securities and Exchange Commission investigation
The Company is involved in an investigation that is being conducted by the Securities and Exchange Commission into matters pertaining to its historical revenue recognition practices that gave rise to the restatement of its 2000 and 2001 financial statements in 2003. On October 20, 2003, the Company received a subpoena for documents from the SEC, stating that the agency is conducting a formal investigation of the Company. The Company is cooperating fully with the SEC in its investigation, has furnished documents as required by subpoena and is otherwise complying with the subpoena.
Department of Justice inquiry
On May 6, 2003, the Company received a subpoena from the U.S. Department of Justice to provide certain documents to a grand jury investigating antitrust and related issues within its industry. The Company was advised that it was not a target of the grand jury investigation and has not been informed that this status has changed. The Company has furnished documents required by the subpoena and it is otherwise complying with the subpoena.
Other Matters
The Company is also involved in various other legal actions incidental to its business. The Companys management believes, after consulting with counsel, that the disposition of these other legal matters will not have a material effect on the Companys consolidated results of operations or consolidated financial position.
Item 2. Changes in Securities and Use of Proceeds
(a) Certain provisions of the Certificate of Incorporation of the Company affecting the rights of holders of the common stock and Series B Convertible Preferred Stock of the Company were modified pursuant to the approval of the stockholders by a vote taken at the annual meeting of stockholders of the Company held on May 19, 2004, as described in greater detail in the Companys proxy statement for that annual meeting. (See Item 4 below and Exhibit 3.1.)
(b) The Company did not acquire any shares of its outstanding stock during the second quarter of 2004.
(c) Effective July 15, 2004, the Company entered into a two-year loan and security agreement and certain related credit documents with Silicon Valley Bank (SVB). The loan agreement provides for up to $15.0 million of borrowings and includes sub-limits for letter of credit and foreign exchange facilities. The credit is secured by a first lien in favor of SVB on certain of the Companys assets, including domestic accounts receivable, inventory and certain fixed assets. Interest will accrue on outstanding borrowings at either SVBs prime rate in effect from time to time or at a spread of 2.75% above prevailing LIBOR rates. The Company is obligated to pay a commitment fee from time to time equal to 0.375% per annum of the undrawn amount of the facility. The facility imposes certain limitations on the Companys activities, including limitations on the incurrence of debt and other liens, limitations on the disposition of assets and limitations on the payment of dividends on the Companys common stock. The facility also requires the Company to remain in compliance with certain financial covenants, which include requirements to maintain specific levels of minimum liquidity on a consolidated basis and a requirement as to the Companys domestic assets as a percentage of its total assets. In addition, if there are borrowings outstanding under the facility, the Company is required to maintain a ratio of adjusted total liabilities to tangible net worth and a minimum tangible net worth. If more than $5.0 million is borrowed, the Company is required to maintain minimum cash levels pursuant to a formula in the loan agreement. The Company was in compliance with these requirements at the effective date of the credit facility.
Item 4. Submission of Matters to a Vote of Security Holders.
On May 19, 2004, the Company held its annual meeting of stockholders. At the annual meeting, the stockholders:
(i) elected two Class II directors for a three-year term;
(ii) approved five amendments to the Companys Certificate of Incorporation, which amendments required the affirmative vote of two-thirds in voting power of the Companys outstanding capital stock;
26
(iii) approved the 2004 Incentive Stock Plan and the Restricted Stock Plan for Non-Employee Directors; and
(iv) ratified the selection of BDO Seidman, LLP as the Companys independent auditor for the year ending December 31, 2004.
A total of 11,228,731 shares of common stock and 2,316,867 shares of Series B Convertible Preferred Stock were present in person or by proxy at the annual meeting, representing 13,545,598 votes, or approximately 86% of the voting power of the Company entitled to vote at the annual meeting. Each share of common stock and Series B Convertible Preferred Stock was entitled to one vote on each matter brought before the meeting.
The votes cast on the matters that were brought before the annual meeting, including broker non-votes where applicable, were as set forth below:
|
|
Number of Votes |
|
||||||
|
|
In Favor |
|
Withheld |
|
|
|
|
|
Nominees for Election to Board of Directors: |
|
|
|
|
|
|
|
|
|
Miriam V. Gold |
|
13,450,986 |
|
94,612 |
|
|
|
|
|
Abraham N. Reichental |
|
13,502,086 |
|
43,512 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For |
|
Against |
|
Abstentions |
|
Broker Non-Votes |
|
Approval of Proposed Amendments to the Certificate of Incorporation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Removal of prohibition on stockholders calling special meetings of stockholders |
|
10,734,280 |
|
66,073 |
|
53,541 |
|
2,691,704 |
|
|
|
|
|
|
|
|
|
|
|
Elimination of classified Board of Directors and permitting removal of Directors by stockholders |
|
10,761,032 |
|
38,529 |
|
54,333 |
|
2,691,704 |
|
|
|
|
|
|
|
|
|
|
|
Permit stockholder action by written consent |
|
10,727,968 |
|
72,500 |
|
53,426 |
|
2,691,704 |
|
|
|
|
|
|
|
|
|
|
|
Permit stockholder amendment of By-Laws |
|
10,750,173 |
|
50,088 |
|
53,633 |
|
2,691,704 |
|
|
|
|
|
|
|
|
|
|
|
Elimination of supermajority voting requirement |
|
10,756,824 |
|
42,952 |
|
54,118 |
|
2,691,704 |
|
|
|
|
|
|
|
|
|
|
|
Approval of the 2004 Incentive Stock Plan |
|
9,443,883 |
|
1,351,067 |
|
58,944 |
|
2,691,704 |
|
|
|
|
|
|
|
|
|
|
|
Approval of the Restricted Stock Plan for Non-Employee Directors |
|
9,443,883 |
|
1,351,067 |
|
58,944 |
|
2,691,704 |
|
|
|
|
|
|
|
|
|
|
|
Ratification of BDO Seidman, LLP as Independent Auditor |
|
11,576,288 |
|
1,944,367 |
|
24,673 |
|
2,691,704 |
|
Item 6. Exhibits and Reports on Form 8-K
(a) |
|
Exhibits |
|
|
|
3.1 |
|
Certificate of Amendment of Certificate of Incorporation filed with Secretary of State of Delaware on May 19, 2004. |
10.1 |
|
Loan and Security Agreement between 3D Systems Corporation, 3D Systems, Inc. and Silicon Valley Bank dated as of June 30, 2004. |
31.1 |
|
Certification of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 dated August 5, 2004. |
31.2 |
|
Certification of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 dated August 5, 2004. |
32.1 |
|
Certification of Principal Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to |
27
|
|
Section 906 of the Sarbanes-Oxley Act of 2002 dated August 5, 2004. |
32.2 |
|
Certification of Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 dated August 5, 2004. |
|
|
|
|
|
|
(b) |
|
Reports on Form 8-K |
|
|
|
(1) |
|
The Company furnished a Current Report on Form 8-K on April 28, 2004 to report the issuance of a press release announcing the Companys 2004 first-quarter results. |
(2) |
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The Company filed a Current Report on Form 8-K on May 21, 2004 to report the issuance of a press release announcing the approval of all proposals at the Companys 2004 annual meeting of stockholders. |
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The Company filed a Current Report on Form 8-K on June 24, 2004 to report the issuance of a press release announcing the Companys distribution agreement with DSM Desotech. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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3D SYSTEMS CORPORATION |
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By: |
/s/ FRED R. JONES |
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Fred R. Jones |
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Vice President and Chief Financial Officer |
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(Principal Financial Officer) |
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(Duly Authorized Officer) |
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Date: August 5, 2004 |
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Exhibit 3.1
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
3D Systems Corporation (the Corporation), a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (DGCL), does hereby certify that:
FIRST: At a meeting of the Board of Directors of the Corporation (the Board), the terms and provisions of this Certificate of Amendment were duly approved by the Board by the adoption of resolutions setting forth the amendments contained herein, declaring such amendments to be advisable and authorizing submission of such amendments to the stockholders of the Corporation for approval at the 2004 annual meeting of stockholders.
SECOND: Pursuant to resolution of the Board, the annual meeting of stockholders of the Corporation was duly called and held on May 19, 2004, upon notice in accordance with Section 222 of the DGCL at which meeting the necessary number of shares as required by statute and the Corporations Certificate of Incorporation were voted in favor of the amendments to the Corporations Certificate of Incorporation set forth herein.
THIRD: Article Fifth of the Certificate of Incorporation is hereby amended and restated as follows:
FIFTH : Except and to the extent designated with respect to the Preferred Stock, all rights to vote and all voting power shall be vested in the Common Stock and the holders thereof shall be entitled at all elections of directors to one (1) vote per share.
FOURTH: Article Sixth of the Certificate of Incorporation is hereby amended and restated as follows:
SIXTH : Each director, other than those who may be elected by the holders of any series of Preferred Stock or any other series or class of stock as set forth in this Certificate of Incorporation, shall hold office until a successor is elected at the next succeeding annual meeting of stockholders and qualified or until such directors earlier death, resignation or removal. Regardless of the foregoing sentence, in the case of directors designated as Class I directors elected at the annual meeting of stockholders held in 2003, such directors shall hold office until a successor is elected at the annual meeting of stockholders held in 2006 and qualified or until such directors earlier death, resignation or removal, and in the case of directors designated as Class II directors elected at the annual meeting of stockholders held in 2004, such directors shall hold office until a successor is elected at the annual meeting of stockholders held in 2007 and qualified or until such directors earlier death, resignation or removal, and in the case of directors designated as Class III directors elected at the annual meeting of stockholders held in 2002, such directors shall hold office until a successor is elected at the annual meeting of stockholders held in 2005 and qualified or until such directors earlier death, resignation or removal. Any vacancy on the Board of Directors, howsoever resulting, shall be filled according to the terms specified in the Bylaws of the Corporation.
Notwithstanding the foregoing, whenever the holders of any one or more classes or series thereof of Preferred Stock issued by the Corporation shall have the right, voting separately by class or series, to elect directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies and other features of such directorships shall be governed by the
terms of this Certificate of Incorporation or the resolution or resolutions adopted by the Board of Directors pursuant to the second paragraph of Article FOURTH applicable thereto.
FIFTH: Article Seventh of the Certificate of Incorporation is hereby amended and restated as follows:
SEVENTH : Elections of directors at an annual or special meeting of stockholders need not be by written ballot unless the Bylaws of the Corporation shall otherwise provide.
SIXTH: Article Tenth of the Certificate of Incorporation is hereby amended and restated as follows:
TENTH : In furtherance, and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to adopt, repeal, alter, amend or rescind the Bylaws of the Corporation.
SEVENTH: Article Eleventh of the Certificate of Incorporation is hereby amended and restated as follows:
ELEVENTH : The Corporation reserves the right to amend or repeal any provision contained in this Certificate of Incorporation in the manner prescribed by the laws of the State of Delaware and all rights conferred upon stockholders are granted subject to this reservation.
EIGHTH: This Certificate of Amendment was duly adopted in accordance with the provisions of Section 242 of the DGCL.
NINTH: This Certificate of Amendment shall be effective upon filing with the Secretary of State of the State of Delaware.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of Amendment on this 19th day of May, 2004.
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3D SYSTEMS CORPORATION , |
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a Delaware corporation |
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By: |
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/s/ Robert M. Grace, Jr. |
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Robert M. Grace, Jr. |
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Vice President, General Counsel and Secretary |
Exhibit 10.1
LOAN AND SECURITY AGREEMENT
BY AND AMONG
SILICON VALLEY BANK
as Bank
AND
3D SYSTEMS CORPORATION
and
3D SYSTEMS INC.
as Borrowers
TABLE OF CONTENTS
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Changes in Business, Ownership, Management or Locations of Collateral. |
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iii
This LOAN AND SECURITY AGREEMENT dated as of June 30, 2004 among SILICON VALLEY BANK (Bank), whose address is 3003 Tasman Drive, Santa Clara, California 95054, 3D SYSTEMS CORPORATION, a Delaware corporation (the Company), and its Subsidiary, 3D SYSTEMS, Inc., a California corporation (3D California) (the Company and 3D California are sometimes referred to herein individually as a Borrower and collectively, jointly and severally, as the Borrowers), whose address is 26081 Avenue Hall, Valencia, CA 91355 provides the terms on which Bank will lend to Borrowers and Borrowers will repay Bank. The parties agree as follows:
1. ACCOUNTING AND OTHER TERMS .
Accounting terms not defined in this Agreement will be construed following GAAP. Calculations and determinations must be made following GAAP in effect on the Effective Date. The term financial statements includes the notes and schedules. The terms including and includes always mean including (or includes) without limitation, in this or any Loan Document.
2.1 Promise to Pay.
Each Borrower, jointly and severally, agrees to pay Bank the unpaid principal amount of all Advances and drawn but unreimbursed Letters of Credit issued for the account of a Borrower and interest on the unpaid principal amount of each thereof pursuant to the terms of this Agreement.
