SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. ___)
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Check the appropriate box:
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[x] Definitive Proxy Statement Commission Only (as permitted
[_] Definitive Additional Materials by Rule 14A-6(e)(2))
[_] Soliciting Material Under
Rule 14a-12
3D SYSTEMS CORPORATION
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
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previously. Identify the previous filing by registration statement number,
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3D SYSTEMS CORPORATION
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
-----------------------------------------------------
TIME......................... 9:00 a.m. Pacific Time on August
26, 2003
PLACE........................ Hyatt Valencia Hotel
24500 Town Center Drive
Santa Clarita, CA 91355
ITEMS OF BUSINESS............ (1) To elect three Class I members
of the Board of Directors for
three-year terms.
(2) To ratify the appointment of BDO
Seidman LLP as our independent
auditors for the year ending December
31, 2003.
(3) To transact such other business as
may properly come before the Meeting
and any adjournment or
postponement.
RECORD DATE.................. You can vote if at the close of
business on July 7, 2003, you were
a stockholder of the Company.
PROXY VOTING................. All stockholders are cordially
invited to attend the Annual
Meeting in person. However, to
ensure your representation at the
Annual Meeting, you are urged to
vote promptly by signing and
returning the enclosed Proxy card.
If you hold your shares in street
name, you also may be eligible to
vote via the Internet by accessing
the World Wide Web.
/s/ Keith Kosco
------------------------------------
July 24, 2003 Keith Kosco
GENERAL COUNSEL AND CORPORATE
SECRETARY
3D SYSTEMS CORPORATION
26081 AVENUE HALL
VALENCIA, CALIFORNIA 91355
PROXY STATEMENT
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These Proxy materials are delivered in connection with the solicitation by the
Board of Directors of 3D Systems Corporation, a Delaware corporation, of Proxies
to be voted at our 2003 Annual Meeting of Stockholders and at any adjournments
or postponements. We refer to 3D Systems Corporation as 3D Systems, the Company,
we, or us throughout this Proxy Statement.
You are invited to attend our Annual Meeting of Stockholders on Tuesday, August
26, 2003, beginning at 9:00 a.m. Pacific Time. The meeting will be held at the
Hyatt Valencia Hotel, 24500 Town Center Drive, Santa Clarita, California 91355.
STOCKHOLDERS ENTITLED TO VOTE. Holders of 3D Systems Common Stock and Series B
Convertible Preferred Stock at the close of business on July 7, 2003, are
entitled to receive this notice and to vote their shares at the Annual Meeting.
Common Stock and Series B Convertible Preferred Stock are the only outstanding
classes of securities of the Company entitled to vote at the Annual Meeting. As
of July 7, 2003, there were 12,734,301 shares of Common Stock and 2,634,016
shares of Series B Convertible Preferred Stock outstanding.
PROXIES. Your vote is important. If your shares are registered in your name, you
are a stockholder of record. If your shares are in the name of your broker or
bank, your shares are held in street name. We encourage you to vote by Proxy so
that your shares will be represented and voted at the Annual Meeting even if you
cannot attend. All stockholders can vote by written Proxy card. Street name
stockholders also may be eligible to vote by Proxy via the Internet, pursuant to
the instructions set forth on their Proxy card. Your submitting the enclosed
Proxy will not limit your right to vote at the Annual Meeting if you later
decide to attend in person. IF YOUR SHARES ARE HELD IN STREET NAME, YOU MUST
OBTAIN A PROXY, EXECUTED IN YOUR FAVOR, FROM THE STOCKHOLDER OF RECORD IN ORDER
TO BE ABLE TO VOTE AT THE MEETING. If you are a stockholder of record, you may
revoke your Proxy at any time before the meeting either by filing with the
Secretary of the Company, at its principal executive offices, a written notice
of revocation or a duly executed Proxy bearing a later date, or by attending the
Annual Meeting and expressing a desire to vote your shares in person. All shares
entitled to vote and represented by properly executed Proxies received prior to
the Annual Meeting, and not revoked, will be voted at the Annual Meeting in
accordance with the instructions indicated on those Proxies. If no instructions
are indicated on a properly executed Proxy, the shares represented by that Proxy
will be voted as recommended by the Board of Directors.
INTERNET VOTING BY SHARES HELD IN STREET NAME. A number of brokerage firms and
banks offer Internet voting options. The Internet voting procedures are designed
to authenticate stockholders' identities, to allow stockholders to give their
voting instructions and to confirm that stockholders' instructions have been
recorded properly. Specific instructions to be followed by owners of shares of
Common Stock held in street name are set forth on your Proxy card. Stockholders
voting via the Internet should understand that there may be costs associated
with electronic access, such as usage charges from telephone companies and
Internet access providers, which must be borne by the stockholder.
QUORUM. The presence, in person or by Proxy, of a majority of the votes entitled
to be cast by the stockholders entitled to vote at the Annual Meeting is
necessary to constitute a quorum. Abstentions and broker non-votes will be
included in the number of shares present at the Annual Meeting for determining
the presence of a quorum.
VOTING. Each share of 3D Systems Common Stock and Series B Convertible Preferred
Stock is entitled to one vote on each matter properly brought before the
meeting. Abstentions will be counted toward the tabulation of votes cast on
proposals submitted to stockholders and will have the same effect as negative
2
votes, while broker non-votes will not be counted as votes cast for or against
these matters. A broker "non-vote" occurs when a broker holding shares for a
beneficial owner does not vote on a particular proposal because the broker does
not have discretionary voting power for that particular item and has not
received instructions from the beneficial owner. If you are a beneficial owner
and your broker holds your shares in its name, the broker may be permitted to
vote your shares on the election of directors and the ratification of BDO
Seidman, LLP as our independent auditors even if the broker does not receive
voting instructions from you.
ELECTION OF DIRECTORS. The three nominees for Class I director receiving the
highest number of votes at the Annual Meeting will be elected. If any nominee is
unable or unwilling to serve as a director at the time of the Annual Meeting,
the Proxies will be voted for such other nominee(s) as shall be designated by
the current Board of Directors to fill any vacancy. The Company has no reason to
believe that any nominee will be unable or unwilling to serve if elected as a
director.
RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS. The ratification of the
appointment of BDO Seidman, LLP as our independent public accountants for the
year ending December 31, 2003, will require the affirmative vote of a majority
of the shares of Common Stock and Series B Convertible Preferred Stock, voting
together as a single class, present or represented and entitled to vote at the
Annual Meeting.
OTHER MATTERS. At the date this Proxy Statement went to press, we do not know of
any other matter to be raised at the Annual Meeting.
ITEM 1: ELECTION OF DIRECTORS
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Item 1 is the election of three members of the Board of Directors. The Board of
Directors is grouped into three classes, as nearly equal in number as possible.
Directors hold office for staggered terms of three years. One of the three
classes is elected each year to succeed the directors whose terms are expiring.
The Class I directors whose terms expire at the 2003 Annual Meeting are Jim
Kever, G. Walter Loewenbaum II , and Richard Spalding. The Board of Directors
has nominated Jim Kever, G. Walter Loewenbaum II, and Richard Spalding to serve
as Class I directors for terms expiring in 2006. The Class II directors are
serving terms that expire in 2004, and the Class III directors are serving terms
that expire in 2005.
Unless otherwise instructed, the Proxy holders will vote the Proxies received by
them for the nominees named below. If any nominee is unwilling to serve as a
director at the time of the Annual Meeting, the Proxies will be voted for such
other nominee(s) as shall be designated by the then current Board of Directors
to fill any vacancy. The Company has no reason to believe that any nominee will
be unable or unwilling to serve if elected as a director.
The Board of Directors proposes the election of the following nominees as Class
I directors:
Jim Kever
G. Walter Loewenbaum II
Richard Spalding
The principal occupation and certain other information about the nominees, other
directors whose terms of office continue after the Annual Meeting, and certain
executive officers and significant employees are set forth on the following
pages.
The election of the nominees listed above will require the affirmative vote of a
plurality of the shares of Common Stock and Series B Convertible Preferred
Stock, voting together as a single class, present or
3
represented and entitled to vote at the Annual Meeting. All Proxies will be
voted to approve the election of the nominees listed above unless a contrary
vote is indicated on the enclosed Proxy card.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ELECTION OF THE
NOMINEES LISTED ABOVE.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following persons serve as our directors:
DIRECTORS AGE PRESENT POSITION
--------- --- ----------------
Miriam V. Gold (1) (2)............... 54 Director
Charles W. Hull...................... 64 Director
Jim D. Kever (2) (3)................. 50 Director
G. Walter Loewenbaum II (1).......... 59 Director and Chairman of the Board
Kevin S. Moore (1) (2) (3)........... 48 Director
Brian K. Service..................... 56 Director
Richard C. Spalding (3).............. 52 Director
(1) Member of the Compensation Committee.
(2) Member of the Corporate Governance Committee.
(3) Member of the Audit Committee.
The following persons serve as our executive officers:
EXECUTIVE OFFICERS AGE PRESENT POSITION
------------------ --- ----------------
Brian K. Service.................... 56 Chief Executive Officer, Chief
Operating Officer and President
Charles W. Hull..................... 64 Executive Vice President, Chief
Technology Officer
G. Peter V. White................... 63 Vice President, Finance
Kevin McAlea, Ph.D.................. 44 Senior Vice President, Worldwide
Revenue Generation
Ray Saunders........................ 54 Senior Vice President Operations
and Development
The following person is a significant employee:
SIGNIFICANT EMPLOYEES AGE PRESENT POSITION
--------------------- --- ----------------
Keith Kosco......................... 51 General Counsel and Corporate
Secretary
Our executive officers are appointed by and serve at the discretion of the Board
of Directors. There are no family relationships between any director and/or any
executive officer.
MIRIAM V. GOLD. Ms. Gold has been our director since 1994. Since July 2002, Ms.
Gold has been Deputy General Counsel of Ciba Specialty Chemical Corporation.
Prior to that, since 1992, Ms. Gold served as Assistant General Counsel of Ciba
Specialty Chemicals Corporation, and its predecessors, Novartis Inc. and
Ciba-Geigy Corporation. Her legal practice involves a broad range of matters,
including counseling on compliance, antitrust and general business issues. In
addition, she was Vice President of Legal & Regulatory
4
Affairs for the Additives Division of Ciba from 1995 to 2001. In 2002, Ms. Gold
was an adjunct professor at Pace University School of Law, where she taught a
course in In-House Practice, focusing on the unique role of in-house counsel in
ensuring that companies are positioned to operate legally and responsibly. Ms.
