<PAGE>
 
                                                                   EXHIBIT 10.23
                                IN RE DTM CORP
                             SECURITIES LITIGATION

                          MEMORANDUM OF UNDERSTANDING

  All parties in the class action filed in the District Court for the State of
Texas, Bexar County, under the caption In re DTM Corp. Securities Litigation,
Case No. 97-CI-16633 (the "Action"), have agreed in principle to settle the
Action.  This Memorandum of Understanding sets forth the essential terms and
conditions of that agreement:

  1.  The settlement amount is $3.0 million ("Settlement Amount") and shall be
paid as set forth below.

  2.  This settlement is subject to approval by the Court in the Action and
entry of a final judgment of dismissal with prejudice of the Action.

  3.  The settlement will fully and finally resolve all claims that have been or
that could have been brought against any and all of the Released Parties (as
defined below), including but not limited to: (i) all federal statutory and
common law claims, including but not limited to claims under the Securities Act
of 1933 (the "1933 Act") and the Securities Exchange Act of 1934 (the "1934
Act"); (ii) all state statutory and common law claims, including but not limited
to state securities law claims, claims under the law of fraud and deceit, false
advertising and unfair competition claims, and claims sounding in negligence;
and (iii) all claims that are derivative in nature (the "Settled Claims").  The
term "Settled Claims" as used above and throughout this Memorandum of
Understanding means claims actually made in the Action and all claims that could
have been brought, either in the Action or in another proceeding.  The term
<PAGE>
 
Settled Claims as used herein and throughout this Memorandum of Understanding
also includes unknown claims.  In entering into this settlement, plaintiffs
expressly agree that they are also resolving all unknown claims, if any,
and waive and relinquish to the fullest extent possible any state or federal law
or protection concerning the release of unknown claims.

  4.  As to all Settled Claims, plaintiffs will fully and finally release all
defendants named in the Action, as well as all of defendants' current and former
officers, directors, employees and agents, and all professionals advising
defendants in any capacity, including but not limited to, DTM's underwriters,
accountants, financial advisors, insurers, reinsurers and attorneys (the
"Released Parties").  The release shall include all Released Parties without
regard to whether the Complaint actually names such persons or entities as
defendants or identifies them in any way.  The Stipulation of Settlement,
described below, will contain a form of release acceptable to all parties.

  5.  In exchange for the payment described herein, plaintiffs will release all
claims against all Released Parties.

  6.  In exchange for the settlement and release, DTM shall pay $3.0 million to
the plaintiffs.  Specifically, DTM shall deposit $2.6 million of the Settlement
Amount in cash into an interest bearing escrow account as directed by
plaintiffs' counsel on or before September 1, 1998, but not prior to signing the
Stipulation of Settlement.  Further, on or before 10 days after the scheduled
Final Approval hearing date, DTM shall deliver a number of shares of DTM stock
to plaintiffs' counsel in an amount equal to $400,000 based on the average
trading price of the 15 trading days closing price prior to Final Approval.  If
the cash portion of the settlement amount is not paid into the 

                                       2
<PAGE>
 
plaintiffs' escrow account on or before September 1, 1998, this settlement may,
at the sole option of plaintiffs' counsel, be declared void or plaintiffs'
counsel may require that on any portion of the settlement amount not paid by
that date, interest will accrue at 8% per annum from September 1, 1998, until
that portion of the settlement amount is deposited into escrow.

  7.  The parties will memorialize this settlement in a Stipulation of
Settlement which shall be executed within 30 days of the execution of this
Memorandum of Understanding.  The parties will jointly seek the Court's
preliminary approval of the settlement, approval of notice to the class of the
settlement and certification of a settlement class.  Plaintiffs' counsel shall
submit a first draft of such papers, including a Stipulation of Settlement,
Preliminary Approval Order, Notice of Pendency, Proof of Claim Form, and Order
of Final Approval and Final Judgment of Dismissal, and any other documents
required, to counsel for defendants no later than 15 days from execution of the
Memorandum of Understanding or such later or earlier date as agreed by the
parties.