2.1.1 Revolving Advances .
(a) Bank will make Advances not exceeding the Committed Revolving Line, minus an amount equal to the sum of: (i) the amount of all outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit) (such amount, the Letter of Credit Amount) plus (ii) the outstanding FX Reserve. Amounts borrowed under this Section may be repaid and reborrowed during the term of this Agreement.
(b) The Company shall request Advances pursuant to the terms of Exhibit A-1 .
(c) The Committed Revolving Line terminates on the Revolving Maturity Date, when all Advances are immediately payable.
2.1.2 Letters of Credit Sublimit .
Bank will issue or have issued letters of credit (each a Letter of Credit) for the Borrowers account not exceeding (i) the Committed Revolving Line minus (ii) an amount equal to: (y) the outstanding principal balance of the Advances, plus (z) the FX Reserve; however, the Letter of Credit Amount shall at no time exceed $7,500,000 minus an amount equal to the outstanding FX Reserve. Each Letter of Credit will have an expiry date of no later than 180 days after the Revolving Maturity Date. In any event, if the Bank does not elect to extend the terms of
1
this Agreement, then all Letters of Credit that are outstanding following the Revolving Maturity Date will be secured by unencumbered cash in an amount equal to the face amount of such Letter of Credit on terms acceptable to Bank. Each Borrower agrees to execute any further documentation in connection with the Letters of Credit as Bank may reasonably request.
2.1.3 Foreign Exchange Sublimit .
If there is availability under the Committed Revolving Line, then the Company, on behalf of the Borrowers, may enter into foreign exchange forward contracts with the Bank under which Borrowers commit to purchase from or sell to Bank a set amount of foreign currency more than one business day after the contract date (the FX Forward Contract). On the effective date of each FX Forward Contract (and without giving effect to any future changes in the market value of such FX Forward Contract), Bank will subtract 10% of the value of such FX Forward Contract (the FX Reserve) from the foreign exchange sublimit, which sublimit shall be an amount equal to (i) $7,500,000 minus (ii) an amount equal to the face amount of then outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit). On the termination date of each FX Forward Contract, the FX Reserve corresponding to such FX Forward Contact shall be released by Bank. Bank may terminate all outstanding FX Forward Contracts if an Event of Default is declared and Bank has commenced to exercise its remedies under Section 9.1(a), but only if the Company does not provide cash collateral in an aggregate amount of the FX Reserve or other assurance of performance of the obligations under all outstanding FX Forward Contracts satisfactory to Bank within 10 days after the declaration of such Event of Default.
2.2 Overadvances .
If the Revolving Obligations outstanding under Section 2.1.1, 2.1.2, and 2.1.3 exceed the Committed Revolving Line or exceed the applicable sublimits, the Borrowers must immediately pay Bank the excess or, in the case that the Letter of Credit or FX Forward Contract sublimits are exceeded, the Borrowers will cash collateralize such excess.
2.3 Interest Rate , Payments.
(a) Interest Rate. Advances accrue interest on the outstanding principal balance at the Interest Rate as defined in Exhibit A-1 . So long as an Event of Default has occurred and is continuing the Obligations shall accrue interest at 5 percent above the rate in effect immediately before the occurrence of such Event of Default. Interest is computed on a 360 day year for the actual number of days elapsed.
(b) Payments. Interest due on the outstanding Advances, as well as Bank Expenses payable pursuant to Section 9.4, are payable on the first day of each month. In the event that Bank makes any payments pursuant to Section 9.4, Bank shall provide to Borrower, promptly after any such payment is made, supporting documentation relating to such payment . Bank may debit any of Borrowers deposit accounts including Account Number 3300395760 (the Debiting Account) for principal and interest payments owing by Borrowers to Bank so long as such debit occurs on the date when such payment is due before 12:00 noon Pacific time. Bank will
2
promptly notify the Company when it debits an account of a Borrower. These debits are not a set-off. Payments received after 12:00 noon Pacific time are considered received at the opening of business on the next Business Day provided , however , that if the funds in the Debiting Account equal or exceed the amount then due and owing to Bank hereunder, then Bank will debit any payments due before 12 noon on the date any such payment is due. When a payment is due on a day that is not a Business Day, the payment is due the next Business Day and additional fees or interest accrue.
2.4 Fees.
Each Borrower will jointly and severally pay:
(a) Bank Expenses . All Bank Expenses (including reasonable attorneys fees and reasonable expenses) incurred through and after the date of this Agreement, are payable when due. The amount of Bank Expenses actually invoiced and paid on the Effective Date shall be netted against the unapplied expense deposit previously delivered by the Company to Bank.
(b) Closing Fee. A closing fee in the amount of $37,500 fully earned and payable on the Effective Date.
(c) Unused Line Fee . Beginning on July 1, 2004 and on the first day of each calendar quarter thereafter during the term of this Agreement, an unused line fee, payable in arrears, in an amount equal to 0.375% per annum multiplied by the difference of: (i) $15,000,000 minus (ii) the average Daily Balance of Revolving Obligations that were outstanding during the immediately preceding calendar quarter, provided , however , that the first payment of such fee shall be prorated from the Effective Date through June 30, 2004; and provided , further , that if this Agreement terminates on a date other than the first day of a quarter, this fee shall be due on the date of termination and it shall be prorated to reflect the partial quarter.
(d) Letter of Credit Fee . A non-refundable letter of credit fee equal to 1.00% per annum (or the pro rata portion thereof for the number of days in any period of less than a year that the applicable Letter of Credit is scheduled to be outstanding in accordance with its terms) of the face amount of each Letter of Credit which is a standby letter of credit plus standard documentation and issuance fees charged by Bank, payable on the issuance date of such Letter of Credit and thereafter annually in advance and fully earned upon payment of such fee.
3.1 Conditions Precedent to Initial Credit Extension .
The obligation of Bank to make the initial Credit Extension provided for hereunder, is subject to the fulfillment, to the satisfaction of Bank (the making of such initial extension of credit by Bank being conclusively deemed to be its satisfaction or waiver of the following), of each of the following conditions precedent:
(a) Bank shall have received a filing authorization, duly executed by each Borrower and each Guarantor, together with appropriate financing statements duly filed in such office or
3
offices as may be necessary or, in the opinion of Bank, desirable to perfect the Banks Liens in and to the Collateral, and Bank shall have received searches reflecting the filing of all such financing statements;
(b) Bank shall have received each of the following documents, in form and substance satisfactory to Bank, duly executed, and each such document shall be in full force and effect:
(i) the Control Agreements,
(ii) the Intercompany Subordination Agreement,
(iii) the Stock Pledge Agreements, together with all certificates representing the shares of Stock pledged thereunder, as well as Stock powers with respect thereto endorsed in blank,
(iv) the Joint and Several Borrower Rider,
(v) the Negative Pledge Agreement,
(vi) the Guaranties, and
(vii) the Security Agreements.
(c) Bank shall have received borrowing resolutions from the Secretary of each Borrower and Guarantor (i) attesting to the resolutions of each such Persons Board of Directors (or other governing body) authorizing its execution, delivery, and performance of this Agreement and the other Loan Documents to which such Person is a party, (ii) authorizing specific officers of such Person to execute the same, and (iii) attesting to the incumbency and signatures of such specific officers of such Person;
(d) Bank shall have received copies of the Governing Documents, as amended, modified, or supplemented to the Effective Date, of each Borrower and Guarantor certified by the applicable Secretary of each such Person;
(e) Bank shall have received a certificate of status with respect to each Borrower and Guarantor, dated within 10 days of the Effective Date, such certificate to be issued by the appropriate officer of the jurisdiction of organization of such Person, which certificate shall indicate that such Person is in good standing in such jurisdiction;
(f) Bank shall have received certificates of status with respect to the Company and 3D California, each dated within 30 days of the Effective Date, such certificates to be issued by (i) in the case of the Company, the Colorado and California Secretaries of State and (ii) the case of 3D California, the Colorado Secretary of State, and which certificates shall indicate that each such Person is in good standing in such jurisdictions;
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(g) Bank shall have received a certificate of insurance, together with the endorsements thereto, as are required by Section 6.5 , the form and substance of which shall be satisfactory to Bank;
(h) Bank shall have received an opinion of Gibson, Dunn & Crutcher LLP, special counsel to the Borrowers, in form and substance satisfactory to Bank;
(i) Bank shall have received satisfactory evidence (including a certificate of the chief financial officer of the Company) that all tax returns required to be filed by the Company and its Subsidiaries have been timely filed, and all taxes shown upon such returns as due have been paid and all other taxes upon each of the Company and its Subsidiaries or their properties, assets, income, and franchises (including Real Property taxes, sales taxes, and payroll taxes) have been paid prior to delinquency, except (i) those taxes being contested in good faith, through appropriate proceedings and for which the relevant Borrower has established adequate reserves under GAAP or (ii) to the extent the failure to file any such tax returns or pay any such tax could not reasonably be expected to result in a Material Adverse Change;
(j) the Company shall have paid all Bank Expenses incurred in connection with the transactions contemplated by this Agreement, to the extent invoices therefor have been presented to the Company; and
(k) all other documents and legal matters in connection with the transactions contemplated by this Agreement shall have been delivered, executed, or recorded and shall be in form and substance satisfactory to Bank.
3.2 Conditions Precedent to all Credit Extensions.
Banks obligations to make each Credit Extension, including the initial Credit Extension, is subject to the following:
(a) timely receipt of any Payment/Advance Form; and
(b) the representations and warranties in Section 5 must be materially true on the date of the Payment/Advance Form and on the effective date of each Credit Extension and no Event of Default may have occurred and be continuing, or result from the Credit Extension. Each Credit Extension is Borrowers representation and warranty on that date that the representations and warranties of Section 5 remain materially true.
3.3 Condition Subsequent .
The obligation of Bank to continue to make Advances (or otherwise extend credit hereunder) is subject to fulfillment, on or before the date applicable thereto of the condition subsequent set forth below (the failure by Borrowers to so perform or caused to be performed constituting an Event of Default):
(a) Bank shall have received a Collateral Access Agreement with respect to the premises located at 26081 Avenue Hall, Valencia, CA 91355 within 90 days of the date hereof.
5
4. CREATION OF SECURITY INTEREST
4.1 Grant of Security Interest.
Each of the Company and 3D California grants Bank a continuing security interest in all presently existing and later acquired Collateral to secure all Obligations and the performance of each of Borrowers duties under the Loan Documents. Except for Permitted Liens, any security interest will be a first priority security interest in the Collateral. Unless otherwise agreed by the Borrower on whose name the applicable account is maintained and Bank, Bank may place a hold on any deposit account pledged as Collateral solely after the occurrence and during the continuance of an Event of Default. If this Agreement is terminated, Banks lien and security interest in the Collateral will continue until Borrower fully satisfies its Obligations (other than contingent indemnification obligations, which obligations shall survive the release of Banks lien and security interest in the Collateral).
4.2 Authorization of File .
Each Borrower authorizes Bank to file financing statements without notice to such Borrower, with all appropriate jurisdictions, as Bank deems appropriate, in order to perfect or protect Banks interest in the Collateral.
5. REPRESENTATIONS AND WARRANTIES
As of the Effective Date and on the date of each Advance, each Borrower represents and warrants as follows:
5.1 Due Organization and Authorization.
The Company and each Subsidiary is duly existing and in good standing in its state of formation and qualified and licensed to do business in, and in good standing in, any state in which the conduct of its business or its ownership of property requires that it be qualified, except where the failure to do so could not reasonably be expected to cause a Material Adverse Change. Within the last five years, neither Borrower has changed its state of formation or its organizational structure or type or any organizational number (if any) assigned by its jurisdiction of formation.
The execution, delivery and performance of the Loan Documents have been duly authorized, and do not conflict with the formation documents of either Borrower, nor constitute an event of default under any material agreement by which Borrower is bound. Neither Borrower is in default under any agreement to which or by which it is bound in which the default could reasonably be expected to cause a Material Adverse Change.
5.2 Collateral.
Each of the Borrowers has good title to the Collateral, free of Liens except Permitted Liens or such Borrower has Rights to each asset that is Collateral. Neither of the Borrowers has any other deposit account, other than the deposit accounts described in the Schedule. The
6
Accounts reflected on the Companys consolidated balance sheet (subject to the reserves against such Accounts described therein) are bona fide, existing obligations. The Collateral is not in the possession of any third party bailee (such as at a warehouse), other than as described in the Schedule. In the event that a Borrower, after the date hereof, intends to store or otherwise deliver the Collateral to such a bailee, then such Borrower will contemporaneously therewith notify Bank and, if such bailee holds more than $500,000 in Collateral, such bailee must acknowledge in writing that the bailee is holding such Collateral for the benefit of Bank. All Inventory shown on the Companys consolidated financial statements (net of reserves for obsolete and slow moving items shown thereon) is of a quality and quantity usable in the ordinary course of business of the Company and its Subsidiaries.
Each Borrower owns all the patents, trademarks, permits, service marks, trade names, copyrights, licenses, franchises and formulas, or rights with respect to the foregoing, or each has obtained licenses or assignments of all other rights of whatever nature necessary for the present conduct of its businesses, without any known conflict with the rights of others which, or the failure to obtain which, as the case may be, would reasonably be expected to result in a Material Adverse Change.