Gold received her J.D. from New York University School of Law, and her B.A. in
American History from Barnard College.
CHARLES W. HULL. Mr. Hull has been our director since 1993. Since April 1997,
Mr. Hull has served as our Chief Technology Officer and, effective May 3, 2000,
as Executive Vice President and a member of the Office of the Chief Executive
Officer. Mr. Hull also has served as Vice Chairman of our Board of Directors and
as our President and Chief Operating Officer. From March 1986 until April 1997,
Mr. Hull served as President of 3D Systems, Inc., a subsidiary of ours through
which substantially all of our business and operations is conducted. From
February to June 1999, Mr. Hull acted as a consultant to us and served as a Vice
Chairman of our Board of Directors. From January 1980 to March 1986, Mr. Hull
was Vice President of UVP, Inc., a systems manufacturing company, where he
developed our stereolithography technology.
JIM D. KEVER. Mr. Kever has been our director since 1996. He is Principal in
Voyent Partners, LLC, a venture capital partnership. From August 1995 until May
2001, Mr. Kever was associated with WebMD Corporation, Transaction Services
Division (formerly Envoy Corporation) as the President and Co-Chief Executive
Officer. Prior to August 1995, he served as Envoy Corporation's Executive Vice
President, Secretary and General Counsel. Mr. Kever also is a director of
Transaction Systems Architects, Inc., a supplier of electronic payment software
products and network integration solutions, as well as Luminex Corporation, a
value-added manufacturer of laboratory testing equipment. He also is on the
Board of Directors of Tyson Foods, Inc., an integrated processor of
poultry-based food products.
G. WALTER LOEWENBAUM II. Mr. Loewenbaum has been our director since March 1999,
serving as a Vice Chairman of the Board until September 1999 when he was elected
Chairman of the Board. Mr. Loewenbaum is Managing Director of LeCorgne
Loewenbaum LLC. Prior to that, since 1990, he served as Chairman and Chief
Executive Officer of Loewenbaum & Company (formerly Southcoast Capital Corp.),
an investment banking and investment management firm that he founded. Mr.
Loewenbaum also serves as the Chairman of the Board of Luminex Corporation, a
value-added manufacturer of laboratory testing equipment.
KEVIN S. MOORE. Mr. Moore has been our director since October 1999. Since 1991,
Mr. Moore has been with The Clark Estates, Inc., a private investment firm,
where he currently is President and a director. Mr. Moore also is a director of
Ducommun, Incorporated, as well as Aspect Resources LLC, The Clark Foundation
and the National Baseball Hall of Fame & Museum, Inc.
BRIAN K. SERVICE. Mr. Service has served as our President and Chief Executive
Officer since September 1999 and, since October 1999, also has served as
President and Chief Executive Officer of 3D Systems, Inc. Mr. Service was
elected to 3D Systems' Board of Directors in January 2001. From September 1999
to September 2002, Mr. Service provided his services to us pursuant to an
agreement between us and Regent Pacific Management Corporation, where he was a
Managing Director. Prior to Regent Pacific, Mr. Service served as Chief
Executive Officer of Salmond Smith Biolab, Ltd. Prior to Salmond, he was Chief
Executive Officer of Milk Products, Inc. Mr. Service holds a Bachelor's degree
in Chemical Engineering from Canterbury University of New Zealand and has
completed the Stanford Executive Program from Stanford University Business
School. Mr. Service also was a director of Visual Data Corporation until April
2003.
RICHARD C. SPALDING. Mr. Spalding has been our director since 2001. Since April
2003, Mr. Spalding has served as a Partner of Thomas Weisel Healthcare Venture
Partners, a venture capital group which Mr. Spalding co-founded. Since January
2000, Mr. Spalding also has served as a General Partner of ABS Ventures, a
venture capital group. From February 1997 to March 1999, Mr. Spalding served as
Vice President and Chief Financial Officer of Portal Software, an Internet
billing company. From March 1996 to February 1997, he served as Vice President
Finance and Corporate Development for Fusion Medical Technology. From November
1991 to February 1996, he served as Managing Director of Alex Brown &
5
Sons, heading up the Investment Banking for the West Coast. From June 1977 to
November 1991, Mr. Spalding practiced law with Brobeck, Phleger and Harrison,
serving as outside counsel for numerous public and private companies.
G. PETER V. WHITE. Mr. White has served as our Vice President, Finance since
March 2003. Prior thereto, from June 2002 to March 2003, he served as Managing
Director of WHI-Tec & Associates. From January 1998 to June 2002, Mr. White
served as the Chief Financial Officer and Chief Operating Officer of
MATRIX-Systems, Inc., and prior to that, he served as Managing Director of
Phoenix Equity Partners since January 1996.
KEVIN MCALEA, PH.D. Dr. McAlea has served as our Senior Vice President,
Worldwide Revenue Generation since May 2003. Prior thereto, from September 2001
to May 2003, he served as our Vice President & General Manager, Europe. From
1997 to August 2001, he served as Vice President, Marketing and Business
Development of DTM Corporation, a Texas corporation which we acquired in August
2001. From 1993 to 1997, Dr. McAlea served as Director of Process and Materials
Development of DTM. Prior to DTM, Dr. McAlea spent more than eight years in
materials research and development for General Electric Company. His last
position was managing the Polymer Physics Program at GE's Corporate Research and
Development Center.
RAY SAUNDERS. Mr. Saunders has served as our Senior Vice President Operations
and Development since May 2003. From July 2002 to May 2003, Mr. Saunders served
as our Vice President of Operations and Development and, prior to that, as our
Vice President of Manufacturing since September 2000. From January 1994 until
September 2000, Mr. Saunders served as Director of Operations for Axiohm
Transaction Solutions, Inc. where he was responsible for the manufacturing
operations of its San Diego Division. Prior to Axiohm, he was the Vice President
and General Manager of Brumko Magnetics, Inc., a division of Applied Magnetics
Corporation.
KEITH KOSCO. Mr. Kosco has served as our General Counsel since April 2002 and as
our Corporate Secretary since May 2002. From September 2001 until April 2002, he
was an independent consultant. From May 1998 until September 2001, Mr. Kosco
served as the Assistant General Counsel of Litton Industries. From November 1996
until April 1998, he was Of Counsel to the law firm of Squire, Sanders & Dempsey
LLP, and from July 1981 until April 1996 he was an Associate and then a Partner
with the law firm of Morgan, Lewis & Bockius, LLP.
FURTHER INFORMATION CONCERNING THE BOARD OF DIRECTORS
MEETINGS AND COMMITTEES. The Board of Directors held eleven meetings during
fiscal 2002 and acted by written consent on one occasion. The Board of Directors
currently has an Audit Committee, Compensation Committee, and Corporate
Governance Committee. During fiscal 2002, the Board of Directors also had a
Nominating Committee and the Oversight Committee.
The Audit Committee currently consists of Jim D. Kever, Kevin S. Moore, and
Richard C. Spalding. The Board has determined that each member of the Audit
Committee is independent as that term is defined in Rule 4200(a)(14) of the
National Association of Securities Dealers' listing standards.
Under the terms of its charter, the Audit Committee meets periodically,
including meetings held separately with management and the independent auditors.
The Audit Committee represents and assists the Board with the oversight of the
integrity of the Company's financial statements and internal controls, and the
Company's compliance with legal and regulatory requirements. In addition, the
Committee is responsible for: appointing, retaining, and terminating when
appropriate, the independent auditors; setting the independent auditor's
compensation, and pre-approving all audit services to be provided by the
independent auditors; and establishing policies and procedures to pre-approve
the performance of audit services and permitted non-audit services.
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The role and responsibilities of the Audit Committee are more fully set forth in
a written charter adopted by the Board and attached to this Proxy Statement as
APPENDIX A. The Audit Committee held seven meetings during fiscal 2002 and acted
by unanimous written consent on one occasion.
The Compensation Committee currently consists of Miriam V. Gold, G. Walter
Lowenbaum II, and Kevin S. Moore. Mr. Lowenbaum replaced Gary J. Sbona, a former
director who served on the Compensation Committee through September 9, 2002. The
Compensation Committee is responsible for considering and making recommendations
to the Board of Directors regarding executive compensation and is responsible
for administering the Company's stock option and executive incentive
compensation plans. The Compensation Committee held five meetings during fiscal
2002 and acted by unanimous written consent on two occasions.
During fiscal 2002, the Nominating Committee consisted of G. Walter Loewenbaum
II and Charles W. Hull. The Nominating Committee was responsible for considering
and recommending qualified candidates for election to the Board of Directors.
The Nominating Committee held one meeting during fiscal 2002. The Nominating
Committee was dissolved on November 18, 2002.
During fiscal 2002, the Oversight Committee consisted of Jim D. Kever, Kevin S.
Moore, and Richard C. Spalding. The Oversight Committee was responsible for
reviewing, from time to time, and serving as final authority for all matters
related to our dealings, negotiations, contracts, agreements or other relations
between the members of the Board of Directors and the Company, including the
Company's relationship with Regent Pacific Management Corporation. The Oversight
Committee held two meetings during fiscal 2002 and acted by unanimous written
consent on two occasions. In 2003, the Oversight Committee was subsumed by the
Corporate Governance Committee which currently is comprised of Miriam V. Gold,
Jim D. Kever, and Kevin S. Moore. The Corporate Governance Committee's primary
functions are to: advise the Board with respect to Board composition,
procedures, and committees; develop and recommend to the Board, and annually
review, a set of corporate governance principles applicable to the Company; and
review and approve all matters relating to dealings, negotiations, contracts,
agreements or other relations between any affiliate and the Company.
All directors attended 75% or more of all the meetings of the Board of Directors
and those committees on which he or she served in fiscal 2002, except Mr. Kever.
DIRECTORS' COMPENSATION. During fiscal 2002, the Company paid its non-employee
directors an annual retainer of $15,000 plus $1,500 for each Board meeting
attended either in person or telephonically, and $1,500 for attendance at each
committee meeting not held on a day that a Board meeting was held. In addition,
non-employee directors each received an annual automatic grant of ten-year
options to purchase, at the fair market value of the Common Stock on the date of
grant, 10,000 shares of Common Stock. For fiscal 2003, in addition to the
foregoing compensation, the Chairperson of Audit Committee will receive an
annual retainer of $15,000, and the Chairpersons of the Corporate Governance and
Compensation Committees and the members of the Audit Committee, each will
receive an annual retainer of $5,000.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. The Company has no
interlocking relationships involving any of its Compensation Committee members
that would be required by the Securities and Exchange Commission, which we refer
to throughout this Proxy Statement as the SEC, to be reported in this Proxy
Statement, and no officer or full-time employee of the Company serves on its
Compensation Committee. Mr. Sbona, a member of the Compensation Committee during
fiscal 2002, provided services to the Company as a part-time employee during
fiscal 2002.