  8.  The parties will stipulate to certification of a class for the purpose of
the settlement and the class period shall be May 2, 1997 to June 19, 1997,
inclusive.

  9.  The Stipulation of Settlement or a separate supplemental agreement will
contain a customary provision to be negotiated by the parties allowing DTM to
terminate the settlement if class members beneficially owning more than a
specified percentage of the total publicly-traded stock of DTM opt-out of the
settlement.

  10. All costs of class notice and administration of the settlement shall be
paid out of the Settlement Amount maintained in escrow by plaintiffs' counsel.
The 

                                       3
<PAGE>
 
costs of notice and administration shall not be subject to recapture or
repayment by the defendants in the event final approval is not ordered by the
Court (including by reason of DTM terminating the settlement) or if final
approval of the settlement is overturned on appeal.

  11.  The parties agree that the settlement described herein was reached in
good faith following substantial arm's-length negotiations.  While retaining
their right to deny that the claims advanced in the litigation were meritorious,
and with the understanding that the Stipulation of Settlement will contain such
a denial, defendants agree that the litigation was filed in good faith and in
compliance with Rule 13 of the Texas Rules of Civil Procedure ("TRCP") or its
Federal law equivalent.  The final judgment will contain a statement that the
parties agree that, during the course of the litigation, the parties and their
respective counsel at all times complied with the requirements of TRCP Rule 13
and its Federal law equivalent.  The final judgment also will contain a
statement that the relative contributions of the defendants is fair and
reasonable.

  12.  The parties agree to file a joint motion in the Action to obtain complex
designation of the Action for the purposes of obtaining judicial approval and
administration of the Settlement.

  13.  Attorneys' fees and costs awarded to plaintiffs, which shall be paid
solely out of and shall not be in addition to the escrow fund, shall (with the
Court's approval) be paid to plaintiffs' counsel immediately upon award, subject
to the obligation of plaintiffs' counsel to repay any amount they receive for
attorneys' fees and costs in 

                                       4
<PAGE>
 
excess of the amounts finally approved (including the final resolution of any
objection, appeal, remand or collateral attack), plus accrued interest.

  14.  The Settlement is further conditioned upon receiving final judicial
approval of all settlement terms, after notice and a fairness hearing, and a
final judgment of dismissal with prejudice of the Action.  In the event the
parties do not obtain judicial approval, the parties agree that this MOU and the
Stipulation will be void and of no effect; and that nothing in this MOU or the
Stipulation will prejudice any of the parties from asserting any of their
respective claims or defenses in the Action.

  15.  This document may be signed in counterparts and signature pages may be
exchanged among the parties hereto by telecopier.
 
DATED:  AUGUST 4, 1998                     BINGHAM & LEA, P.C.


                                           By:/s/ Royal B. Lee
                                                ------------------
                                                  Royal B. Lea, P.C.
                                             333 Convent Street
                                             San Antonio, TX 78205
                                             (210) 224-1819

DATED:  AUGUST 4, 1998                     MILBERG WEISS BERSHAD HYNES & 
                                           LERACH LLP
 

                                           By: Kirk B. Hulett
                                              --------------------
                                               Kirk B. Hulett
                                               Darren J. Robbins
                                             600 W. Broadway, Suite 1800
                                             San Diego, CA  92101
                                             (619) 231-1058

                                             Attorneys for Plaintiffs

                                       5
<PAGE>
 
DATED:  JULY 21, 1998                      BROBECK, PHLEGER & HARRISON LLP
 

                                           By:/s/ Paul R. Bessette
                                              ------------------------
                                                  Paul R. Bessette
                                                  Kevin P. Muck
                                                  Stephen M. Knaster
                                             Spear Street Tower, One Market
                                             San Francisco, CA 94105
                                             (415) 442-0900

                                           Attorneys for Defendants DTM Corp.,
                                           Lee Tobler, John Murchison, III,
                                           Marshall Larsen and Steven Rolls

                                       6