5.4 Litigation.
Except as shown in the Schedule, there are no actions or proceedings pending or, to the knowledge of the Companys Responsible Officers, threatened by or against the Company or any Subsidiary in which a likely adverse decision could reasonably be expected to cause a Material Adverse Change.
5.5 No Material Adverse Change in Financial Statements.
All consolidated financial statements for the Company, delivered to Bank fairly present in all material respects the Companys consolidated financial condition and its consolidated results of operations. There has not been any Material Adverse Change in the Companys consolidated financial condition since the date of the most recent financial statements submitted to Bank.
5.6 Solvency.
The fair salable value of the assets of the Company and its Subsidiaries, on a consolidated basis, (including goodwill minus disposition costs) exceeds the fair value of their liabilities, on a consolidated basis; the Company and its Subsidiaries, on a consolidated basis, are not left with unreasonably small capital after the transactions contemplated by this Agreement; and each Borrower is able to pay its debts (including trade debts) as they mature.
(a) Neither Borrower is an investment company or a company controlled by an investment company under the Investment Company Act. Neither Borrower is engaged as one
7
of its important activities in extending credit for margin stock (under Regulations T and U of the Federal Reserve Board of Governors).
(b) Each Borrower has complied in all material respects with the Federal Fair Labor Standards Act, except where the failure to so comply could not reasonably be expected to result in a Material Adverse Change.
(c) Each Borrower has not violated any laws, ordinances or rules governing such Borrower, the violation of which could reasonably be expected to cause a Material Adverse Change.
(d) Except as set forth in Schedule 5.7 attached hereto, none of the Companys or any Subsidiarys properties or assets has been used by the Company or any Subsidiary or, to the best of the Companys knowledge, by previous Persons, in disposing, producing, storing, treating, or transporting any hazardous substance other than legally or in any other manner which could not reasonably be expected to result in a Material Adverse Change.
(e) The Company and each Subsidiary have timely filed all tax returns required to be filed by the Company and its Subsidiaries, all taxes shown upon such returns as due have been paid and all other material taxes upon each of the Company and its Subsidiaries or their properties, assets, income, and franchises (including Real Property taxes, sales taxes, and payroll taxes) have been paid prior to delinquency, except (i) those taxes being contested in good faith, through appropriate proceedings and for which the relevant Borrower has established adequate reserves under GAAP or (ii) to the extent the failure to file any such tax returns or pay any such tax could not reasonably be expected to result in a Material Adverse Change.
(f) The Company and each Subsidiary have obtained all consents, approvals and authorizations of, made all declarations or filings with, and given all notices to, all government authorities that are necessary to continue its business as currently conducted, except where the failure to do so could not reasonably be expected to result in a Material Adverse Change.
5.8 Subsidiaries.
Neither Borrower owns any Stock, partnership interest or other equity securities except for Permitted Investments.
5.9 Full Disclosure.
No written representation, warranty or other statement of either Borrower in any certificate or written statement given to Bank (taken together with all such written certificates and written statements to Bank) contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained in the certificates or statements not misleading, it being recognized by Bank that the projections and forecasts provided by the Company have been provided by the Company in good faith and based upon reasonable assumptions that are not to be viewed as facts and that actual results during the period or periods covered by such projections and forecasts may differ from the projected and forecasted results.
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Each Borrower will do all of the following for so long as Bank has an obligation to lend, or there are outstanding Obligations:
Each Borrower will maintain its and all Subsidiaries legal existence and good standing in its jurisdiction of formation and maintain qualification in each jurisdiction in which the failure to so qualify would reasonably be expected to result in a Material Adverse Change, except for the Subsidiaries listed in Schedule 6.1 and such other Subsidiaries as are no longer useful to the conduct of the Companys consolidated business. Each Borrower will comply, and have each Subsidiary comply, with all laws, ordinances and regulations to which it is subject, noncompliance with which could have a material adverse effect on Borrowers business or operations or would reasonably be expected to cause a Material Adverse Change.
6.2 Financial Statements , Reports, Certificates.
(a) The Company will deliver to Bank: (i) a company prepared consolidated and consolidating balance sheet and income statement and consolidated statement of cash flows covering the Companys consolidated operations during the period, certified by a Responsible Officer and in a form acceptable to Bank as soon as available, but no later than the earlier of: (y) 45 days after the last day of each fiscal quarter (excluding the Companys fourth fiscal quarter), or (z) within 5 days after the filing of such financial statements with the Securities and Exchange Commission (SEC); (ii) as soon as available, but no later than 90 days after the last day of the Companys fiscal year, audited consolidated financial statements prepared under GAAP, consistently applied, together with an unqualified opinion on the financial statements from an independent certified public accounting firm reasonably acceptable to Bank; (iii) as soon as available, but no later than 90 days after the last day of the Companys fiscal year, a company prepared consolidating balance sheet and income statement covering the Companys consolidated operations during the fiscal year, certified by a Responsible Officer, (iv) within 5 days after filing, copies of all reports on Form 10-K, 10-Q and 8-K filed with the SEC; (v) a prompt report of any legal actions pending or threatened in writing against the Company or any Subsidiary that could reasonably be expected to result in damages or costs to the Company or any Subsidiary of $1,000,000 or more; (vi) as soon as available but no later than 30 days after the end of each fiscal year the Companys financial projections for the upcoming year and, following approval thereof by the Companys Board of Directors written notice of such approval together with a description of any material deviations from the projections delivered to the Bank; (vii) budgets, sales projections, operating plans or other financial information Bank reasonably requests; and (viii) prompt notice of any material change in the composition of the Intellectual Property, including any subsequent ownership right of the Company or a domestic Subsidiary in or to any material (in the Companys good faith business judgment) registered Copyright, Patent or Trademark not shown in any intellectual property security agreement between Borrower and Bank or knowledge of an event that materially adversely affects the value of the Intellectual Property.
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(b) Within 45 days after the last day of each fiscal quarter, the Company will deliver to Bank with the quarterly financial statements a Compliance Certificate signed by a Responsible Officer in the form of Exhibit C.
(c) Bank has the right to audit the Collateral at the Companys expense, but the audits will be conducted no more often than every six months unless an Event of Default has occurred and is continuing.
6.3 Inventory ; Returns.
All Inventory shown on the Companys consolidated financial statements (net of reserves for obsolete and slow moving items shown thereon) will be of a quality and quantity usable in the ordinary course of business of the Company and its Subsidiaries and presented with a value thereon at the lesser of cost or the net realizable value thereof, as determined in accordance with GAAP. Returns and allowances between each Borrower and its account debtors will follow such Borrowers customary practices as they exist at execution of this Agreement. Each Borrower must promptly notify Bank of all returns, recoveries, disputes and claims, that involve more than $2,000,000 in the aggregate for which provision have not already been made in the Companys consolidated financial statements.
6.4 Taxes.
The Company will make, and cause each Subsidiary to make, timely payment of all federal, state, and local taxes or assessments and will deliver to Bank, promptly on demand, appropriate certificates attesting to the payment thereof, except to the extent (i) such taxes are being contested in good faith, through appropriate proceedings and adequate reserves have been established under GAAP or (ii) the failure to pay any such tax could not reasonably be expected to result in a Material Adverse Change.
6.5 Insurance.
Each Borrower will keep its business adequately insured as determined by the Company in the exercise of its prudent business judgment, provided that any such insurance policies shall be of the type and provide coverage substantially similar to other insurance policies maintained by companies in Borrowers industry. All property policies will have a lenders loss payable endorsement showing Bank as an additional loss payee and all liability policies will show the Bank as an additional insured and provide that the insurer must give Bank at least 20 days notice before canceling its policy. At Banks request, each Borrower will deliver certified copies of policies and evidence of all premium payments. Proceeds payable under any policy providing coverage for property losses will, at Banks option following the occurrence and during the continuance of an Event of Default, be payable to Bank on account of the Obligations. At any time during which an Event of Default does not then exist, all proceeds in respect of casualty insurance shall be advanced to the Company or its Subsidiaries to be used solely for the prompt repair or replacement of the damaged or destroyed property that gave rise to casualty claim.
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6.6 Location of Inventory and Equipment .
The Company and its domestic Subsidiaries may relocate assets in the ordinary course of business, which assets are located, as of the Effective Date, primarily at the locations identified on Schedule 6.6 . The Company and its domestic Subsidiaries agree that each thereof will endeavor to provide Bank with prior written notice of any change in the location of their assets or promptly following any such change, except if related to any transfer of assets between locations identified on Schedule 6.6 or in-transit to account debtors. The Company will give Bank 10 Business Days prior written notice of any change in the chief executive office of the Company or any domestic Subsidiary, which chief executive office is, as of the Effective Date, identified on Schedule 6.6(b) .
The Borrowers will maintain their primary depository, operating, and investment accounts with Bank. The foregoing notwithstanding, Bank understands and agrees that (i) the Borrowers currently maintain their primary depository, operating and investment accounts with U.S. Bank, (ii) the Borrowers will continue to maintain such accounts while the Borrowers notify their account debtors and transition the collection of Accounts from U.S. Bank to Bank and (iii) the retention of such accounts is not a default under this Agreement.
The Company will maintain, on a consolidated basis, as of the last day of each calendar quarter (unless otherwise indicated):
(i) Quick Ratio (Adjusted) . (a) as of June 30, 2004, as of September 30, 2004, and as of December 31, 2004, a ratio of Quick Assets to Adjusted Current Liabilities of at least 0.90 to 1.00 and (b) as of March 31, 2005, and as of the last day of each calendar quarter thereafter, a ratio of Quick Assets to Adjusted Current Liabilities of at least 1.00 to 1.00.
(ii) Minimum Deposits . At all times Revolving Obligations equal or exceed $5,000,000, the Company shall maintain, on a consolidated basis, unrestricted cash and cash equivalents in investments and deposit accounts maintained in financial institutions within the United States equal to or greater than an amount equal to the product of: (i) the Revolving Obligations multiplied by (ii) 0.6667.
(iii) Adjusted Total Liabilities/Tangible Net Worth Ratio . If there are any Advances outstanding under Section 2.1.1 as of the last day of such calendar quarter, (a) as of June 30, 2004, as of September 30, 2004, and as of December 31, 2004, a ratio of (y) Total Liabilities less Subordinated Debt to (z) Tangible Net Worth, of not more than 2.10 to 1:00 and (b) as of March 31, 2005, and as of the last day of each calendar quarter thereafter a ratio of (y) Total Liabilities less Subordinated Debt to (z) Tangible Net Worth, of not more than 2.00 to 1.00.
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(iv) Tangible Net Worth . If there are any Advances outstanding under Section 2.1.1 as of the last day of such calendar quarter, a Tangible Net Worth of at least the sum of: (i) $20,000,000 plus (ii) the TNW Additions.
(v) Domestic Tangible Assets . Domestic Tangible Assets of not less than 25% of the Adjusted Tangible Assets.
6.9 Registration of Intellectual Property Rights.
Neither Borrower shall register any Copyrights with the United States Copyright Office unless it has given at least fifteen (15) days prior notice to Bank of its intent to register such Copyrights and has provided Bank with a copy of the application it intends to file with the United States Copyright Office (excluding exhibits thereto). Each Borrower shall promptly provide to Bank a copy of the Copyright application(s) filed with the United States Copyright Office, together with evidence of the recording of the security documents necessary for Bank to maintain the perfection and priority of its security interest in such Copyrights.
6.10 Control Agreements .
With respect to deposit accounts or investment accounts maintained at financial institutions (other than Bank) located within the United States, within 30 days of the opening of any such deposit account or investment account, the Borrower that is the account holder will execute and deliver to Bank, a Control Agreement in form satisfactory to Bank in order for Bank to perfect its security interest in such Borrowers deposit accounts or investment accounts; provided , however , that each Borrower may maintain deposit accounts or investment accounts that are not the subject of a Control Agreement so long as the aggregate average credit balances maintained in all such accounts does not exceed $500,000.
6.11 Further Assurances .
Each Borrower will execute any further instruments and take further action as Bank reasonably requests to perfect or continue Banks security interest in the Collateral or to effect the purposes of this Agreement, provided, however, that unless requested by Bank neither Borrower shall be required to deliver certificates of title to Bank in respect of any equipment so certificated.
Each Borrower will not do any of the following and will not allow any of its Subsidiaries to do any of the following without Banks prior written consent, which will not be unreasonably withheld:
7.1 Dispositions .
Convey, sell, lease, transfer or otherwise dispose of (collectively Transfer), or permit any of its Subsidiaries to Transfer, all or any part of its business or property, other than Transfers (i) of Inventory in the ordinary course of business; (ii) of non-exclusive licenses and similar
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arrangements for the use of the property of the Company or its Subsidiaries in the ordinary course of business; (iii) of worn-out or obsolete Equipment or Equipment no longer used or useful in the business of the Company and its Subsidiaries; (iv) between the Company and any Subsidiary thereof or between Subsidiaries, in each case in the ordinary course of business or otherwise such that a violation of the financial covenant set forth in Section 6.8(v) could not reasonably be expected to result; (v) not in the ordinary course of business in an amount not to exceed, in the aggregate in any one fiscal year, the greater of: (y) $5,000,000 or (z) 5% of the Companys consolidated assets (determined in accordance with GAAP) based on the Companys financial statements for the fiscal year ended immediately prior to the date of such Transfer; and (vii) other Transfers of real property in an amount not to exceed $5,000,000 in the aggregate during the term of this Agreement.