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ITEM 2: RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
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The Audit Committee of the Board of Directors has engaged the firm of BDO
Seidman, LLP, which we refer to throughout this Proxy Statement as BDO, to serve
as our independent public accountants for the current fiscal year ending
December 31, 2003. Deloitte and Touche, LLP, which we refer to throughout this
Proxy Statement as Deloitte, was selected by the Board of Directors to serve as
independent public accountants of the Company for fiscal 2002. We anticipate
that a representative of Deloitte will attend the Annual Meeting for the purpose
of responding to appropriate questions. At the Annual Meeting, a representative
of Deloitte will be afforded an opportunity to make a statement if he or she so
desires.
In connection with its audit of the Company's financial statements for
fiscal year 2002, Deloitte identified sales transactions for which revenue had
been recognized in the fourth quarter of 2002, which Deloitte believed should
have been recognized in other periods. The Audit Committee commenced an
investigation into the Company's revenue recognition policies generally and
specifically with regard to the sales transactions identified by Deloitte, and
other related or similar transactions. To assist it in this investigation, the
Audit Committee retained Morgan Lewis & Bockius, LLP, as independent counsel,
and Morgan Lewis retained the accounting firm of BDO to provide forensic
accounting services in support of its work. During the conduct of the
investigation and the audit of the Company's financial statements for 2002,
deficiencies in the Company's internal controls were identified. At the
direction of the Audit Committee, the Company is implementing changes to its
financial organization and enhancing its internal controls. As of the date of
this Proxy Statement, the Company has retained a Director of Internal Audit,
expanded the number of employees in its finance department, terminated or
reassigned senior officers and key employees, established an anonymous hotline
for employees to report potential violations of policies and procedures and,
through the Company's Disclosure Committee, engaged in detailed reviews of its
public disclosures and reporting. The Company is continuing to implement all of
the recommendations resulting from the investigation.
The ratification of BDO as the Company's independent public accountants for the
fiscal year ending December 31, 2003, will require the affirmative vote of a
majority of the shares of Common Stock and the Series B Convertible Preferred
Stock, voting together as a single class, present or represented and entitled to
vote at the Annual Meeting. All Proxies will be voted to approve the appointment
unless a contrary vote is indicated on the enclosed Proxy card.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE RATIFICATION OF
THE APPOINTMENT OF BDO SEIDMAN LLP AS THE COMPANY'S INDEPENDENT PUBLIC
ACCOUNTANTS.
CHANGE OF INDEPENDENT PUBLIC ACCOUNTANTS
As discussed in the Company's Current Report on Form 8-K filed on April 23,
2003, Deloitte informed the Company on April 16, 2003, that it did not intend to
stand for reelection as the Company's principal independent accountant. On July
16, 2003, Deloitte advised the Company that the client-auditor relationship
between the Company and Deloitte had ceased.
The reports of Deloitte on the Company's financial statements for the fiscal
years ended December 31, 2002 and 2001 have not included an adverse opinion or a
disclaimer of opinion, nor were they qualified or modified as to uncertainty,
audit scope, or accounting principles, except for the 2002 report which
contained an explanatory paragraph relating to a going concern uncertainty.
During the fiscal years ended December 31, 2002 and 2001 and the period from
January 1, 2003 to July 16, 2003: (a) there were no disagreements with Deloitte
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements, if not resolved
to the satisfaction of Deloitte, would have caused Deloitte to make reference to
the subject matter of the disagreements in connection with its report, and (b)
there were no "reportable events" as the term is defined in Item 304(a)(1)(v) of
Regulation S-K, except as follows:
8
Deloitte informed the Company that material weaknesses in the Company's internal
control existed. Specifically, Deloitte advised the Company that:
o The Company's accounting and finance staff are inadequate to meet the
needs of a complex, multinational SEC registrant. The Company needs to
strengthen its capability to implement existing generally accepted
accounting principles as well as understand and implement new
accounting standards. In addition, the Company needs to strengthen its
capabilities in performing routine accounting processes involved in
closing its books such as account reconciliations and analyses.
o The Company needs to strengthen its controls and processes related to
revenue recognition. During 2002, 2001 and 2000 revenue was recognized
for transactions that did not meet the requirements for revenue
recognition under the Company's policies or generally accepted
accounting principles.
The Company has furnished Deloitte with a copy of the foregoing disclosures and
has requested Deloitte to furnish the Company with a letter addressed to the SEC
stating whether it agrees with the above statements and, if not, stating the
respects in which it does not agree. A copy of the letter, dated July 22, 2003
from Deloitte to the SEC has been filed as an exhibit to the Company's Current
Report on Form 8-K filed on July 23, 2003.
On April 23, 2003, our Audit Committee engaged BDO to serve as our independent
public accountants to audit our consolidated financial statements for the fiscal
year ending December 31, 2003. Our Audit Committee carefully considered BDO's
qualifications as independent accountants before appointing BDO as our
independent public accountants. This consideration included a review of the
qualifications of the engagement team and BDO's reputation for integrity,
quality, and competence in the fields of accounting and auditing. The Audit
Committee also analyzed matters required to be considered under the Audit
Committee's charter and under the SEC's Rules on Auditor Independence in effect
at the time of engagement, including the nature and extent of non-audit
services, to ensure that the independence of the independent public accountants
would not be impaired. Stockholders will be asked at the Annual Meeting to
ratify the selection of BDO.
On March 27, 2003, the law firm of Morgan, Lewis & Bockius, LLP, as counsel to
the Audit Committee of the Company, engaged BDO to assist the Audit Committee
with its investigation related to certain sales transactions. As a result of the
work preformed, BDO has orally communicated to the Company that it believes
certain sales transactions were not recorded in the proper period. The Company
has consulted with Deloitte with regard to the these transactions.
There were no other written or oral consultations between the Company and BDO
regarding either the specific application of accounting principles or the type
of audit opinion that might be rendered on the Company's financial statements
that was considered an important factor by the Company in reaching a decision as
to an accounting, auditing or financial reporting issue, or any other matter
that was the subject of a disagreement or a reportable event, that would have
required disclosure under Item 304 (a)(2) of Regulation S-K.
The Company requested that Deloitte furnish it with a letter addressed to the
SEC stating whether it agrees with the above statements relating to the
engagement of BDO as the Company's new independent auditors and, if not, stating
the respects in which it does not agree. A copy of the letter dated April 29,
2003, from Deloitte to the SEC has been filed as an exhibit to the Company's 8-K
filed on April 30, 2003.
9
SUMMARY COMPENSATION TABLE
The following table sets forth, as to the Chief Executive Officer and as to each
of the other four most highly compensated officers whose compensation exceeded
$100,000 during the last fiscal year, information concerning all compensation
paid for services to the Company in all capacities for each of the three years
ended December 31 indicated below. We refer to these officers as the Named
Executive Officers.
ANNUAL COMPENSATION LONG TERM COMPENSATION
Number of
Fiscal Year Securities All
Name Ended Underlying Other
PRINCIPAL POSITION(1) DECEMBER 31 SALARY BONUS OPTIONS COMPENSATION
--------------------- ----------- ------ ----- ------- ------------
Brian K. Service......... 2002 $ (2) -- 350,000 $ 151,434 (3)
Chief Executive Officer, 2001 (2) -- -- --
Chief Operating Officer 2000 (2) -- -- --
and President
Charles W. Hull.......... 2002 $ 275,000 -- -- $ 2,040 (4)
Executive Vice President 2001 $ 275,000 -- 10,000 $ 26,679 (5)
Chief Technology Officer 2000 $ 275,000 $ 66,000 -- $ 3,518 (4)
Grant R. Flaharty (6).... 2002 314,000 -- 25,000 $ 1,823 (4)
Executive Vice 2001 $ 263,077 -- 10,000 $ 9,941 (7)
President
of Global Business 2000 $ 213,462 $ 70,442 40,000 $ 36,357 (8)
Operations
E. James Selzer (9) ..... 2002 $ 240,769 -- -- $ 1,705 (4)
Sr. VP, Global Finance 2001 $ 200,000 $ 40,000 10,000 $ 1,662 (4)
&
Administration and Chief 2000 $ 108,870 -- 75,000 $ 1,578 (4)
Financial Officer
Ray Saunders............. 2002 $ 173,046 -- 10,000 $ 1,839 (4)
Senior Vice President 2001 $ 149,988 $8,727 11,500 $ 1,753 (4)
Operations and 2000 $ 45,378 -- 30,000 $ 67 (4)
Development
-------------
(1) For a description of the employment agreements between certain officers
and us, see "Employment Agreements" below.
(2) Mr. Service was appointed our Chief Executive Officer and President on
September 16, 1999. From September 1999 to September 2002, Mr. Service was
compensated for his services by Regent Pacific Management Corporation. The
Company had an agreement with Regent Pacific, pursuant to which Regent
Pacific provided the management services of a team of up to three
full-time executives, including the chief executive, at an aggregate fee
of $45,000 per week. Although our named executive officers do not include
the Regent Pacific executives for any periods presented, it is likely that
these persons would have qualified as our most highly compensated officers
if a pro rata portion of the fee paid to Regent Pacific were attributed to
them as compensation. From September 10, 2002 (the date of termination of
the Regent Agreement), through October 15, 2002, Mr. Service was engaged
on an interim consulting basis for which he was paid $79,999. Effective
October 15, 2002, Mr. Service is employed by us pursuant to an employment
agreement under which he received $87,264 for services in 2002.
10
(3) Consists of consulting fees paid to Brian K. Service, Inc. for which Mr.
Service serves as a stockholder, officer and director.
(4) Consists of the value of insurance premiums for employer paid group term
life insurance and employer matching contributions made pursuant to our
Section 401(k) plan.
(5) Consists of the value of insurance premiums for employer paid group term
life insurance and employer matching contributions made pursuant to our
Section 401(k) plan and loan forgiveness ($23,671). See "Certain
Relationships With Directors and Executive Officers and 5% Stockholders."
(6) Mr. Flaharty was reassigned from his position and no longer serves as a
executive officer of the Company effective May 23, 2003.
(7) Consists of the value of insurance premiums for employer paid group term
life insurance and employer matching contributions in 2001 made pursuant
to our Section 401(k) plan and below market interest attributable to a
moving facilitation loan in 2000. See "Certain Relationships With
Directors and Executive Officers and 5% Stockholders."
(8) Consists of the value of insurance premiums for employer paid group term
life insurance, moving-related expenses totaling $30,658, and employer
matching contributions made pursuant to our Section 401(k) plan.
(9) Mr. Selzer's employment with the Company terminated effective April 2003.
OPTION GRANTS IN FISCAL 2002
The following table sets forth certain information regarding the grant of stock
options made during fiscal 2002 to the Named Executive Officers.
Percent of Potential
Total Realizable Value
Number of Options at Assumed
Securities Granted To Exercise Rates of Stock
Underlying Employees or Price
Options in Base Expiration Appreciation for
NAME Granted Fiscal Year Price (1) Date Option Term (2)
-------------------- ---------- ------------ ----------- ---------- --------------------
5% ($) 10% ($)
-------- ---------
Brian K. Service..... 350,000 47% $5.78 10/14/07 558,918 1,235,062
Charles W. Hull...... -- -- -- -- -- --
Grant R. Flaharty.... 25,000 3.3% $11.98 2/5/12 188,354 477,326
E. James Selzer...... -- -- -- -- -- --
Ray Saunders......... 10,000 1.3% $11.98 2/5/12 75,342 190,930
--------------------- ----------- ------------ ----------- ---------- ---------- ---------
------------
(1) The exercise price and tax withholding obligations related to exercise may
be paid by delivery of already owned shares, subject to certain conditions.
(2) The potential realizable value is based on the assumption that the Common
Stock appreciates at the annual rate shown (compounded annually) from the
date of grant until the expiration of the option term. These amounts are
calculated pursuant to applicable requirements of the SEC and do not
represent a forecast of the future appreciation of the Common Stock.
11
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth, for each of the Named Executive Officers,
certain information regarding the exercise of stock options during fiscal 2002,
the number of shares of Common Stock underlying stock options held at fiscal
year-end and the value of options held at fiscal year-end based upon the last
reported sales price of the Common Stock on The Nasdaq National Market on
December 31, 2002 ($7.80 per share).
------------------- ---------- ---------- ------------------------------- ------------------------------
Shares Number of Securities
Acquired Underlying Unexercised Value of Unexercised
on Value Options at In-the-Money Options at
Exercise Realized December 31, 2002 December 31, 2002
(#) ($) (#) ($)
------------------- ---------- ---------- ------------- --------------- -------------- -----------------
Name EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------------- ---------- ---------- ------------- --------------- -------------- -----------------
Brian K. Service... -- -- 350,000 -- 1,986,250 --
Charles W. Hull.... -- -- 77,500 7,500 -- --
Grant R. Flaharty.. -- -- 142,500 52,500 450,937 28,437
E. James Selzer.... -- -- 60,000 25,000 -- --
Ray Saunders....... -- -- 19,000 32,500 -- --
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with the following Named
Executive Officers.
Brian K. Service has been retained as Chief Executive Officer. Mr. Service's
services previously were provided under an arrangement with Regent Pacific
Management Corporation. From September 10, 2002 (the date of termination of the
Regent Agreement), through October 15, 2002, Mr. Service was engaged on an
interim consulting basis for which he was paid $79,999. Effective October 15,
2002, the Company employed Mr. Service pursuant to an employment agreement under
which he has agreed to serve as Chief Executive Officer until at least December
2003. Mr. Service is being paid $17,809 on a bi-weekly basis under this
agreement, and has been awarded fully vested options, with a term of five years,
to purchase 350,000 shares of our Common Stock at a price of $5.78 (the closing
price on October 15, 2002).
On November 18, 2002, the Company entered into a consulting agreement with Brian
K. Service, Inc., a corporation in which Mr. Service is a stockholder, officer
and director. Pursuant to this agreement, the Company pays to Brian K. Service,
Inc. an amount up to $310,000 for an 11-month period for the provision of the
services of qualified consultants to us. Under this agreement, the Company paid
Brian K. Service, Inc. $71,000 through December 31, 2002.
The Company entered into an employment agreement with Mr. Hull in April 1994,
pursuant to which Mr. Hull served as President and Chief Operating Officer of
both us and 3D Systems, Inc. until April 1997, at which time Mr. Hull was
appointed our Vice Chairman and Chief Technology Officer. Pursuant to the
agreement, Mr. Hull's initial base salary was $200,000 per year, subject to
increase at the discretion of the Board of Directors. In addition to standard
benefits, Mr. Hull is eligible to participate in the Executive Incentive
Compensation Plan. Mr. Hull's employment agreement also permits Mr. Hull, at any
time during his employment term, to terminate his duties under the agreement and
elect to become a consultant to the Company. Effective February 28, 1999, Mr.
Hull terminated his duties under the agreement and Mr. Hull, the Company, and 3D
Systems, Inc. entered into a four-year consulting agreement. In June 1999, Mr.
Hull rejoined the Company as our Chief Technology Officer at a base salary of
$275,000. Effective May 3, 2000, Mr. Hull was promoted to Executive Vice
President and a member of the Office of the Chief Executive Officer; he
continues his duties as Chief Technology Officer. All of the stock options
granted to Mr. Hull
12
and unexercised as of the date of the consulting agreement continued in force
during the consulting term and are continued under his subsequent employment
arrangement.
REPORT OF COMPENSATION COMMITTEE
THE INFORMATION IN THIS COMPENSATION REPORT SHALL NOT BE DEEMED TO BE
"SOLICITING MATERIAL," OR TO BE "FILED" WITH THE SECURITIES AND EXCHANGE
COMMISSION OR TO BE SUBJECT TO REGULATION 14A OR 14C AS PROMULGATED BY THE
SECURITIES AND EXCHANGE COMMISSION, OR TO THE LIABILITIES OF SECTION 18 OF THE
SECURITIES AND EXCHANGE ACT OF 1934.
The Compensation Committee is charged with the responsibility of administering
all aspects of the Company's executive compensation programs. The committee,
which currently is comprised of three independent, non-employee directors, also
grants all stock options and otherwise administers the Company's 1989 Employee
and Director Plan, which we refer to as the 1989 Plan, the 1996 Stock Incentive
Plan, which we refer to as the 1996 Plan, the 1996 Non-Employee Directors' Stock
Option Plan, which we refer to as the Director Plan, the 2001 Stock Option Plan,
which we refer to as the 2001 Plan, and the 1998 Employee Stock Purchase Plan.
No further options will be granted under the 1989 Plan as it expired on May 9,
1999. Following review and approval by the committee, determinations pertaining
to executive compensation are submitted to the full Board for approval. In
connection with its deliberations, the committee seeks, and is significantly
influenced by, the views of the Chief Executive Officer with respect to
appropriate compensation levels of the other officers.
TOTAL COMPENSATION. It is the philosophy of the committee that executive
compensation should be structured to provide an appropriate relationship between
executive compensation and performance of the Company and the share price of the
Common Stock, as well as to attract, motivate and retain executives of
outstanding abilities and experience. The principal elements of total
compensation paid to executives of the Company are as follows:
BASE SALARY. Base salaries are negotiated at the commencement of an
executive's employment with the Company or upon renewal of his or her employment
agreement, and are designed to reflect the position, duties and responsibilities
of each executive officer, the cost of living in the area in which the officer
is located, the market for base salaries of similarly situated executives at
other companies engaged in businesses similar to that of the Company, and
qualitative factors reflecting the individual performance of the particular
executive officer. Base salaries may be annually adjusted in the sole discretion
of the committee to reflect changes in any of the foregoing factors.
STOCK INCENTIVE PLAN OPTIONS AND AWARDS. Under the 1996 Plan, the committee
is authorized to grant any type of award which might involve the issuance of
shares of Common Stock, options, warrants, convertible securities, stock
appreciation rights or similar rights or any other securities or benefits with a
value derived from the value of the Common Stock. The number of options granted
to an individual is based upon a number of factors, including his or her
position, salary and performance, and the overall performance and stock price of
the Company.
Under the 2001 Plan, the committee and the Chief Executive Officer are
authorized to grant non-qualified stock options (options that are not intended
to satisfy Section 422 of the Internal Revenue Code of 1986, as amended) to
purchase shares of Common Stock of the Company. The number of options granted to
an individual is based upon a number of factors, including his or her position,
salary and performance, and the overall performance and stock price of the
Company. Officers of the Company, including members of the Board of Directors
who are officers, are not eligible for stock option grants under the 2001 Plan.
ANNUAL INCENTIVES. The committee believes that executive compensation
should be determined with specific reference to the Company's overall
performance and goals, as well as the performance and goals of the division or
function over which each individual executive has primary responsibility. In
this regard, the committee considers both quantitative and qualitative factors.
Quantitative items used by the committee in
13
analyzing the Company's performance include sales and sales growth, results of
operations and an analysis of actual levels of operating results and sales to
budgeted amounts. Qualitative factors include the committee's assessment of such
matters as the enhancement of the Company's image and reputation, expansion into
new markets, and the development and success of new products and new marketing
programs. No cash bonuses were paid to executives for the year 2002.
The committee has approved the 3D Systems Corporation Executive Incentive
Compensation Plan, which we refer to as the 2002 Incentive Plan. Under the 2002
Incentive Plan, executive officers are eligible to receive an annual cash
incentive award based, in part, upon the attainment of specified levels of
earnings and revenue by the Company as determined by the committee at the
beginning of the fiscal year, and individual non-financial objectives which are
designed to measure each executive's overall contribution to the Company and the
particular division over which he or she is assigned supervisory responsibility.
The Chief Executive Officer establishes the non-financial objectives each other
executive must attain based upon the overall performance goals of the Company.
Under the 2002 Incentive Plan, the committee has established the maximum
bonus, as a percentage of base salary, attainable by each participating
executive on the basis of the financial performance of the Company and the
attainment of non-financial objectives by the officer. No bonuses will be paid
unless the Company achieves a threshold earnings level established by the
committee.
The committee attributes various weights to the qualitative factors
discussed above based upon their perceived relative importance to the Company at
the time compensation determinations are made. Each executive's performance is
evaluated with respect to each of these factors, and compensation levels are
determined based on each executive's overall performance.
Each participant is eligible for a range of awards based upon attaining or
exceeding the earnings and revenue objectives and attainment of non-financial
objectives. The 2002 Incentive Plan permits the committee to adjust targets or
performance results to reflect unusual items that it determines to be
extraordinary or non-recurring.