7.2 Changes in Business , Ownership, Management or Locations of Collateral.
Engage in any business other than the businesses currently engaged in by the Company or its Subsidiaries or reasonably related, complementary or incidental thereto or are reasonable extensions thereof. Neither Borrower will relocate its chief executive office to a location outside of the United States or change its state of formation (including reincorporation) to a jurisdiction outside of the United States. Neither Borrower will, without at least 10 Business Days prior written notice thereof being provided to the Bank, relocate its chief executive office to a location within the United States, change its state of formation (including reincorporation to a jurisdiction within the United States), or change its organizational number or name.
7.3 Mergers or Acquisitions .
Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with any other Person, or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the Stock or property of another Person, except (A) where (i) no Event of Default has occurred and is continuing or would result from such action, (ii) the aggregate value of such transactions does not exceed $5,000,000 in any one calendar year, (iii) a Borrower or one of their Subsidiaries is the surviving entity after any such transaction has been consummated and, in the case of a transaction involving a Borrower or Guarantor, the surviving entity has assumed the Obligations of the corresponding Borrower or Guarantor pursuant to documentation reasonably acceptable to Bank, (iv) the security interests of Bank, if any, have attached to the domestic assets of the surviving entity, unless both parties to the subject transaction were foreign Subsidiaries, and (v) such transaction would not result in a decrease of more than 25% of Tangible Net Worth; (B) in connection with an acquisition or merger that constitutes a Permitted Investment; and (C) any Subsidiary may merge into or consolidate with a Borrower or another directly or indirectly wholly owned Subsidiary of the Company.
7.4 Indebtedness .
Create, incur, assume, or be liable for any Indebtedness, or permit any Subsidiary to do so, other than Permitted Indebtedness.
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7.5 Encumbrance .
Create, incur, or allow any Lien on any of its property, or assign or convey any right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries to do so, except for Permitted Liens, or permit any Collateral not to be subject to the first priority security interest granted here, subject to Permitted Liens.
7.6 Distributions ; Investments.
Directly or indirectly acquire or own any Person, or make any Investment in any Person, other than Permitted Investments, or permit any of its Subsidiaries to do so. Pay any dividends or make any distribution or payment on or in respect of its Stock or redeem, retire or purchase any Stock, except that provided no Event of Default has occurred, is continuing or would exist after giving effect to any of the following, the Company may: (i) repurchase Stock from former employees, consultants, or directors of the Company under the terms of applicable repurchase agreements, restricted Stock plans, (ii) make distributions or pay dividends solely in the Stock of the Company or a Subsidiary, (iii) repurchase Stock or outstanding Stock options so long as the funds for such repurchases are derived from the proceeds of substantially concurrent Stock or convertible securities issuances, (iv) redeem Stock pledged as collateral for loans to employees outstanding as of the Effective Date, (v) pay dividends and distributions made by any of Borrowers Subsidiaries to the holders of its Stock, (vi) repurchase Stock in connection with the exercise of Stock options or Stock appreciation rights so long as the consideration for such repurchases is not cash, (vii) repurchase Stock in order to allow the seller of such Stock to pay withholding tax obligations arising out of the purchase of such Stock, (viii) repurchase factional shares resulting from Stock splits, dividends, or purchases of businesses otherwise permitted herein, and (ix) pay cash dividends required to be paid to holders of Series B Preferred Stock. The foregoing notwithstanding, the Company may redeem its Series B Preferred Stock at any time or from time to time after May 6, 2006, so long as (i) no Event of Default then exists or would result after giving effect to such redemption and (ii) after giving pro forma effect to such redemption, the Company is in compliance with Section 6.8
7.7 Intentionally Omitted .
7.8 Subordinated Debt .
Make or permit any payment on any Subordinated Debt, except under the terms of the Subordinated Debt, or amend any provision in any document relating to the Subordinated Debt in any material respect that is adverse to Bank, without Banks prior written consent, which consent shall not be unreasonably withheld ; provided, however, that the Company may redeem all or any portion of its $10,000,000 aggregate principal amount of 7.0% convertible subordinated debentures at any time or from time to time after December 31, 2004 so long as (i) no Event of Default then exists or would result after giving effect to such redemption and (ii) after giving pro forma effect to such redemption, the Company is in compliance with Section 6.8.
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7.9 Compliance .
Become an investment company or a company controlled by an investment company, under the Investment Company Act of 1940 or undertake as one of its important activities extending credit to purchase or carry margin Stock, or use the proceeds of any Credit Extension for that purpose; fail to meet the minimum funding requirements of ERISA, permit a Reportable Event or Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the Federal Fair Labor Standards Act or violate any other law or regulation, if in any such case such failure or violation would reasonably be expected to cause a Material Adverse Change, or permit any of its Subsidiaries to do so.
Any one of the following is an Event of Default:
8.1 Payment Default .
If either Borrower fails to pay any of the Obligations within 3 days after their due date. During the additional period the failure to cure the default is not an Event of Default (but no Credit Extension will be made during the cure period);
8.2 Covenant Default .
(a) If the Company fails to perform any obligation under Section 6.8 or either Borrower violates any of the covenants contained in Section 7 of this Agreement, or
(b) If either Borrower fails or neglects to perform, keep, or observe any other material term, provision, condition, covenant, or agreement contained in this Agreement or in any of the Loan Documents and as to any default under such other term, provision, condition, covenant or agreement that can be cured, has failed to cure such default within ten (10) Business Days after the earlier to occur of (y) the Companys knowledge of such default and (z) the Banks written notice to the Company of such default; provided, however, that if the default cannot by its nature be cured within the ten (10) day period or cannot after diligent attempts by the applicable Borrower be cured within such ten (10) day period, and such default is likely to be cured within a reasonable time, then Borrower shall have an additional reasonable period (which shall not in any case exceed thirty (30) days) to attempt to cure such default, and within such reasonable time period the failure to have cured such default shall not be deemed an Event of Default (provided that no Credit Extensions will be made during such cure period);
8.3 Material Adverse Change .
If there (i) occurs a material adverse change in the business operations, or condition (financial or otherwise) of the Company and its Subsidiaries, on a consolidated basis; or (ii) is a material impairment of the prospect of repayment of any portion of the Obligations; or (iii) is a material impairment of the value or priority of Banks security interests in the Collateral (the foregoing being referred to as a Material Adverse Change).
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8.4 Attachment .
If any material portion of the assets of the Borrowers is attached, seized, levied on, or comes into possession of a trustee or receiver and the attachment, seizure or levy is not removed in 10 days, or if either Borrower is enjoined, restrained, or prevented by court order from conducting a material part of its business or if a judgment or other claim becomes a Lien on a material portion of the assets of the Borrowers, or if a notice of lien, levy, or assessment is filed against any of the assets of the Borrowers by any government agency and not paid within 10 days after Borrower receives notice, in each case to the extent any such lien is not a Permitted Lien. These are not Events of Default if stayed or if a bond is posted pending contest by Borrower (but no Credit Extensions will be made during the cure period);
8.5 Insolvency .
If either Borrower begins an Insolvency Proceeding or an Insolvency Proceeding is begun against a Borrower and not dismissed or stayed within 60 days (but no Credit Extensions will be made before any Insolvency Proceeding is dismissed) or either Borrower fails generally to pay its debts as they become due;
8.6 Other Agreements .
If there is a default in any agreement: (a) between a Borrower and a third party that gives the third party the right to accelerate any Indebtedness exceeding $1,000,000 (which right has not been waived), (b) other than the Loan Documents, between a Borrower and the Bank that gives the Bank the right to accelerate any Indebtedness exceeding $500,000 (which right has not been waived), or (c) between the Borrower and any party (including the Bank) that would reasonably be expected to result in a Material Adverse Change;
8.7 Judgments .
If a money judgment(s) not covered by insurance (issued by a solvent insurance company) in the aggregate of at least $1,000,000 is rendered against Borrowers or either of them and is unsatisfied, unstayed, unbonded pending appeal, for 30 days (but no Credit Extensions will be made before the judgment is stayed or satisfied);
8.8 Misrepresentations .
If either Borrower or any Person acting for either Borrower makes any material misrepresentation or material misstatement now or later in any warranty or representation in this Agreement or in any writing delivered to Bank pursuant to this Agreement or to induce Bank to enter this Agreement or any Loan Document; or
8.9 Change in Control .
If there occurs a Change in Control.
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8.10 Guaranty .
Any guaranty of any Obligations ceases for any reason to be in full force or any Guarantor does not perform any obligation under any guaranty of the Obligations, or any material misrepresentation or material misstatement exists now or later in any warranty or representation in any guaranty of the Obligations or in any certificate delivered to Bank in connection with the guaranty, or any circumstance described in Sections 8.4, 8.5 or 8.7 occurs to any Guarantor and, in each case, a Material Adverse Change has occurred.
9.1 Rights and Remedies .
When an Event of Default occurs and continues Bank may, without notice or demand, do any or all of the following:
(a) Declare all Obligations immediately due and payable (but if an Event of Default described in Section 8.5 occurs all Obligations are immediately due and payable without any action by Bank);
(b) Stop advancing money or extending credit under this Agreement or under any other Loan Document;
(c) Settle or adjust disputes and claims directly with account debtors for amounts, on terms and in any order that Bank considers advisable; notify any Person owing either Borrower money of Banks security interest in the funds and verify the amount of the Account. The Borrowers must collect all payments in trust for Bank and, if requested by Bank, immediately deliver the payments to Bank in the form received from the account debtor, with proper endorsements for deposit;
(d) Make any payments and do any acts it considers necessary or reasonable to protect its security interest in the Collateral. The Borrowers will assemble the Collateral if Bank requires and make it available as Bank designates. Bank may enter premises where the Collateral is located, take and maintain possession of any part of the Collateral, and pay, purchase, contest, or compromise any Lien which appears to be prior or superior to its security interest and pay all expenses incurred. The Borrowers grant Bank a license to enter and occupy any of their premises, without charge, to exercise any of Banks rights or remedies;
(e) Apply to the Obligations any (i) balances and deposits of the Borrowers it holds, or (ii) any amount held by Bank owing to or for the credit or the account of either Borrower;
(f) Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell the Collateral. Bank is granted a non-exclusive, royalty-free license or other right to use, without charge, either Borrowers labels, Patents, Copyrights, rights of use of any name, trade secrets, trade names, Trademarks, service marks, and advertising matter, or any similar property as it pertains to the Collateral, in completing production of, advertising for sale, and selling any Collateral and, in connection with Banks exercise of its rights under this Section,
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each Borrowers rights under all licenses and all franchise agreements inure to Banks benefit; and
(g) Dispose of the Collateral according to the Code.
9.2 Power of Attorney .
Effective only when an Event of Default occurs and continues, each Borrower irrevocably appoints Bank as its lawful attorney to: (i) endorse such Borrowers name on any checks or other forms of payment or security; (ii) sign such Borrowers name on any invoice or bill of lading for any Account or drafts against account debtors, (iii) make, settle, and adjust all claims under such Borrowers insurance policies; (iv) settle and adjust disputes and claims about the Accounts directly with account debtors, for amounts and on terms Bank determines reasonable; and (v) transfer the Collateral into the name of Bank or a third party as the Code permits. Bank may exercise the power of attorney to sign each Borrowers name on any documents necessary to perfect or continue the perfection of any security interest regardless of whether an Event of Default has occurred. Banks appointment as each Borrowers attorney in fact, and all of Banks rights and powers, coupled with an interest, are irrevocable until all Obligations have been fully repaid and performed and Banks obligation to provide Credit Extensions terminates.
9.3 Intentionally Omitted.
9.4 Bank Expenses .
If (i) a Borrower fails to pay any amount or furnish any required proof of payment to third persons, in each case to the extent required to be paid or furnished hereunder, (ii) an Event of Default then exists, and (iii) the failure to make such payment impairs either Banks access to the Collateral or the value of the Collateral, Bank may make all or part of the payment or obtain insurance policies required in Section 6.5 or pay any other amounts required to preserve the Collateral, and take any action under insurance policies Bank deems prudent. Any amounts paid by Bank are Bank Expenses, are due and payable in accordance with Section 2.3(b) and will bear interest at the then applicable rate at all times starting on the sixth Business Day immediately following the due date of such Bank Expenses and will be secured by the Collateral. No payments by Bank are deemed an agreement to make similar payments in the future or Banks waiver of any Event of Default.
9.5 Banks Liability for Collateral .
If Bank complies with reasonable banking practices and Section 9-207 of the Code, it is not liable for: (a) the safekeeping of the Collateral; (b) any loss or damage to the Collateral; (c) any diminution in the value of the Collateral; or (d) any act or default of any carrier, warehouseman, bailee, or other person. The Borrowers bear all risk of loss, damage or destruction of the Collateral.