1998 EMPLOYEE STOCK PURCHASE PLAN. The Company also provides, under the
1998 Employee Stock Purchase Plan, an opportunity for substantially all of its
employees to purchase Common Stock at a modest discount to the market price.
Pursuant to this plan, employees may allocate annually up to the lesser of
$25,000 or 10% of their regular compensation for the purchase of shares of
Common Stock.
DETERMINATION OF CHIEF EXECUTIVE OFFICER'S COMPENSATION. On September 9,
1999, the Company and Regent Pacific executed an agreement, which we refer to as
the Regent Agreement, pursuant to which Regent Pacific agreed to provide a team
of executives, including Brian K. Service, to the Company for a term of 12
months. On September 16, 1999, the Board of Directors appointed Mr. Service as
Chief Executive Officer. Pursuant to the Regent Agreement, the Company paid
Regent Pacific $45,000 per week for the services of Mr. Service and certain
other executives; it had a one-year term and, on August 8, 2000, and October 30,
2001, was extended for additional one-year terms. Mr. Service was compensated
for his services by Regent Pacific and the Company made no payments, other than
reimbursement for expenses, directly to Mr. Service, during this period. From
September 10, 2002 (the date of termination of the Regent Agreement), through
October 15, 2002, Mr. Service was engaged on an interim consulting basis for
which he was paid $79,999. Effective October 15, 2002, Mr. Service is employed
by the Company pursuant to an employment agreement under
14
which he has agreed to serve as Chief Executive Officer until at least December
2003. Mr. Service is being paid $17,809 on a bi-weekly basis under this
agreement, and has been awarded fully vested options, with a term of five years,
to purchase 350,000 shares of our Common Stock at a price of $5.78 (the closing
price on October 15, 2002). The committee believes the aggregate stock ownership
position is effective in aligning the interests of the Chief Executive Officer
with the long term interests of the stockholders. The base salary was
established based upon a comparative analysis of other chief executive officers
taking into account one or more of the following factors: industry, size, and/or
location. In addition, on November 18, 2002, the Company entered into a
consulting agreement with Brian K. Service, Inc., a corporation in which Mr.
Service is a stockholder, officer and director. Pursuant to this agreement, the
Company pays to Brian K. Service, Inc. an amount up to $310,000 for an 11-month
period for the provision of the services of qualified consultants to the
Company. Under this agreement, the Company paid Brian K. Service, Inc. $71,000
through December 31, 2002.
The committee intends to continue its policy of linking executive
compensation with maximizing stockholder returns and corporate performance to
the extent possible through the programs described above.
OMNIBUS BUDGET RECONCILIATION ACT IMPLICATIONS FOR EXECUTIVE COMPENSATION.
Effective January 1, 1994, under Section 162(m) of the Internal Revenue Code of
1986, as amended, a public company generally will not be entitled to a deduction
for non-performance-based compensation paid to certain executive officers to the
extent any individual's compensation exceeds $1.0 million. Special rules apply
for "performance-based" compensation, including the approval of the performance
goals by the stockholders of the Company.
All compensation paid to the Company's employees in fiscal 2002 will be
fully deductible. With respect to compensation to be paid to executives in 2003
and future years, in certain instances their compensation may exceed $1.0
million. However, in order to maintain flexibility in compensating executive
officers in a manner designed to promote varying corporate goals, the committee
has not adopted a policy that all compensation must be deductible.
Compensation Committee
Miriam V. Gold
G. Walter Lowenbaum II
Kevin S. Moore
REPORT OF AUDIT COMMITTEE
THE INFORMATION IN THIS AUDIT COMMITTEE REPORT SHALL NOT BE DEEMED TO BE
"SOLICITING MATERIAL," OR TO BE "FILED" WITH THE SECURITIES AND EXCHANGE
COMMISSION OR TO BE SUBJECT TO REGULATION 14A OR 14C AS PROMULGATED BY THE
SECURITIES AND EXCHANGE COMMISSION, OR TO THE LIABILITIES OF SECTION 18 OF THE
SECURITIES AND EXCHANGE ACT OF 1934.
The Audit Committee reviews the Company's financial reporting process on behalf
of the Board of Directors. Management has the primary responsibility for the
financial statements and the reporting process, including the system of internal
controls.
In this context, the Committee has met and held discussions with management and
Deloitte, the Company's the independent auditors for fiscal 2002, regarding the
fair and complete presentation of the Company's results. The Committee has
discussed significant accounting policies applied by the Company in its
financial statements, as well as alternative treatments. Management represented
to the Committee that the Company's consolidated financial statements were
prepared in accordance with generally accepted accounting principles, and the
Committee has reviewed and discussed the consolidated financial statements with
management and Deloitte. The Committee discussed with Deloitte matters
15
required to be discussed by Statement on Auditing Standards No. 61
(Communication With Audit Committees).
In addition, the Committee has discussed with Deloitte, the auditors'
independence from the Company and its management, including the matters in the
written disclosures required by the Independence Standards Board Standard No. 1
(Independence Discussions With Audit Committees). The Committee also has
considered whether Deloitte's provision of non-audit services to the Company is
compatible with the auditors' independence. The Committee has concluded that the
independent auditors are independent from the Company and its management.
The Committee discussed with Deloitte the overall scope and plans for their
respective audit.
Based on the reviews and discussions referred to above, the Committee
recommended to the Board of Directors, and the Board of Directors has approved,
that the audited financial statements be included in the Company's Annual Report
on Form 10-K for the year ended December 31, 2002, for filing with the
Securities and Exchange Commission.
Audit Committee
Jim D. Kever
Kevin S. Moore
Richard C. Spalding
AUDIT AND NON-AUDIT FEES
The following table presents fees for professional audit services rendered by
Deloitte for the audit of our annual financial statements for the years ended
December 31, 2002 and December 31, 2001, and fees billed for other services
rendered by Deloitte during those periods:
------------ -------------
2002 2001
(amounts in thousands)
------------ -------------
Audit Fees (1) $ 660 $ 289
Audit Related Fees (2) 35 28
Tax Fees (3) 458 210
------------ -------------
All Other Fees (4) - 33
------------ -------------
$ 1,153 $ 560
-------------
(1) Audit fees consisted of audit work performed in the preparation of
financial statements, as well as work generally only the independent
auditor can reasonably be expected to provide, such as statutory audits.
(2) Audit related fees consist primarily of procedures related to registration
statement filings and consultation on accounting standards.
(3) Tax fees include all tax services relating to tax compliance, tax planning
and reporting.
(4) All other fees in 2001 consisted principally of services
provided in connection with our acquisition of DTM Corporation.
POLICY ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT
SERVICES OF INDEPENDENT AUDITORS
16
Consistent with SEC policies regarding auditor independence, the Audit Committee
has responsibility for appointing, setting compensation and overseeing the work
of the independent auditor. In recognition of this responsibility, the Audit
Committee has established a policy to pre-approve all audit and permissible
non-audit services provided by the independent auditor.
PERFORMANCE GRAPH
The following graph sets forth the percentage change in cumulative total
stockholder return of the Common Stock during the five-year period from December
31, 1997 to December 31, 2002, compared with the cumulative returns of the
NASDAQ Stock Market (U.S. Companies) Index and the Index for S & P Technology
Sector. The Comparison assumes $100 was invested on December 31, 1997, in the
Company's Common Stock and in each of the foregoing indices. The stock price
performance on the following graph is not necessarily indicative of future stock
price performance.
GRAPHICS OMITTED
Cumulative Total Return
------------------------------------------------------
12/97 12/98 12/99 12/00 12/01 12/02
3D SYSTEMS CORPORATION 100.00 121.21 137.37 195.96 230.30 126.06
NASDAQ STOCK MARKET (U.S.) 100.00 140.99 261.48 157.40 124.87 86.38
S & P INFORMATION TECHNOLOGY 100.00 178.14 318.42 188.18 139.50 87.31
CERTAIN TRANSACTIONS WITH DIRECTORS AND EXECUTIVE OFFICERS AND 5% STOCKHOLDERS
Except as disclosed in this Proxy Statement, neither our directors or executive
officers nor any stockholder owning more than five percent of our issued shares,
nor any of their respective associates or affiliates, had any material interest,
direct or indirect, in any material transaction to which the Company was a party
during fiscal 2002, or which is presently proposed.
See "Employment Agreements" for a summary of employment agreements with certain
of our executive officers.
17
On September 9, 1999, the Company and Regent Pacific Management Corporation
executed an agreement pursuant to which Regent Pacific agreed to provide certain
key management employees' services to us at a fee of $45,000 per week, including
the services of Mr. Service, as President and Chief Executive Officer, and up to
two other Regent Pacific personnel as part of our management team. The Regent
Agreement also provided that Gary J. Sbona, Chairman and Chief Executive Officer
of Regent Pacific, join our Board of Directors. The Agreement had a one-year
term and, on August 8, 2000 was extended for an additional one-year term, and
provided for the availability of up to two additional executives to provide
management services on an as needed basis, beginning as of February 12, 2000.
The Agreement was again extended on October 30, 2001 for an additional one-year
term under the same terms as the previous extension. The Agreement also required
that we provide Director & Officer insurance for Messrs. Sbona and Service.
Simultaneously with the execution of the Regent Agreement, we entered into an
employment agreement with Gary J. Sbona. As an inducement to Mr. Sbona to
provide services as a part-time employee of the Company, the Board of Directors
granted to him an option to purchase 350,000 shares of our Common Stock at an
exercise price of $6.00 per share. The shares subject to this option generally
vest over a three year period, or sooner subject to certain conditions. On
August 8, 2000, the Oversight Committee (later subsumed into the Corporate
Governance Committee) extended Mr. Sbona's Employment Agreement for an
additional year and authorized the grant of an additional 350,000 shares to Mr.
Sbona at an exercise price of $17.3875 per share. The shares subject to this
option vest on the same basis as the shares granted in 1999. On October 30,
2001, the Oversight Committee extended Mr. Sbona's Employment Agreement for an
additional year and authorized the grant of an additional 350,000 shares to Mr.
Sbona at an exercise price of $12.4280.
On May 1, 1999, we entered into an employment agreement with G. Walter
Loewenbaum II, Chairman of the Board, whereby Mr. Loewenbaum agreed to provide
part-time services to us in the area of strategic direction in exchange for
$10,000 per month and an option to purchase 150,000 shares of our Common Stock
at a price of $6.6125 per share. The options vested on January 1, 2000. The
original term of the agreement was for six months. On December 20, 1999, the
Board of Directors voted, with Mr. Loewenbaum abstaining, to change Mr.