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9.6 Remedies Cumulative .
Banks rights and remedies under this Agreement, the Loan Documents, and all other agreements are cumulative. Bank has all rights and remedies provided under the Code, by law, or in equity. Banks exercise of one right or remedy is not an election, and Banks waiver of any Event of Default is not a continuing waiver. Banks delay is not a waiver, election, or acquiescence. No waiver is effective unless signed by Bank and then is only effective for the specific instance and purpose for which it was given.
9.7 Demand Waiver .
Except for such notices and demands as are expressly provided for in the Loan Documents, the Borrowers waive demand, notice of default or dishonor, notice of payment and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement, extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees held by Bank on which the Borrowers are liable.
10. NOTICES
All notices or demands by any party about this Agreement or any other related agreement must be in writing and be personally delivered or sent by an overnight delivery service, by certified mail, postage prepaid, return receipt requested, or by telefacsimile to the addresses set forth at the beginning of this Agreement. A party may change its notice address by giving the other party written notice.
11. CHOICE OF LAW , VENUE AND JURY TRIAL WAIVER
California law governs the Loan Documents without regard to principles of conflicts of law. Each Borrower and Bank each submit to the exclusive jurisdiction of the State and Federal courts in Santa Clara County, California.
EACH BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR EACH OF SUCH PARTIES TO ENTER INTO THIS AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.
12.1 Successors and Assigns .
This Agreement binds and is for the benefit of the successors and permitted assigns of each party. Neither Borrower may assign this Agreement or any rights under it without Banks prior written consent which may be granted or withheld in Banks discretion. Bank has the right, without the consent of or notice to either Borrower, to sell, transfer, negotiate, or grant
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participation in all or any part of, or any interest in, Banks obligations, rights and benefits under this Agreement; provided, however, that with respect to the sale of a participation interest (i) Bank shall remain the Bank for all purposes of this Agreement and the other Loan Documents and the participant receiving the participating interest in the Obligations and the other rights and interests of Bank hereunder shall not constitute a Bank hereunder or under the other Loan Documents and Banks obligations under this Agreement shall remain unchanged, (ii) Bank shall remain solely responsible for the performance of such obligations, (iii) the Borrowers and the Bank shall continue to deal solely and directly with each other Bank in connection with Banks rights and obligations under this Agreement and the other Loan Documents, (iv) Bank shall not transfer or grant any participating interest under which the participant has the right to approve any amendment to, or any consent or waiver with respect to, this Agreement or any other Loan Document, except to the extent such amendment to, or consent or waiver with respect to this Agreement or of any other Loan Document would (A) extend the final maturity date of the Obligations hereunder in which such participant is participating, (B) reduce the interest rate applicable to the Obligations hereunder in which such participant is participating, (C) release all or substantially all of the Collateral or guaranties (except to the extent expressly provided herein or in any of the Loan Documents) supporting the Obligations hereunder in which such participant is participating, (D) postpone the payment of, or reduce the amount of, the interest or fees payable to such participant through Bank, or (E) change the amount or due dates of scheduled principal repayments or prepayments or premiums, and (v) all amounts payable by the Borrowers hereunder shall be determined as if Bank had not sold such participation. The rights of any participant only shall be derivative through Bank and no participant shall have any rights under this Agreement or the other Loan Documents or any direct rights as to either Borrower, any Guarantor, the Collateral, or otherwise in respect of the Obligations. No participant shall have the right to participate directly in the making of decisions by Bank.
12.2 Indemnification .
The Borrowers will jointly and severally indemnify, defend and hold harmless Bank and its officers, employees, and agents against: (a) all obligations, demands, claims, and liabilities asserted by any other party in connection with the transactions contemplated by the Loan Documents and (b) all losses or Bank Expenses incurred, or paid by Bank from, following, or consequential to transactions between Bank and the Borrowers or any actions of Bank in connection with or relating to this Agreement or any other Loan Document (including reasonable attorneys fees and expenses), except for losses caused by Banks gross negligence or willful misconduct, subject to the provisions of Section 12.9.
12.3 Time of Essence .
Time is of the essence for the performance of all obligations in this Agreement.
12.4 Severability of Provision .
Each provision of this Agreement is severable from every other provision in determining the enforceability of any provision.
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12.5 Amendments in Writing , Integration.
All amendments to this Agreement must be in writing and signed by the Borrowers and Bank. This Agreement and the Loan Documents represent the entire agreement about this subject matter, and supersede prior negotiations or agreements. All prior agreements, understandings, representations, warranties, and negotiations between the parties about the subject matter of this Agreement merge into this Agreement and the Loan Documents.
12.6 Counterparts .
This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, are an original, and all taken together, constitute one Agreement.
12.7 Survival .
All covenants, representations and warranties made in this Agreement continue in full force while any Obligations remain outstanding. The obligations of the Company in Section 12.2 to indemnify Bank will survive until all statutes of limitations for actions that may be brought against Bank have run; provided , however , if all Obligations have been paid in full (other than contingent indemnification obligations) Bank will release all liens upon and security interests in the Collateral.
12.8 Confidentiality .
In handling any confidential information, Bank will exercise the same degree of care that it exercises for its own proprietary information, but disclosure of information may be made (i) to Banks subsidiaries or affiliates in connection with their business with Borrower, (ii) to prospective transferees or purchasers of any interest in the loans (provided, however, Bank shall use commercially reasonable efforts in obtaining such prospective transferee or purchasers agreement of the terms of this provision), (iii) as required by law, regulation, subpoena, or other order, (iv) as required in connection with Banks examination or audit and (v) as Bank considers appropriate exercising remedies under this Agreement. Confidential information does not include information that either: (a) is in the public domain or in Banks possession when disclosed to Bank, or becomes part of the public domain after disclosure to Bank; or (b) is disclosed to Bank by a third party, if Bank does not know that the third party is prohibited from disclosing the information.
12.9 Attorneys Fees , Costs and Expenses.
In any action or proceeding between Borrower and Bank arising out of the Loan Documents, the prevailing party will be entitled to recover its reasonable attorneys fees and other reasonable costs and expenses incurred, in addition to any other relief to which it may be entitled.
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13. DEFINITIONS
13.1 Definit ions.
In this Agreement:
Accounts are all existing and later arising accounts, contract rights, and other obligations owed to a Borrower in connection with its sale or lease of goods (including licensing software and other technology) or provision of services, all credit insurance, guaranties, other security and all merchandise returned or reclaimed by such Borrower and such Borrowers Books relating to any of the foregoing.
Adjusted Current Liabilities is the sum of: (i) the aggregate amount of the Companys Total Liabilities (on a consolidated basis) which mature within one (1) year plus (ii) Revolving Obligations not already included under (i), minus (iii) the principal amount, if any, of loan obligations funded by industrial revenue bonds previously classified as long-term debt which have been re-classified as short-term debt according to GAAP as a result of any planned sale of a facility securing the payment of obligations owing to the holders of such industrial revenue bonds.
Adjusted Tangible Assets means, at any date on a consolidated basis, the total assets of the Company and its Subsidiaries minus the aggregate amount of intangible assets of the Company and its Subsidiaries.
Advance or Advances is a loan advance (or advances) under the Committed Revolving Line.
Affiliate of a Person is a Person that owns or controls directly or indirectly the Person, any Person that controls or is controlled by or is under common control with the Person, and each of that Persons senior executive officers, directors, partners and, for any Person that is a limited liability company, that Persons managers and members.
Bank Expenses are all reasonable audit fees and expenses and reasonable costs and expenses (including reasonable attorneys fees and expenses) for preparing, negotiating, administering, defending and enforcing the Loan Documents (including appeals or Insolvency Proceedings).
Borrowers Books are all books and records maintained by a Borrower including ledgers, records regarding a Borrowers assets or liabilities, the Collateral, business operations or financial condition and all computer programs or discs or any equipment containing the information.
Business Day is any day that is not a Saturday, Sunday or a day on which the Bank is permitted to be closed.
Change of Control is (i) any transaction in which any person or group (within the meaning of Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended)
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other than the current owners of more than five percent (5%) of the shares of any class of Stock then outstanding of the Company becomes the beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended), directly or indirectly, of greater than thirty five percent (35%) of the shares of all classes of Stock then outstanding of the Company ordinarily entitled to vote in the election of directors or (ii) if any Subsidiary ceases to be 100% owned, directly or indirectly, by the Company, except as a result of a transaction permitted by Section 7.1 or 7.3.
Code is the California Uniform Commercial Code.
Collateral is the property described on Exhibit A .
Collateral Access Agreement means a landlord waiver, bailee letter, or acknowledgement agreement of any lessor, warehouseman, processor, consignee, or other Person in possession of, having a Lien upon, or having rights or interests in Borrowers Books, Equipment, or Inventory, in each case, in form and substance satisfactory to Bank.
Committed Revolving Line is Banks commitment to lend up to $15,000,000.
Company means 3D Systems Corporation, a Delaware corporation.
Contingent Obligation is, for any Person, any direct or indirect liability, contingent or not, of that Person for (i) any indebtedness, lease, dividend, letter of credit or other obligation of another such as an obligation directly or indirectly guaranteed, endorsed, co-made, discounted or sold with recourse by that Person, or for which that Person is directly or indirectly liable; (ii) any obligations for undrawn letters of credit for the account of that Person; and (iii) all obligations from any interest rate, currency or commodity swap agreement, interest rate cap or collar agreement, or other agreement or arrangement designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; but Contingent Obligation does not include endorsements in the ordinary course of business. The amount of a Contingent Obligation is the stated or determined amount of the primary obligation for which the Contingent Obligation is made or, if not determinable, the maximum reasonably anticipated liability for it determined by the Person in good faith; but the amount may not exceed the maximum of the obligations under the guarantee or other support arrangement.
Control Agreement means a control agreement, in form and substance satisfactory to Bank, executed and delivered by the Borrower that holds the applicable account, Bank, and the applicable securities intermediary (with respect to a securities account) or bank (with respect to a deposit account).
Copyrights are all copyright rights, applications or registrations and like protections in each work or authorship or derivative work, whether published or not (whether or not it is a trade secret) now or later existing, created, acquired or held.
Credit Extension is each Advance, outstanding Letter of Credit, FX Forward Contract, or any other extension of credit by Bank for a Borrowers benefit.
23
Daily Balance is, with respect to each day during the term of this Agreement, the amount of Revolving Obligations outstanding at the end of such day.
Domestic Tangible Assets means, at any date, the sum of (i) the combined assets located in the United States of the Company, 3D California, and the Guarantors, minus (ii) assets of the Company and its domestic Subsidiaries consisting of net investment in or receivables from Subsidiaries outside the United States minus (iii) the combined amount of intangible assets of the Company and its domestic Subsidiaries.
Effective Date is the date in which the Bank executes this Agreement.
Equipment is all present and future machinery, equipment, tenant improvements, furniture, fixtures, vehicles, tools, parts and attachments in which a Borrower has any interest.
ERISA is the Employment Retirement Income Security Act of 1974, and its regulations.
FX Forward Contract is defined in Section 2.1.3.
FX Reserve is defined in Section 2.1.3.
GAAP is generally accepted accounting principles in the United States.
Guaranties means the guaranties executed and delivered by the Guarantors for the benefit of Bank, in form and substance satisfactory to Bank.
Guarantors means (i) 3D Holdings LLC, a Delaware limited liability company, (ii) 3D Systems Asia Pacific, Ltd., a California corporation, and (iii) 3D Capital Corporation, a California corporation.
Indebtedness is (a) indebtedness for borrowed money or the deferred price of property or services, such as reimbursement and other obligations for surety bonds and letters of credit, (b) obligations evidenced by notes, bonds, debentures or similar instruments, (c) capital lease obligations and (d) Contingent Obligations.
Insolvency Proceeding are proceedings by or against any Person under the United States Bankruptcy Code, or any other applicable bankruptcy or insolvency law, including assignments for the benefit of creditors, compositions, extensions generally with its creditors, or proceedings seeking reorganization, arrangement, or other similar relief.
Intellectual Property is:
(a) Copyrights, Trademarks, Patents, including amendments, renewals, extensions, and all licenses or other rights to use and all license fees and royalties from the use;
(b) Any trade secrets and any intellectual property rights in computer software and computer software products now or later existing, created, acquired or held;
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(c) All design rights which may be available to a Borrower now or later created, acquired or held;
(d) Any claims for damages (past, present or future) for infringement of any of the rights above, with the right, but not the obligation, to sue and collect damages for use or infringement of the intellectual property rights above;
All proceeds and products of the foregoing, including all insurance, indemnity or warranty payments.
Inventory is present and future inventory in which a Borrower has any interest, including merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products intended for sale or lease or to be furnished under a contract of service, of every kind and description now or later owned by or in the custody or possession, actual or constructive, of such Borrower, including inventory temporarily out of its custody or possession or in transit and including returns on any accounts or other proceeds (including insurance proceeds) from the sale or disposition of any of the foregoing and any documents of title.
Investment is any beneficial ownership of (including Stock, partnership interests or other securities) any Person, or any loan, advance or capital contribution to any Person.
Letter of Credit is defined in Section 2.1.2.
Lien is a mortgage, lien, deed of trust, charge, pledge, security interest or other encumbrance.
Loan Documents are, collectively, this Agreement, any note, or notes or guaranties executed by a Borrower or Guarantor, and any other present or future agreements between a Borrower or Guarantor and/or for the benefit of Bank in connection with this Agreement, all as amended, extended or restated.
Material Adverse Change is defined in Section 8.3.
Obligations are debts, principal, interest, Bank Expenses and other amounts either Borrower owes Bank now or later, letters of credit and foreign exchange contracts, if any and including interest accruing after Insolvency Proceedings begin and debts, liabilities, or obligations of either Borrower assigned to Bank under the Loan Documents.
Patents are patents, patent applications and like protections, including improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same.
Permitted Indebtedness is:
(a) Borrowers indebtedness to Bank under this Agreement or any other Loan Document;
25
(b) Indebtedness existing on the Effective Date and shown on the Schedule;
(c) Subordinated Debt;
(d) Indebtedness owing by a Borrower or any Subsidiary to any other Subsidiary or Borrower;
(e) Indebtedness consisting of the financing of insurance premiums in the ordinary course of business consistent with past practices;
(f) Indebtedness relating to documentary letters of credit;
(g) Indebtedness relating to surety bonds and similar obligations incurred in the ordinary course of business;
(h) Indebtedness consisting of interest rate, currency, or commodity swap agreements, interest rate cap or collar agreements or arrangements designated to protect a Person against fluctuations in interest rates, currency exchange rates or commodity prices;
(i) Indebtedness to trade creditors incurred in the ordinary course of business;
(j) Indebtedness consisting of capitalized leases and purchase money Indebtedness secured by Permitted Liens;
(k) Indebtedness incurred in connection with the administration of the cash management systems of Subsidiaries that are not Borrowers or Guarantors, so long as the net Indebtedness in respect thereof does not exceed $3,000,000 at any one time outstanding; and
(l) Extensions, refinancings, modifications, amendments and restatements of any items of Permitted Indebtedness set forth in (a) through (k) above, provided that the principal amount thereof is not increased or the terms thereof are not modified to impose more burdensome terms (when considered as a whole) upon the obligors thereunder, except for payment of any reasonable premium or other reasonable amount paid in connection with such refinancing or increase in principal equal to any commitment existing but unutilized as of the date of such refinancing;
Permitted Investments are:
(a) Investments shown on the Schedule and existing on the Effective Date;
(b) (i) marketable direct obligations maturing within 1 year from their acquisition and issued or unconditionally guaranteed by the United States, any of its agencies, any State, the United Kingdom, Germany, Japan, Italy, or France, (ii) commercial paper maturing no more than 2 years after its creation and having the highest rating from either Standard & Poors Corporation or Moodys Investors Service, Inc., (iii) a banks certificates of deposit issued maturing no more than 2 years after issue, (iv) deposit accounts and investment accounts, so long as the assets maintained in such accounts are liquid and, with respect to accounts in the United States and then
26
only to the extent required hereby, Bank has obtained, with respect to each such account, a control agreement reasonably satisfactory to Bank in order to perfect its security interest therein;
(c) Investments made in accordance with the Companys written investment policy approved by the Companys Board of Directors and delivered to Bank on or about the Effective Date;
(d) Investments by a Borrower or Subsidiary in any other Subsidiary or Borrower;
(e) [Intentionally Omitted];
(f) [Intentionally Omitted];
(g) [Intentionally Omitted];
(h) Investments consisting of (i) (A) travel advances, (B) employee relocation loans and (C) other employee loans and advances in the ordinary course of business, and (ii) loans to employees, officers or directors relating to the purchase of equity securities of the Company or its Subsidiaries pursuant to employee Stock purchase plans or agreements approved by the Companys Board of Directors;
(i) Investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, financially troubled customers or suppliers arising in the ordinary course of business;
(j) Investments (including debt obligations) received in exchange for Permitted Investments after the bankruptcy, reorganization, or restructuring of the issuer of the original Permitted Investment;
(k) Investments resulting from a Borrowers exercise of its remedies (including foreclosure) with regards to collateralized Permitted Investments;
(l) Investments consisting of extensions of credit in the nature of accounts receivable, prepaid royalties, or notes receivable arising from the sale or lease of goods;
(m) Investments in the ordinary course of business in Patents, research and development, software development or other similar matters so long as such Investments are capitalized in accordance with GAAP;
(n) Investments consisting of interest rate, currency, or commodity swap agreement, interest rate cap or collar agreements or arrangements designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices;
(o) Investment in respect of non-cash consideration received in connection with an asset disposition not prohibited hereby; and
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(p) Investments in Persons to the extent resulting from deposits made to secure payment of workers compensation, employment insurance, old age pensions, social security or other like obligations incurred in the ordinary course of business.
Permitted Liens are:
(a) Liens existing on the Effective Date and shown on the Schedule or arising under this Agreement or other Loan Documents;
(b) Liens for taxes, fees, assessments or other government charges or levies, either not delinquent or being contested in good faith and for which the Company maintains adequate reserves on its consolidated Books, so long as they have no priority over any of Banks security interests;
(c) Liens (including with respect to capital leases) (i) on property (including accessions, additions, parts, replacements, fixtures, improvements and attachments thereto, and the proceeds thereof) acquired by the Company or its Subsidiaries incurred for financing property including accessions, additions, parts, replacements, fixtures, improvements and attachments thereto, and the proceeds thereof), or (ii) existing on property (including accessions, additions, parts, replacements, fixtures, improvements and attachments thereto, and the proceeds thereof) when acquired, if the Lien under either (i) or (ii) above is confined to such property (including accessions, additions, parts, replacements, fixtures, improvements and attachments thereto, and the proceeds thereof);
(d) Licenses or sublicenses granted in the ordinary course of the Companys business and any interest or title of a licensor under any license or sublicense;
(e) Leases or subleases granted in the ordinary course of the Companys business, including in connection with the leased premises or leased property of the Company or any of its Subsidiaries;
(f) Liens on insurance proceeds, return of premiums, and dividends which may become due in connection with the Companys insurance policies, in each case securing the payment of financed insurance premiums for such policies;
(g) Liens consisting of pledges of cash, cash equivalents or government securities to secure swap or foreign exchange contracts or letters of credit;
(h) Liens incurred in the extension, renewal or refinancing of the indebtedness secured by Liens described in (a) through (g), but any extension, renewal or replacement Lien must be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness may not increase;
(i) deposits to secure the performance of bids, trade contracts (other than for borrowed money), contracts for the purchase of property, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case, incurred in the ordinary course of business and not representing an obligation for borrowed money;
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(j) Liens arising from judgments, decrees or attachments in circumstances not constituting an Event of Default under Section 8.4 or 8.7;
(k) carriers, warehousemens, mechanics, materialmens, repairmens or other like Liens arising in the ordinary course of business which are not overdue for a period of more than 30 days or which are being contested in good faith and by appropriate proceedings if adequate reserves with respect thereto are maintained on the books of the applicable Person;
(l) Liens or deposits to secure payment of workers compensation, employment insurance, old age pensions, social security or other like obligations incurred in the ordinary course of business;
(m) easements, rights-of-way, restrictions and other similar encumbrances affecting real property which, in the aggregate, are not substantial in amount, and which do not in any case materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business of the applicable Person;
(n) customary Liens in favor of a trustee to secure fees and other amounts owing to such trustee under an indenture or other similar agreement; and
(o) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods.
Person is any individual, sole proprietorship, partnership, limited liability company, joint venture, company association, trust, unincorporated organization, association, corporation, institution, public benefit corporation, firm, joint stock company, estate, entity or government agency.
Quick Assets is, on any date, on a consolidated basis, the Companys consolidated, unrestricted cash, cash equivalents and Accounts reflected on the Companys consolidated financial statements (net of reserves therefor), as determined according to GAAP.
Responsible Officer is each of the Chief Executive Officer, the President, the Chief Financial Officer, Vice President of Finance, and the Controller of the Company.
Revolving Maturity Date is July 1, 2006.
Revolving Obligations as of the date of determination the sum of: (i) the aggregate principal amount of all outstanding Advances; plus (ii) the face amount of all outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit), plus (iii) the outstanding FX Reserve.
Rights as applied to the Collateral, means a Borrowers rights and interests in, and powers with respect to, that Collateral, whatever the nature of those rights, interests and powers and, in any event, including such Borrowers power to transfer rights in such Collateral to Bank.
Schedule is any attached schedule of exceptions.
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SEC is defined in Section 6.2.
Security Agreements means the Security Agreements executed by each of the Guarantors, securing the obligations of such Guarantor under the applicable Guaranty.
Stock means all shares, options, warrants, interests, participations, or other equivalents (regardless of how designated) of or in a Person, whether voting or nonvoting, including common stock, preferred stock, or any other equity security (as such term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the SEC under the Securities Exchange Act of 1934, as in effect from time to time).
Stock Pledge Agreements means: (i) a stock pledge agreement, in form and substance satisfactory to Bank, executed and delivered by 3D Holdings LLC to Bank with respect to the pledge of the Stock of 3D California owned by 3D Holdings LLC and (ii) a stock pledge agreement, in form and substance satisfactory to Bank, executed and delivered by 3D California to Bank with respect to the pledge of 65% of the Stock of 3D Californias foreign Subsidiaries.
Subordinated Debt is: (i) those certain 7% convertible subordinated debentures, issued on or about December 19, 2001 in the aggregate principal amount of $10,000,000, (ii) those certain 6% convertible subordinated debentures, issued in November and December 2003 in the aggregate principal amount of $22,704,000, and (iii) other debt incurred by the Company or any of its Subsidiaries and that which is expressly subordinated to all indebtedness owed to Bank under the Loan Documents in a written agreement in a manner and form acceptable to Bank and approved by Bank in writing.
Subsidiary is for any Person, or any other business entity of which more than 50% of the voting Stock or other equity interests is owned or controlled, directly or indirectly, by the Person or one or more Affiliates of the Person.
Tangible Net Worth is, on any date, the difference, on a consolidated basis, of: (A) the sum of (i) the Companys consolidated net worth, plus (ii) issued and outstanding preferred Stock, plus (iii) Subordinated Debt, minus , (B) the sum of any amounts attributable to (a) goodwill, plus (b) intangible items such as unamortized debt discount and expense, Patents, trade and service marks and names, Copyrights, acquired technology, licenses, research and development expenses except prepaid expenses, and any other assets classified as intangible assets in accordance with GAAP.
TNW Additions means, on a consolidated basis, the cumulative sum (for all quarters ending after the Effective Date but prior to the date of determination) of: (i) 50% of after-tax income available to common shareholders with no deduction for losses, plus (ii) 75% of equity (or equity equivalent) infusions, plus (iii) without duplication of the increase set forth in the (i) and (ii) above, 75% of after-tax net income available to common shareholders that is attributable to a reversal in the allowance for net deferred taxes.
Total Liabilities is on any day, obligations that should, under GAAP, be classified as liabilities on the Companys consolidated balance sheet, including all Indebtedness, and current
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portion Subordinated Debt due in accordance with its terms within 12 months, but excluding all other Subordinated Debt.
Trademarks are trademark and servicemark rights, registered or not, applications to register and registrations and like protections, and the entire goodwill of the business of Assignor connected with the trademarks.
3D California is defined in the Preamble.
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BORROWER:
3D SYSTEMS CORPORATION,
a Delaware corporation
By: |
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/s/ Fred R. Jones |
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Title: |
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Vice President |
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3D SYSTEMS, INC,
a California corporation
By: |
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/s/ Fred R. Jones |
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Title: |
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Vice President |
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S-1
[Signature Page to Loan Agreement]
BANK:
SILICON VALLEY BANK
By: |
/s/ Mark Turk |
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Title: |
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Senior Vice President |
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Effective Date: |
6/30/04 |
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S-2
[Signature Page to Loan Agreement]
EXHIBIT A
The Collateral consists of all of each Borrowers right, title and interest in and to the following whether owned now or hereafter arising and whether the Borrower has rights now or hereafter has rights therein and wherever located:
All goods and equipment now owned or hereafter acquired, including, without limitation, all machinery, fixtures, vehicles (including motor vehicles and trailers), and any interest in any of the foregoing, and all attachments, accessories, accessions, replacements, substitutions, additions, and improvements to any of the foregoing, wherever located;
All inventory, now owned or hereafter acquired, including, without limitation, all merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products including such inventory as is held for sale or lease, or to be furnished under a contract of service or is temporarily out of Borrowers custody or possession or in transit and including any returns or repossession upon any accounts or other proceeds, including insurance proceeds, resulting from the sale or disposition of any of the foregoing and any documents of title representing any of the above;
All contract rights and general intangibles now owned or hereafter acquired, including, without limitation, purchase orders, customer lists, route lists, claims, computer discs, computer tapes, literature, reports, catalogs, income tax refunds, payments of insurance, payment intangibles, and rights to payment of any kind, but excluding therefrom all Intellectual Property (as hereinafter defined);
All now existing and hereafter arising accounts (including health-care insurance receivables), contract rights, royalties, license rights and all other forms of obligations owing to Borrower arising out of the sale or lease of goods, the licensing of technology or the rendering of services by Borrower, whether or not earned by performance, and any and all credit insurance, insurance (including refunds) claims and proceeds, guaranties, and other security therefor, as well as all merchandise returned to or reclaimed by Borrower;
All documents (including negotiable documents), cash, deposit accounts, securities (provided, however, that with respect to foreign subsidiaries, no more than 65% of the outstanding Stock of such subsidiary is Collateral for purposes of this Agreement), securities entitlements, securities accounts, investment property, financial assets, letters of credit, letter of credit rights, money, certificates of deposit, instruments (including promissory notes) and chattel paper (including tangible and electronic chattel paper) now owned or hereafter acquired and Borrowers Books relating to the foregoing; and
All Borrowers Books relating to the foregoing, and the computers and equipment containing said books and records, and any and all claims, rights and interests in any of the above and all substitutions for, additions and accessions to and proceeds thereof.