Loewenbaum's status to "at-will" employee pursuant to the terms and conditions
of his employment agreement. On August 8, 2000 the Oversight Committee of the
Board of Directors voted to increase Mr. Loewenbaum's monthly compensation to
$15,000. On February 12, 2002, the Oversight Committee awarded Mr. Loewenbaum an
option to purchase an additional 75,000 shares of our Common Stock at a price of
$11.75 per share. These options vest in equal annual installments over a
three-year period. Effective November 17, 2002, Mr. Loewenbaum resigned as an
employee.
In June 2000, we entered into a distribution agreement for ThermoJet printers
with 3D Solid Solutions, which we refer to as 3DSS, a partnership in which Mr.
Loewenbaum, the Chairman of our Board of Directors, is a limited partner. As of
December 31, 2002, Solid Imaging Technologies, LLC, of which Mr. Loewenbaum is
the sole member, was the general partner of 3DSS. In 2002, 3DSS paid us
approximately $84,000 for the purchase of products and services.
In 1998, we adopted under the 1996 Stock Incentive Plan, the Executive Long-Term
Stock Incentive Plan pursuant to which we offered loans to our executive
officers of up to $60,000 to purchase shares of the Common Stock reserved for
issuance under the 1996 Plan. Charles W. Hull, our Executive Vice President,
Chief Technology Officer, executed a promissory note for the principal amount of
$60,000 that bears interest at the rate of 6% per annum. The note is secured by
the shares of Common Stock purchased. At March 28, 2003, the Company had a
remaining note receivable totaling $45,232, including accrued interest. This
note was retired in July 2003 in exchange for 6,031 shares of Common Stock.
Pursuant to a July 1990 Distribution Agreement with Vantico, Inc., successor to
Ciba Specialty Chemicals, Inc., and subject to conditions set forth in the
agreement, we have been Vantico's exclusive distributor (except in Japan) of all
photopolymers manufactured by Vantico for use in stereolithography. We purchased
from Vantico resins valued at approximately $183,815 net of product returns and
applicable credits during fiscal 2002. Pursuant to a Settlement Agreement and
Mutual General Releases dated March 19, 2002, the
18
Distribution Agreement with Vantico terminated on April 22, 2002. In connection
with the Settlement Agreement, Vantico paid us $22,000,000 by transferring to us
1,550,000 shares of our stock. A related Research and Development Agreement
terminated at the same time.
In 1990, 3D Systems, Inc. acquired the patents for stereolithography technology
from UVP, Inc. in exchange for $9,075,000, $500,000 of which was paid in cash
and $350,000 by certain offsets. The balance of the purchase price ($8,225,000)
is payable based upon sales of stereolithography systems and licensing of the
patents and subject to certain conditions. Pursuant to a 1987 contract between
UVP and Charles W. Hull, our Executive Vice President, Chief Technology Officer
and a director of ours, Mr. Hull is entitled to receive from UVP, with respect
to his prior relationship with UVP, an amount equal to 10% of all royalties or
other amounts received by UVP with respect to the patents, but only after
recoupment of certain expenses by UVP. To date, Mr. Hull has received $698,626
from UVP under that contract.
On May 5, 2003, we sold 2,634,016 shares of our Series B Convertible Preferred
Stock, at a price of $6.00 per share, for aggregate consideration of $15.8
million. The preferred stock accrues dividends at 8% per share and is
convertible at any time into approximately 2,634,016 shares of Common Stock. The
stock is redeemable at our option after the third anniversary date. We must
redeem any shares of preferred stock outstanding on the tenth anniversary date.
The redemption price is $6.00 per share plus accrued and unpaid dividends.
Messrs. Loewenbaum, Service and Hull, our Chairman of the Board, Chief Executive
Officer and Chief Technology Officer, respectively, purchased an aggregate of
$1,450,000 of the preferred shares. Additionally, Clark Partners I, L.P., a New
York limited partnership, purchased $5.0 million of the preferred shares. Kevin
Moore, a member of our Board of Directors, is the president of the general
partner of Clark Partners I, L.P. In connection with the offering, Houlihan
Lokey Howard & Zukin rendered its opinion that the terms of the offering were
fair to the Company from a financial point of view. A special committee of the
Board of Directors, composed entirely of disinterested independent directors,
approved the offer and sale of the preferred shares and recommended the
transaction to the Board of Directors. The Board also approved the transaction,
with interested Board members not participating in the vote.
Our Board of Directors believes, based on its reasonable judgment, but without
further investigation, that the terms of each of the foregoing transactions or
arrangements between us on the one hand and our affiliates, officers, directors
or stockholders which were parties to the transactions on the other hand, were,
on an overall basis, at least as favorable to us as could then have been
obtained from unrelated parties.
PRINCIPAL STOCKHOLDERS
The following table sets forth as of June 13, 2003, unless otherwise indicated,
certain information relating to the ownership of Common Stock by (i) each person
known by the Company to be the beneficial owner of more than five percent of the
outstanding shares of Common Stock (636,716 shares) or Series B Convertible
Preferred Stock (131,701 shares), (ii) each of the Company's directors, (iii)
each of the Named Executive Officers, and (iv) all of the Company's executive
officers and directors as a group. Except as may be indicated in the footnotes
to the table and subject to applicable community property laws, each person has
the sole voting and investment power with respect to the shares owned. The
address of each person listed is in care of the Company, 26081 Avenue Hall,
Valencia, California 91355, unless otherwise set forth below that person's name.
19
--------------------------------- ------------------ -------------- -------------- -------------
NUMBER OF
SHARES OF
SERIES B
CONVERTIBLE
AMOUNT AND PREFERRED
NATURE OF STOCK
NAME AND ADDRESS OF BENEFICIAL BENEFICIAL PERCENT OF BENEFICIALLY PERCENT OF
OWNER OWNERSHIP (1) CLASS (1) OWNED (1) CLASS (1)
--------------------------------- ------------------ -------------- -------------- -------------
Directors:
Miriam V. Gold 54,166 (2) * -- *
Charles W. Hull 584,463 (3) 4.5% 8,333 *
Jim D. Kever 89,166 (4) * -- *
G. Walter Loewenbaum II 1,305,013 (5) 9.9% 208,334 7.9%
Kevin S. Moore 1,788,254 (6) 13.1% 833,333 (7) 31.6%
Brian K. Service 376,300 (8) 2.9% 25,000 *
Richard C. Spalding 9,298 (9) * -- *
Non-Director Named Executive
Officers:
Grant R. Flaharty (10) 192,867 (11) 1.5% -- *
Kevin McAlea, Ph.D. 22,083 (12) * 3,333 *
Ray Saunders 31,833 (13) * 2,833 *
E. James Selzer (14) 74,429 (15) * -- *
G. Peter V. White -- * -- *
5% Holders:
The Clark Estates, Inc. 1,766,605 (16) 13.0% 833,333 (7) 31.6%
One Rockefeller Plaza,
New York, New York 10020
St. Denis J. Villere &
Company 1,230,114 (17) 9.7% -- *
210 Baronne Street,
Suite 808, New Orleans,
Louisiana 70112
Daruma Asset Management,
Inc. 1,423,200 (18) 11.2% -- *
60 East 42nd Street,
Suite 1111, New York,
New York 10165
T. Rowe Price Associates,
Inc. 1,295,482 (19) 8.1% 263,482 10.0%
100 East Pratt Street,
Baltimore, Maryland 21202
3D Systems 2003 Grat -- * 665,000 25.2%
Lisa P. Selz Trustee
c/o Bernard Setz
ING Furman Selz
230 Park Ave.
New York, NY 10169
Directors and officers as a 4,527,872 (20) 30.2% 1,081,116 41.0%
group (10 persons)
20
* Less than one percent.
-----------
(1) Under Rule 13d-3, certain shares may be deemed to be beneficially owned
by more than one person (if, for example, persons share the power to
vote or the power to dispose of the shares). In addition, shares are
deemed to be beneficially owned by a person if the person has the right
to acquire the shares (for example, upon exercise of an option) within
60 days of the date as of which the information is provided. In
computing the percentage ownership of any person, the amount of shares
outstanding is deemed to include the amount of shares beneficially owned
by the person (and only the person) by reason of these acquisition
rights. As a result, the percentage of outstanding shares of any person
as shown in this table does not necessarily reflect the person's actual
ownership or voting power with respect to the number of shares of our
Common Stock actually outstanding at June 13, 2003.
(2) Consists of shares of our Common Stock reserved for issuance upon
exercise of stock options which are or will become exercisable on or
prior to August 13, 2003.
(3) Includes (a) 409,344 shares of our common stock held in the Charles
William Hull and Charlene Antoinette Hull 1992 Revocable Living Trust
for which Mr. and Mrs. Hull serve as trustees, (b) 80,000 shares of our
common stock reserved for issuance upon exercise of stock options which
are or will become exercisable on or prior to August 13, 2003 and (c)
8,333 shares issuable upon conversion of our Series B Convertible
Preferred Stock.
(4) Includes (a) 47,499 shares of our common stock reserved for issuance
upon exercise of stock options which are or will become exercisable on
or prior to August 13, 2003, (b) 29,167 shares issuable on conversion of
convertible debentures (8,333 of which relate to debentures owned by a
trust for the benefit of Mr. Kever's minor children, with respect to
which Mr. Kever disclaims beneficial ownership) and (c) 1,000 shares of
our common stock held in trust for the benefit of Mr. Kever's minor
children, with respect to which Mr. Kever disclaims beneficial
ownership.
(5) Includes (a) 45,000 shares held in the name of Lillian Shaw Loewenbaum
Trust, Mr. Loewenbaum's wife, (b) 54,498 shares held in the name of the
Loewenbaum 1992 Trust for which Mr. and Mrs. Loewenbaum serve as
trustees, (c) 150,000 shares held in the name of the Guaranty & Trust Co
ttee fbo G. Walter Loewenbaum, Mr. Loewenbaum's pension plan, (d) 72,065
shares held in the name of The Waterproof Partnership LTD for which Mr.
and Mrs. Loewenbaum serve as the general partners and as certain of the
limited partners, (e) 16,594 shares held in the name of the Anna Willis
Loewenbaum 1992 Trust for which Mr. and Mrs. Loewenbaum serve as
trustees, (f) 16,594 shares held in the name of the Elizabeth Scott
Loewenbaum 1992 Trust for which Mr. and Mrs. Loewenbaum serve as
trustees, (g) 175,000 shares of our Common Stock reserved for issuance
upon exercise of stock options which are or will become exercisable on
or prior to August 13, 2003, (h) 83,333 shares issuable on conversion of
convertible debentures and (i) 208,334 shares issuable upon conversion
of our Series B Convertible Preferred Stock.