Notwithstanding the foregoing, the Collateral shall not be deemed to include:
A-1
(a) any copyrights, copyright applications, copyright registration and like protection in each work of authorship and derivative work thereof, whether published or unpublished, now owned or hereafter acquired; any patents, patent applications and like protections including without limitation improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same, trademarks, servicemarks and applications therefor, whether registered or not, and the goodwill of the business of Borrower connected with and symbolized by such trademarks, any trade secret rights, including any rights to unpatented inventions, know-how, operating manuals, license rights and agreements and confidential information, now owned or hereafter acquired; or any claims for damage by way of any past, present and future infringement of any of the foregoing (collectively, the Intellectual Property), except that the Collateral shall include the proceeds of all the Intellectual Property that are accounts, (i.e. accounts receivable) of Borrower, or general intangibles consisting of rights to payment, if a judicial authority (including a U.S. Bankruptcy Court) holds that a security interest in the underlying Intellectual Property is necessary to have a security interest in such accounts and general intangibles of Borrower that are proceeds of the Intellectual Property, then the Collateral shall automatically, and effective as of the Effective Date, include the Intellectual Property to the extent necessary to permit perfection of Banks security interest in such accounts and general intangibles of Borrower that are proceeds of the Intellectual Property.
(b) any license or contract rights to the extent (i) the granting of a security interest in it would be contrary to applicable law, or (ii) that such rights are nonassignable by their terms (but only to the extent such prohibition is enforceable under applicable law, including, without limitation, Section 9406, 9407, 9408, and 9409 of the Code) without the consent of the licensor or other party (but only to the extent such consent has not been obtained).
(c) any equipment or other property in which a Borrower has Rights or the power to transfer Rights and in which a lien or security interest was granted to secure the Companys obligations under or in respect of the transactions entered into in connection with the $4.9 million original aggregate principal amount loan made by Mesa County, Colorado to 3D Systems Corporation with the proceeds of the $4.9 million variable rate demand industrial development revenue bonds, series 1996 (3D Systems Corporation Project), including, without limitation, all property in which a lien or security interest was granted to Mesa County, Colorado, the trustee under the indenture governing the industrial development revenue bonds and the letter of credit bank that issued (or issues) a letter of credit to support the repayment of such bonds.
A-2
EXHIBIT A-1
LIBOR SUPPLEMENT
TO
LOAN AND SECURITY AGREEMENT
This LIBOR Supplement to Loan and Security Agreement (the Supplement) is a supplement to Loan and Security Agreement (the Loan Agreement) dated as of the Effective Date between SILICON VALLEY BANK (Bank), on the one hand, and 3D SYSTEMS CORPORATION, a Delaware corporation and certain of its Subsidiaries set forth in the signature pages hereto (collectively, joint and severally, Borrower), on the other hand, and forms a part of and is incorporated into the Loan Agreement.
1. Definitions .
Business Day means a day of the year (a) that is not a Saturday, Sunday or other day on which banks in the State of California or the City of London are authorized or required to close and (b) on which dealings are carried on in the interbank market in which Bank customarily participates.
Interest Period means for each LIBOR Rate Loan, a period of approximately one, two, or three months as the Borrower may elect, provided that the last day of an Interest Period for a LIBOR Rate Loan shall be determined in accordance with the practices of the LIBOR interbank market as from time to time in effect, provided , further , in all cases such period shall expire not later than the Revolving Maturity Date.
Interest Rate shall mean as to: (a) Prime Rate Loans, a rate per annum equal to the Prime Rate; and (b) LIBOR Rate Loans, a rate per annum equal to the LIBOR Rate (based on the LIBOR Rate applicable for the Interest Period selected by the Borrower) plus the LIBOR Rate Margin.
LIBOR Base Rate means, for any Interest Period for a LIBOR Rate Loan, the rate of interest per annum determined by Bank to be the per annum rate of interest as which deposits in United States Dollars are offered to Bank in the London interbank market in which Bank customarily participates at 11:00 A.M. (local time in such interbank market) two (2) Business Days before the first day of such Interest Period for a period approximately equal to such Interest Period and in an amount approximately equal to the amount of such Loan.
LIBOR Rate shall mean, for any Interest Period for a LIBOR Rate Loan, a rate per annum (rounded upwards, if necessary, to the nearest 1/16 of 1%) equal to (i) the LIBOR Base Rate for such Interest Period divided by (ii) 1 minus the Reserve Requirement for such Interest Period.
LIBOR Rate Loans means any Advances made or a portion thereof on which interest is payable based on the LIBOR Rate in accordance with the terms hereof.
LIBOR Rate Margin means 275 basis points (2.75%).
A-1-1
Prime Rate means the variable rate of interest per annum, most recently announced by Bank as its prime rate, whether or not such announced rate is the lowest rate available from Bank. The interest rate applicable to the Prime Rate Loans shall change on each date there is a change in the Prime Rate.
Prime Rate Loans means any Advances made or a portion thereof on which interest is payable based on the Prime Rate in accordance with the terms hereof.
Regulatory Change means, with respect to Bank, any change on or after the date of this Loan Agreement in United States federal, state or foreign laws or regulations, including Regulation D, or the adoption or making on or after such date of any interpretations, directives or requests applying to a class of lenders including Bank of or under any United States federal or state, or any foreign, laws or regulations (whether or not having the force of law) by any court or governmental or monetary authority charged with the interpretation or administration thereof.
Reserve Requirement means, for any Interest Period, the average maximum rate at which reserves (including any marginal, supplemental or emergency reserves) are required to be maintained during such Interest Period under Regulation D against Eurocurrency liabilities (as such term is used in Regulation D) by member banks of the Federal Reserve System. Without limiting the effect of the foregoing, the Reserve Requirement shall reflect any other reserves required to be maintained by Bank by reason of any Regulatory Change against (i) any category of liabilities which includes deposits by reference to which the LIBOR Rate is to be determined as provided in the definition of LIBOR Base Rate or (ii) any category of extensions of credit or other assets which include Loans.
2. Requests for Loans; Confirmation of Initial Loans . Each LIBOR Rate Loan shall be made upon the irrevocable written request of Borrower by facsimile or telephone received by Bank not later than 11:00 a.m. (Santa Clara, California time) on the Business Day three (3) Business Days prior to the date such Loan is to be made. Each such notice shall specify the date such LIBOR Rate Loan is to be made, which day shall be a Business Day; the amount of such LIBOR Rate Loan, the Interest Period for such LIBOR Rate Loan, and comply with such other requirements as Bank determines are reasonable or desirable in connection therewith.
Borrower must promptly confirm each request for a LIBOR Rate Loan in writing in the form of a LIBOR Rate Loan Borrowing Certificate as set forth on Exhibit A-2, which shall be duly executed by the Borrower.
Each Prime Rate Loan shall be made upon the irrevocable request of Borrower by facsimile or telephone received by Bank not later than 12:00 noon (Santa Clara, California time) one (1) Business Day prior to the date such Loan is to be made. Borrower must promptly confirm the notification by delivering to Bank the Payment/Advance Form attached as Exhibit B . Each such notice shall specify the date such Prime Rate Loan is to be made, which day shall be a Business Day and the amount of such Prime Rate Loan, and comply with such other requirements as Bank determines are reasonable or desirable in connection therewith. The amount of each Prime Rate Loan shall be $1,000,000 or such greater amount which is an integral multiple of $1,000,000.
A-1-2
Bank may make either LIBOR Rate Loans or Prime Rate Loans under the Loan Agreement based on instructions from a Responsible Officer or his or her designee or without instructions as a Prime Rate Loan if such Prime Rate Loan is necessary to meet Obligations which have become due. Bank may rely on any telephone notice given by a person whom Bank believes is a Responsible Officer or designee. Borrower will indemnify Bank for any loss Bank suffers due to such reliance.
All LIBOR Rate Loans and Prime Rate Loans shall be credited to Borrowers deposit account.
3. Conversion/Continuation of Loans .
(a) Borrower may from time to time submit in writing a request that Prime Rate Loans be converted to LIBOR Rate Loans or that any existing LIBOR Rate Loans continue for an additional Interest Period. Such request shall specify the amount of the Prime Rate Loans which will constitute LIBOR Rate Loans (subject to the limits set forth below) and the Interest Period to be applicable to such LIBOR Rate Loans. Each written request for a conversion to a LIBOR Rate Loan or a continuation of a LIBOR Rate Loan shall be substantially in the form of a LIBOR Rate Conversion/Continuation Certificate as set forth on Exhibit A-2, which shall be duly executed by the Borrower. Subject to the terms and conditions contained herein, three (3) Business Days after Banks receipt of such a request from Borrower, such Prime Rate Loans shall be converted to LIBOR Rate Loans or such LIBOR Rate Loans shall continue, as the case may be provided that:
(i) no Event of Default or event which with notice or passage of time or both would constitute an Event of Default exists;
(ii) no party hereto shall have sent any notice of termination of this Supplement or of the Loan Agreement.
(iii) Borrower shall have complied with such customary procedures as Bank has established from time to time for Borrowers requests for LIBOR Rate Loans;
(iv) no more than ten LIBOR Rate Loans shall be outstanding at any one time;
(v) the amount of a LIBOR Rate Loan shall be $1,000,000 or such greater amount which is an integral multiple of $1,000,000; and
(vi) Bank shall have determined that the Interest Period or LIBOR Rate is available to Bank which can be readily determined as of the date of the request for such LIBOR Rate Loan.
Any request by Borrower to convert Prime Rate Loans to LIBOR Rate Loans or continue any existing LIBOR Rate Loans shall be irrevocable. Notwithstanding anything to the contrary contained herein, Bank shall not be required to purchase United States Dollar deposits in the London interbank market or other applicable LIBOR Rate market to fund any LIBOR Rate Loans, but the provisions hereof shall be deemed to apply as if Bank had purchased such deposits to fund the LIBOR Rate Loans.
A-1-3
(a) Any LIBOR Rate Loans shall automatically convert to Prime Rate Loans upon the last day of the applicable Interest Period, unless Bank has received and approved a complete and proper request to continue such LIBOR Rate Loan at least three (3) Business Days prior to such last day in accordance with the terms hereof. Any LIBOR Rate Loans shall, at Banks option, convert to Prime Rate Loans in the event that (i) an Event of Default, or event which with the notice or passage of time or both would constitute an Event of Default, shall exist, in which case such LIBOR Rate Loan shall convert at Banks option, to a Prime Rate Loan upon the expiration of such LIBOR Rate Loan, (ii) this Supplement or the Loan Agreement shall terminate, or (iii) the aggregate principal amount of the Prime Rate Loans which have previously been converted to LIBOR Rate Loans, or the aggregate principal amount of existing LIBOR Rate Loans continued, as the case may be, at the beginning of an Interest Period shall at any time during such Interest Period exceeds the Committed Line. Borrower agrees to pay to Bank, upon demand by Bank (or Bank may, at its option, charge Borrowers loan account) any amounts required to compensate Bank for any loss (excluding, however, loss of anticipated profits), cost or expense incurred by such person, as a result of the conversion of LIBOR Rate Loans to Prime Rate Loans pursuant to any of the foregoing
4. Additional Requirements/Provisions Regarding LIBOR Rate Loans; Etc.
(a) If for any reason (including voluntary or mandatory prepayment or acceleration), Bank receives all or part of the principal amount of a LIBOR Rate Loan prior to the last day of the Interest Period for such Loan, Borrower shall immediately notify Borrowers account officer at Bank and, on demand by Bank, pay Bank the amount (if any) by which (i) the interest at the LIBOR Rate applicable to the amount so received exceeds (ii) the interest which would have been recoverable by Bank by placing the amount so received on deposit in the certificate of deposit markets or the offshore currency interbank markets or United States Treasury investment products, as the case may be, for a period starting on the date on which it was so received and ending on the last day of such Interest Period at the interest rate determined by Bank in its reasonable discretion. Banks determination as to such amount shall be conclusive absent manifest error.
(b) Borrower shall pay to Bank, upon demand by Bank, from time to time such amounts as Bank may determine to be necessary to compensate it for any costs incurred by Bank that Bank determines are attributable to its making or maintaining of any amount receivable by Bank hereunder in respect of any Loans relating thereto (such increases in costs and reductions in amounts receivable being herein called Additional Costs), in each case resulting from any Regulatory Change which:
(i) changes the basis of taxation of any amounts payable to Bank under this Supplement in respect of any Loans (other than changes which affect taxes measured by or imposed on the overall net income of Bank by the jurisdiction in which such Bank has its principal office); or
A-1-4
(ii) imposes or modifies any reserve, special deposit or similar requirements relating to any extensions of credit or other assets of, or any deposits with or other liabilities of Bank (including any Loans or any deposits referred to in the definition of LIBOR Base Rate); or
(iii) imposes any other condition affecting this Supplement (or any of such extensions of credit or liabilities).
Bank will notify Borrower of any event occurring after the date of the Loan Agreement which will entitle Bank to compensation pursuant to this section as promptly as practicable after it obtains knowledge thereof and determines to request such compensation. Bank will furnish Borrower with a statement setting forth the basis and amount of each request by Bank for compensation under this Section 4. Determinations and allocations by Bank for purposes of this Section 4 of the effect of any Regulatory Change on its costs of maintaining its obligations to make Loans or of making or maintaining Loans or on amounts receivable by it in respect of Loans, and of the additional amounts required to compensate Bank in respect of any Additional Costs, shall be conclusive absent manifest error.
(c) Borrower shall pay to Bank, upon the request of Bank, such amount or amounts as shall be sufficient (in the sole good faith opinion of such Bank) to compensate it for any loss, costs or expense incurred by it as a result of any failure by Borrower to borrow a Loan on the date for such borrowing specified in the relevant notice of borrowing hereunder.
(d) If Bank shall determine that the adoption or implementation of any applicable law, rule, regulation or treaty regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by Bank (or its applicable lending office) or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on capital of Bank or any person or entity controlling Bank (a Parent) as a consequence of its obligations hereunder to a level below that which Bank (or its Parent) could have achieved but for such adoption, change or compliance (taking into consideration its policies with respect to capital adequacy) by an amount deemed by Bank to be material, then from time to time, within 15 days after demand by Bank, Borrower shall pay to Bank such additional amount or amounts as will compensate Bank for such reduction. A statement of Bank claiming compensation under this Section and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive absent manifest error.
(e) If at any time Bank, in its sole and absolute discretion, determines that: (i) the amount of the LIBOR Rate Loans for periods equal to the corresponding Interest Periods are not available to Bank in the offshore currency interbank markets, or (ii) the LIBOR Rate does not accurately reflect the cost to Bank of lending the LIBOR Rate Loan, then Bank shall promptly give notice thereof to Borrower, and upon the giving of such notice Banks obligation to make the LIBOR Rate Loans shall terminate, unless Bank and the Borrower agree in writing to a different interest rate applicable to LIBOR Rate Loans. If it shall become unlawful for Bank to continue to fund or maintain any Loans, or to perform its obligations hereunder, upon demand by
A-1-5
Bank, Borrower shall prepay the Loans in full with accrued interest thereon and all other amounts payable by Borrower hereunder (including, without limitation, any amount payable in connection with such prepayment pursuant to Section 4(a) of this Exhibit A-1 ).
A-1-6
EXHIBIT A-2
LIBOR RATE LOAN BORROWING CERTIFICATE
The undersigned hereby certifies as follows:
I, , am the duly elected and acting of 3D SYSTEMS CORPORATION, a Delaware corporation (Requesting Borrower).
This certificate is delivered pursuant to Section 2 of that certain LIBOR Supplement to Loan and Security Agreement together with the Loan and Security Agreement by and between 3D SYSTEMS CORPORATION, a Delaware corporation and certain of its Subsidiaries set forth in the signature pages hereto (collectively, joint and severally, Borrower), on the one hand, and Silicon Valley Bank (Bank), on the other hand (the Loan Agreement). The terms used in this Borrowing Certificate which are defined in the Loan Agreement have the same meaning herein as ascribed to them therein.
Requesting Borrower hereby requests on , 20 a LIBOR Rate Loan as follows:
(a) The date on which the LIBOR Rate Loan is to be made is , 20 .
(b) The amount of the LIBOR Rate Loan is to be ($ ), for an Interest Period of month(s).
All representations and warranties of Borrower stated in the Loan Agreement are true, correct and complete in all material respects as of the date of this request for a LIBOR Rate Loan; provided, however, that those representations and warranties expressly referring to another date shall be true, correct and complete in all material respects as of such date.
IN WITNESS WHEREOF, this LIBOR Rate Loan Borrowing Certificate is executed by the undersigned as of this day of , 20 .
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3D SYSTEMS CORPORATION, |
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a Delaware corporation |
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By: |
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Title: |
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For Internal Bank Use Only
LIBOR Pricing Date |
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LIBOR Rate |
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LIBOR Rate Variance |
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Maturity Date |
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% |
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A-2-1
EXHIBIT A-3
LIBOR RATE CONVERSION/CONTINUATION CERTIFICATE
The undersigned hereby certifies as follows:
I, , am the duly elected and acting of 3D SYSTEMS CORPORATION, a Delaware corporation (Requesting Borrower).
This certificate is delivered pursuant to Section 2 of that certain LIBOR Supplement to Loan and Security Agreement together with the Loan and Security Agreement by and between 3D SYSTEMS CORPORATION, a Delaware corporation and certain of its Subsidiaries set forth in the signature pages hereto (collectively, joint and severally, Borrower), on the one hand, and Silicon Valley Bank (Bank), on the other hand (the Loan Agreement). The terms used in this LIBOR Rate Conversion/Continuation Certificate which are defined in the Loan Agreement have the same meaning herein as ascribed to them therein.
Requesting Borrower hereby requests on , 20 a LIBOR Rate Loan (the Loan) as follows:
(a) |
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(i) A rate conversion of an existing Prime Rate Loan from a Prime Rate Loan to a LIBOR Rate Loan; or |
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(ii) A continuation of an existing LIBOR Rate Loan as a LIBOR Rate Loan; |
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[Check (i) or (ii) above] |
(b) The date on which the LIBOR Rate Loan is to be made is 20 .
(c) The amount of the LIBOR Rate Loan is to be ($ ), for an Interest Period (if applicable) of month(s).
A-3-1
IN WITNESS WHEREOF, this LIBOR Rate Conversion/Continuation Certificate is executed by the undersigned as of this day of , 20 .
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3D SYSTEMS CORPORATION, |
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a Delaware corporation |
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By: |
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Title: |
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For Internal Bank Use Only
LIBOR Pricing Date |
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LIBOR Rate |
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LIBOR Rate Variance |
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Maturity Date |
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% |
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A-3-2
EXHIBIT B
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 12:00 NOON., P.S.T.
TO: CENTRAL CLIENT SERVICE DIVISION |
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DATE: |
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FAX#: (408) 496-2426 |
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TIME: |
FROM: 3D SYSTEMS CORPORATION
CLIENT NAME (BORROWER)
LOAN NUMBER:
REQUESTED BY:
AUTHORIZED SIGNERS NAME
AUTHORIZED SIGNATURE:
PHONE NUMBER:
FROM ACCOUNT # TO ACCOUNT #
REQUESTED TRANSACTION TYPE |
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REQUESTED DOLLAR AMOUNT |
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PRINCIPAL INCREASE (ADVANCE) |
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$ |
PRINCIPAL PAYMENT (ONLY) |
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$ |
INTEREST PAYMENT (ONLY) |
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$ |
PRINCIPAL AND INTEREST (PAYMENT) |
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$ |
OTHER INSTRUCTIONS:
All Borrowers representations and warranties in the Loan and Security Agreement are true, correct and complete in all material respects on the date of the telephone request for an Advance confirmed by this Borrowing Certificate; but those representations and warranties expressly referring to another date shall be true, correct and complete in all material respects as of that date.
BANK USE ONLY
TELEPHONE REQUEST :
The following person is authorized to request the loan payment transfer/loan advance on the advance designated account and is known to me.
B-1
Authorized Requester |
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Received By (Bank) |
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Phone # |
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Authorized Signature (Bank) |
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B-2
EXHIBIT C
COMPLIANCE CERTIFICATE
TO: |
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SILICON VALLEY BANK |
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FROM: |
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3D Systems Corporation |
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26081 Avenue Hall |
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Valencia CA 91355 |
The undersigned authorized officer of 3D Systems Corporation (Borrower) certifies that under the terms and conditions of the Loan and Security Agreement between Borrower and Bank (the Agreement), (i) Borrower is in complete compliance for the period ending with all required covenants except as noted below and (ii) all representations and warranties in the Agreement are true and correct in all material respects as of the date of this certificate. In addition, the undersigned authorized officer of Borrower certifies that Borrower and each Subsidiary (i) has timely filed all required tax returns and paid, or made adequate provision to pay, all material taxes, except those being contested in good faith with adequate reserves under GAAP and (ii) does not have any legal actions pending or threatened against Borrower or any Subsidiary which Borrower has not previously notified in writing to Bank. Attached are the required documents supporting the certification. The Officer certifies that these are prepared in accordance with Generally Accepted Accounting Principles (GAAP) consistently applied from one period to the next except as explained in an accompanying letter or footnotes. The Officer acknowledges that no borrowings may be requested at any time or date of determination that Borrower is not in compliance with any of the terms of the Agreement, and that compliance is determined not just at the date this certificate is delivered.
Please indicate compliance status by circling Yes/No under Complies column.
Reporting Covenant |
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Required |
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Complies |
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Quarterly financial statements + CC |
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Quarterly within 45 days |
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Yes |
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No |
Annual (Audited) |
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FYE within 90 days |
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Yes |
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No |
Annual Projections |
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Within 30 days after FYE |
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Yes |
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No |
Financial Covenant |
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Required |
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Actual |
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Complies |
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Maintain on a Quarterly Basis: |
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Minimum Quick Ratio (Adjusted): |
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On or before 9/30/2004 |
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.90:1.00 |
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:1.00 |
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Yes |
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No |
On and at all times after 12/31/2004 |
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1.00:1.00 |
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:1.00 |
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Yes |
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No |
Minimum Tangible Net Worth |
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$22,000,000(1) |
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$ |
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Yes |
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No |
Adjusted Total Liabilities to Tangible |
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Net Worth: |
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On or before 9/30/2004 |
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2.10:1.00 |
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:1.00 |
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Yes |
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No |
On and at all times after 12/31/2004 |
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2.00:1.00 |
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:1.00 |
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Yes |
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No |
Minimum Deposits |
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(if Revolving Obligations > $5,000,000) |
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66.67% of |
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Revolving Obligations |
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Yes |
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No |
Borrower only has deposit accounts located at the following institutions: .
(1) This number will increase by an amount equal to the TNW Additions.
C-1
Has Borrower filed any new Copyright applications? |
Yes / No |
Registered Copyrights: |
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BANK USE ONLY |
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Received by: |
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AUTHORIZED SIGNER |
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Date: |
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Verified: |
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AUTHORIZED SIGNER |
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Date: |
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Compliance Status: |
Yes No |
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Comments Regarding Exceptions: See Attached.
Sincerely,
3D Systems Corporation
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SIGNATURE |
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TITLE |
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DATE |
C-2
Exhibit 31.1
Certification of
Principal Executive Officer of
3D Systems Corporation
I, Abraham N. Reichental, 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 registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 registrants disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and
c) Disclosed in this quarterly report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting;
5. The registrants other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: |
August 5, 2004 |
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/s/ ABRAHAM N. REICHENTAL |
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By: |
Abraham N. Reichental |
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Title: |
Chief Executive Officer and President
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1
Exhibit 31.2
Certification
of
Principal
Financial Officer of
3D
Systems Corporation
I, Fred R. Jones, 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 registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 registrants disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and
c) Disclosed in this quarterly report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting;
5. The registrants other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: |
August 5, 2004 |
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/s/ FRED R. JONES |
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By: |
Fred R. Jones |
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Title: |
Vice President and Chief Financial Officer
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1
Exhibit 32.1
CERTIFICATION
PURSUANT TO
18 U.S.C.
SECTION 1350,
AS
ADOPTED PURSUANT TO
SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
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 June 30, 2004 of 3D Systems Corporation (the Issuer).
I, Abraham N. Reichental, the Principal Executive Officer of Issuer, certify that, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, 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; 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: |
August 5, 2004 |
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/s/ ABRAHAM N. REICHENTAL |
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Name: Abraham N. Reichental |
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1
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
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 June 30, 2004 of 3D Systems Corporation (the Issuer).
I, Fred R. Jones, the Principal Financial Officer of Issuer, certify that, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, 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; 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: August 5, 2004 |
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/s/ FRED R. JONES |
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Name: Fred R. Jones |
1