(6) Includes (a) 933,272 shares owned by The Clark Estates, Inc. with
respect to which Mr. Moore disclaims beneficial ownership, (b) 833,333
shares issuable upon conversion of our Series B Convertible Preferred
Stock held by Clark Partners I, L.P., with respect to which Mr. Moore
disclaims beneficial ownership, and (c) 20,643 shares of our Common
Stock reserved for issuance upon exercise of stock options which are or
will become exercisable on or prior to August 13, 2003. Mr. Moore is the
President and a director of The Clark Estates, Inc. and the President of
the general partner of Clark Partners I, L.P.
(7) Represents Series B Convertible Preferred Stock held by Clark Partners
I, L.P., with respect to which Mr. Moore disclaims beneficial ownership.
Clark Partners I, L.P. is a limited partnership, the general partner of
which is Ninth Floor Corporation. The Clark Estates, Inc. provides
management and administrative services to Clark Partners I, L.P. The
21
purchase price for the Series B Convertible Preferred Stock was provided
by funds available for investment by accounts for which The Clark
Estates, Inc. provides management and administrative services. Mr. Moore
is the President and a director of The Clark Estates, Inc. and the
President of the general partner of Clark Partners I, L.P.
(8) Includes (a) 350,000 shares of our Common Stock reserved for issuance
upon exercise of stock options that are or will become exercisable on or
prior to August 13, 2003 and (b) 25,000 shares issuable upon conversion
of our Series B Convertible Preferred Stock.
(9) Includes 8,791 shares of our Common Stock reserved for issuance upon
exercise of stock options which are or will become exercisable on or
prior to August 13, 2003.
(10) Mr. Flaharty was reassigned from his position and no longer serves as a
executive officer of the Company effective May 23, 2003.
(11) Includes 185,000 shares of our Common Stock reserved for issuance upon
exercise of stock options which are or will become exercisable on or
prior to August 13, 2003.
(12) Includes (a) 18,750 shares of our Common Stock reserved for issuance
upon exercise of stock options which are or will become exercisable on
or prior to August 13, 2003 and (b) 3,333 shares issuable upon
conversion of our Series B Convertible Preferred Stock.
(13) Includes (a) 29,000 shares of our Common Stock reserved for issuance
upon exercise of stock options which are or will become exercisable on
or prior to August 13, 2003 and (b) 2,833 shares issuable upon
conversion of our Series B Convertible Preferred Stock.
(14) Mr. Selzer's employment with the Company terminated effective April 2003
and his beneficial ownership of shares is subject to the terms and
conditions of his option agreements and the 1996 Stock Incentive Plan
with respect to termination of employment.
(15) Includes 71,250 shares of our Common Stock reserved for issuance upon
exercise of stock options which are or will become exercisable on or
prior to August 13, 2003.
(16) Includes 833,333 shares issuable upon conversion of our Series B
Convertible Preferred Stock held by Clark Partners I, L.P. Clark
Partners I, L.P. is a limited partnership, the general partner of which
is Ninth Floor Corporation. The Clark Estates, Inc. provides management
and administrative services to Clark Partners I, L.P. The purchase price
for the Series B Convertible Preferred Stock was provided by funds
available for investment by accounts for which The Clark Estates, Inc.
provides management and administrative services.
(17) St. Denis J. Villere & Company, which we refer to as Villere in this
Proxy Statement, is a Louisiana partnership in commendam, an investment
advisor registered under the Investment Advisors Act of 1940. As of
December 31, 2001, Villere was deemed to have or share voting or
dispositive power over, and therefore to own beneficially 1,230,114
shares. Of that amount, Villere has sole voting and dispositive power
over 98,833 shares and shared voting and dispositive power over
1,131,281 shares. All information regarding the beneficial ownership of
our securities by Villere is taken exclusively from Amendment No. 1 to
Schedule 13G filed by Villere on February 11, 2003.
(18) Daruma Asset Management, Inc., a New York corporation, which we refer to
as Daruma in this Proxy Statement, is a an investment advisor registered
under the Investment Advisors Act of 1940. These securities are
beneficially owned by one or more investment advisory clients whose
accounts are managed by Daruma. Investment advisory clients of Daruma
have the right to receive dividends, as well as the proceeds, from the
sale of these securities. The investment advisory contracts relating to
these accounts grant to Daruma sole investment and/or voting power over
the securities owned by the accounts. Therefore, Daruma may be deemed to
be the beneficial owner of these securities for purposes of Rule 13d-3
under the Securities Act of 1934, as amended. Mariko O. Gordon owns in
excess of 50% of the outstanding voting stock and is the president of
Daruma. Ms. Gordon may be deemed to be the beneficial owner of
securities held by persons and entities advised by Daruma for purposes
of Rule 13d-3. Daruma and Ms. Gordon each disclaims beneficial ownership
in any of these securities. Daruma and Ms. Gordon are of the view that
they are not acting as a "group" for purposes of Section 13(d) under the
Securities Act of 1934 and that they are not otherwise required to
attribute to each other the "beneficial ownership" of securities held by
any of them or by any persons or entities advised by Daruma. All
information regarding the beneficial ownership of our
22
securities by Daruma is taken exclusively from Amendment No. 4 to
Schedule 13G filed by Daruma on February 18, 2003.
(19) Includes 263,482 shares issuable upon conversion of our Series B
Convertible Preferred Stock. T. Rowe Price Associates, Inc., which we
refer to as T. Rowe Price in this Proxy Statement, is a Maryland
corporation, an investment advisor registered under the Investment
Advisors Act of 1940, and T. Rowe Price Small-Cap Value Fund, Inc. is a
Maryland corporation. As of February 14, 2003, T. Rowe Price was deemed
to have sole voting or dispositive power over, and therefore to own
beneficially, 1,032,000 shares of our Common Stock. All information
regarding the beneficial ownership of our securities by T. Rowe Price,
other than ownership of our Series B Convertible Preferred Stock, is
taken exclusively from a Schedule 13G filed by T. Rowe Price on February
5, 2003.
(20) Includes (a) 1,040,099 shares of our Common Stock reserved for issuance
upon exercise of stock options that are or will become exercisable on or
prior to August 13, 2003, (b) 112,500 shares issuable upon conversion of
convertible debentures and (c) 1,081,116 shares issuable upon conversion
of our Series B Convertible Preferred Stock.
The information as to shares beneficially owned has been individually furnished
by the respective directors, Named Executive Officers, and other stockholders of
the Company, or taken from documents filed with the SEC.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers, directors, and persons who own more than ten percent of a
registered class of the Company's equity securities to file reports of ownership
and changes in ownership with the SEC. Executive officers, directors and
greater-than-ten percent stockholders are required by SEC regulations to furnish
the Company with all Section 16(a) forms they file. Based solely on its review
of the copies of the forms received by it and written representations from
certain reporting persons that they have complied with the relevant filing
requirements, the Company believes that, during the year ended December 31,
2002, all of the Company's executive officers, directors and greater-than-ten
percent stockholders complied with all Section 16(a) filing requirements,
except, Brian K. Service filed a Form 5, which reported one transaction on an
untimely basis.
STOCKHOLDER PROPOSALS
Any stockholder who intends to present a proposal at the 2004 Annual Meeting of
Stockholders for inclusion in the Company's Proxy Statement and Proxy form
relating to the 2004 Annual Meeting must submit the proposal to the Company at
its principal executive offices by December 14, 2004.
If a stockholder, rather than including a proposal in the proxy statement as
discussed above, commences a proxy solicitation for the 2004 Annual Meeting of
Stockholders, the Company must receive notice of the proposal that is the
subject of the solicitation on or before February 26, 2004. If the notice is not
received on or before February 26, 2004, it will be considered untimely and the
Company will have discretionary voting authority under proxies solicited for the
2004 Annual Meeting of Stockholders with respect to the proposal, if presented
at the meeting.
SOLICITATION OF PROXIES
It is expected that the solicitation of Proxies will be by mail. The cost of
solicitation by management will be borne by the Company. The Company will
reimburse brokerage firms and other persons representing beneficial owners of
shares for their reasonable disbursements in forwarding solicitation material to
the beneficial owners. Proxies may also be solicited by certain of the Company's
directors and officers, without additional compensation, personally or by mail,
telephone, telegram or otherwise.
23
ANNUAL REPORT ON FORM 10-K
THE COMPANY'S ANNUAL REPORT ON FORM 10-K, WHICH HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION FOR THE YEAR ENDED DECEMBER 31, 2002, WILL BE
MADE AVAILABLE TO STOCKHOLDERS WITHOUT CHARGE UPON WRITTEN REQUEST TO INVESTOR
RELATIONS, 3D SYSTEMS, 26081 AVENUE HALL, VALENCIA, CALIFORNIA 91355.
ON BEHALF OF THE BOARD OF DIRECTORS
/s/ Keith Kosco
--------------------------------------------
Keith Kosco
GENERAL COUNSEL AND CORPORATE SECRETARY
26081 Avenue Hall
Valencia, California 91355
July 24, 2003
24
APPENDIX A
3D SYSTEMS CORPORATION
AUDIT COMMITTEE CHARTER
The Audit Committee is a committee of the Board of Directors of 3D Systems
Corporation established pursuant to Article 3, Section (xiii) of the Company's
Bylaws. The Audit Committee's primary function is to assist the Board of
Directors in fulfilling its oversight responsibilities by reviewing (i) the
financial information which will be provided to the Company's shareholders and
others, (ii) in consultation with the independent auditors, the integrity of the
Company's systems of internal controls, and (iii) the audit process, and to have
other powers and perform other duties as the Board of Directors may from time to
time delegate to it in accordance with Article 3, Section (xiii) of the Bylaws
of the Company.
In meeting its responsibilities, the Audit Committee is expected to:
1. Provide an open avenue of communication between the independent auditors
and the Board of Directors.
2. Be solely responsible for the appointment, compensation, retention (and
termination), and oversight of the work of the independent auditors
(including resolving disagreements between management and the independent
auditors). The independent auditors shall report directly to the Audit
Committee.
3. Confirm the independence of the independent auditors, including:
(a) Approval in advance of all audit and permitted non-audit services
which may be provided by the independent auditors, together with any
related fees, in order to ensure that the independent auditors do not
perform for the Company any services that are prohibited by law or
regulation;
(b) Receipt from the independent auditors of a formal written statement
delineating all relationships between the independent auditors and the
Company;
(c) Ensuring the rotation of independent auditors or independent audit
personnel, to the extent required by law or regulation;
(d) Reviewing the performance of services by an independent audit firm
when a former employee of that firm currently serves as chief
executive officer, chief financial officer, chief accounting officer,
or equivalent officer of the Company; and
(e) Establishment and review of hiring policies for employees and former
employees of independent auditors.
4. Inquire of management, the chief financial officer, and the independent
auditors about significant risks or exposures and assess the steps
management has taken to minimize those risks to the Company.
5. Establish systems of reporting by each of management and the independent
auditors regarding any significant judgments made in management's
preparation of the financial statements and the view of each as to the
appropriateness of those judgments.
6. Inquire as to the independent auditors' views about management's choices of
accounting principles from the perspective of income, asset, and liability
recognition, and whether those principles are common practices or are
minority practices.
1
7. Determine, with regard to significant new transactions or events, the
independent auditors' reasoning for the appropriateness of the accounting
principles and disclosure practices adopted by management.
8. Consider and review with the independent auditors and the chief financial
officer, and obtain at least annually, a written statement from the
independent auditors regarding:
(a) The adequacy of the Company's internal financial and disclosure
controls, including computerized information system controls and
security;
(b) Any related significant findings and recommendations of the
independent auditors, including the status of previous audit
recommendations, together with management's responses to those
recommendations; and
(c) Major changes to the Company's accounting principles and practices as
suggested by the independent auditors or management.
9. Consider, in consultation with the independent auditors, the audit scope,
plan, and coordination, including completeness of coverage, reduction of
redundant efforts, and effective use of audit resources.
10. Review with management, the chief financial officer, and the independent
auditors at the completion of the annual examination:
(a) The Company's annual financial statements and related footnotes, and
any reports or other financial information submitted to any
governmental body or the public;
(b) The independent auditors' audit of the financial statements and their
report regarding those financial statements;
(c) Any significant changes required in the independent auditors' audit
plan;
(d) Any difficulties encountered in the course of the audit, including
any serious difficulties or disputes with management, restrictions on
the scope of activities, or access to required information; and
(e) Other matters related to the conduct of the audit that are to be
communicated to the Audit Committee under generally accepted auditing
standards.
11. Review with management and the independent auditors (i) the quarterly
financial results prior to the release of earnings and (ii) the quarterly
financial statements prior to their filing.
12. Review with the general counsel at least annually any legal matters that
could have a potential impact on the Company's financial statements.
13. Review with the general counsel or appropriate officer regulatory matters
that may have a material impact on the financial statements.
14. Meet with the independent auditors and management in separate executive
sessions to discuss any matters that the Audit Committee or these groups
believe should be discussed privately with the Audit Committee.
15. Resolve any disputes existing between the Company's management and the
independent auditors.
2
16. Establish, and annually review compliance with, the Company's Ethics Policy
(including a procedure for the receipt, retention, and treatment of
complaints regarding accounting, internal accounting controls, or auditing
matters, which will incorporate procedures for the confidential, anonymous
submission by employees of concerns regarding questionable accounting or
auditing matters). To the extent required by applicable laws or
regulations:
(a) The Ethics Policy will be applicable to senior financial officers of
the Company, including its principal financial officer, its controller
or principal accounting officer, and to persons performing similar
functions;
(b) The Company will immediately disclose, by means of the filing of an
applicable reporting form, or dissemination by the Internet pursuant
to applicable rules and regulations, any waiver of or change in the
Ethics Policy for those senior officers; and
(c) The Company's Ethics Policy will include standards as are reasonably
necessary to promote: (1) honest and ethical conduct, including the
ethical handling of actual or apparent conflicts of interest between
personal and professional relationships; (2) full, fair, accurate,
timely, and understandable disclosure in the periodic reports required
to be filed by the Company; and (3) compliance with applicable
governmental laws and regulations.
In addition, the Audit Committee will:
17. Meet as often and at such times and places (or telephonically) as
determined by the Audit Committee. Any member of the Audit Committee may
call a meeting. The Audit Committee may ask members of management or
others to attend the meeting and provide pertinent information as
necessary. If practicable, a written agenda will be prepared for each
meeting and distributed to Audit Committee members prior to the meeting,
together with any appropriate background materials. After each meeting,
minutes will be prepared recording the deliberations of the Audit
Committee.
18. Report Audit Committee actions to the Board of Directors with
recommendations as the Audit Committee may deem appropriate.
19. Prepare letters and reports as may be necessary or desirable for inclusion
in the annual report, proxy statement, and other reports and filings by the
Company, which describe the Audit Committee's composition and
responsibilities, and how they were discharged. In the Audit Committee
report for inclusion in the Company's proxy statement, the Audit Committee
will state whether it has: (i) reviewed and discussed the audited financial
statements with management; (ii) discussed with the independent auditors
the matters required to be discussed by Statement on Auditing Standards No.
61, as that statement may be modified or supplemented from time to time;
(iii) received from the independent auditors the written disclosures and
the letter required by Independence Standard Board Standard No. 1, as that
standard may be modified or supplemented from time to time, and has
discussed with the independent auditors their independence; and (iv) based
on the review and discussions referred to in clauses (i), (ii), and (iii)
above, recommended to the Board of Directors that the audited financial
statements be included in the Company's Annual Report on Form 10-K for the
last fiscal year for filing with the Securities and Exchange Commission.
20. Annually conduct an evaluation of its own performance and, in light of this
evaluation, consider changes in its membership, charter, or procedures. The
Audit Committee shall report to the Board of Directors the results of its
evaluation, including recommended charter, membership, and other changes.
21. Review and update this Charter periodically as conditions dictate, but no
less frequently than annually.
3
22. Have the power to (i) conduct or authorize investigations into any matters
within the Audit Committee's scope of responsibilities and (ii) retain
independent counsel, accountants, or other advisors to assist it in the
conduct of any investigation. The Board of Directors will ensure that the
Audit Committee receives all funding necessary to undertake any
investigations and perform all of its other duties and obligations under
this Charter.
23. Perform other functions as assigned by law, the Company's Certificate of
Incorporation or Bylaws, or the Board of Directors.
The membership of the Audit Committee will consist of at least three members of
the Board of Directors (including a Chairperson), who must meet the standards
for independence and financial and/or accounting expertise established under the
rules and regulations of the Securities and Exchange Commission, The Nasdaq
Stock Market, and other legal and regulatory requirements as may be applicable.
At least one member must fulfill the qualifications of a "financial expert," as
defined by the rules and regulations of the Securities and Exchange Commission
or The Nasdaq Stock Market. The members will serve at the pleasure of the Board
of Directors. The full Board of Directors will designate the Audit Committee
members and determine which member will serve as Chairperson on an annual basis.
An Audit Committee member (including the Chairperson) may be removed at any
time, with or without cause, by the Board of Directors. The Board of Directors
may designate one or more independent directors as alternate members of the
Audit Committee, who may replace any absent or disqualified member or members at
any meetings of the Committee. No person may be made a member of the Committee
if his or her service on the Audit Committee would violate any restriction on
service imposed by any rule or regulation of the Securities and Exchange
Commission or The Nasdaq Stock Market. The duties and responsibilities of the
members of the Audit Committee are in addition to those duties set forth for the
members of the Board of Directors. This Charter will be made available on the
Company's website.
4
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
The undersigned, a stockholder of 3D SYSTEMS CORPORATION, a Delaware
corporation (the "COMPANY"), hereby appoints Brian K. Service and Keith Kosco,
and each of them, as the proxies of the undersigned, with full power of
substitution, to attend, vote and act for the undersigned at the Annual Meeting
of Stockholders of the Company, to be held on August 26, 2003, and any
postponements or adjournments thereof, and in connection herewith, to vote and
represent all of the shares of the Company which the undersigned would be
entitled to vote, as follows:
The Board of Directors recommends a WITH vote on Proposal 1 and a FOR vote on
Proposal 2.
1. ELECTION OF CLASS I DIRECTORS, as provided in the Company's Proxy Statement:
___ WITH ___ WITHOUT Authority to vote for the nominees listed below.
(INSTRUCTIONS: TO WITHHOLD AUTHORITY FOR THE NOMINEES, LINE THROUGH OR
OTHERWISE STRIKE OUT NAMES BELOW)
Richard C. Spalding Jim D. Kever G. Walter Loewenbaum II
2. To consider and vote upon a proposal to ratify the appointment of BDO
Seidman, LLP as our independent auditors for the fiscal year ending December 31,
2003.
FOR ______ AGAINST _______ ABSTAIN ________
The undersigned hereby revokes any other proxy to vote at such Meeting, and
hereby ratifies and confirms all that said proxy may lawfully do by virtue
hereof. WITH RESPECT TO SUCH OTHER BUSINESS THAT MAY PROPERLY COME BEFORE THE
MEETING AND ANY POSTPONEMENTS OR ADJOURNMENTS THEREOF, SAID PROXY IS AUTHORIZED
TO VOTE IN ACCORDANCE WITH ITS BEST JUDGMENT.
This Proxy will be voted in accordance with the instructions set forth
above. THIS PROXY WILL BE TREATED AS A GRANT OF AUTHORITY TO VOTE FOR THE
ELECTION OF THE CLASS I DIRECTORS NAMED, RATIFICATION OF THE APPOINTMENT OF BDO
SEIDMAN, LLP AS OUR INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 31,
2003, AND AS SAID PROXY SHALL DEEM ADVISABLE ON SUCH OTHER BUSINESS AS MAY COME
BEFORE THE MEETING, UNLESS OTHERWISE DIRECTED.
The undersigned acknowledges receipt of a copy of the Notice of Annual
Meeting and accompanying Proxy Statement dated July 24, 2003 relating to the
Meeting.
________________________________________ No. Shares _____________
________________________________________ Date: __________________, 2003
Signature(s) of Stockholder(s)
(See Instructions Below)
The signature(s) hereon should correspond exactly with the name(s) of the
stockholder(s) appearing on the Stock Certificate. If stock is jointly held, all
joint owners should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If signer is a corporation,
please sign the full corporation name, and give title of signing officer.
THIS PROXY IS SOLICITED BY
THE BOARD OF DIRECTORS OF 3D SYSTEMS CORPORATION