Technical Services and Sublease Agreement - E. Khashoggi Industries LLC and EarthShell Container Corp.
AMENDED AND RESTATED
TECHNICAL SERVICES AND SUBLEASE AGREEMENT
This Amended and Restated Technical Services and Sublease Agreement
(the "Agreement") is made and entered into as of October 1, 1997 (the "Effective
Date"), by and between E. Khashoggi Industries, LLC, a Delaware limited
liability company ("EKI"), and EarthShell Container Corporation, a Delaware
corporation (the "Company"), with reference to the following facts:
RECITALS
A. EKI is the owner of certain technology utilizing biodegradable
materials, including starch based additives, for the packaging, portioning and
disposing of food service disposables. EKI is also the owner of technology
related to hydraulically bonded compositions and the methods of using and
manufacturing such compositions.
B. EKI is the successor by merger to the assets and liabilities of
E. Khashoggi Industries, a California general partnership ("EKI Predecessor"),
as well as all rights and obligations of EKI Predecessor under its contractual
agreements.
C. Pursuant to that certain Amended and Restated License Agreement
dated as of February 28, 1995 (the "License Agreement"), between EKI
Predecessor and the Company, EKI has licensed to the Company the exclusive right
to make, use, sell and otherwise commercialize Food Service Disposables which
incorporate, in whole or in part, the Technology and to utilize the Technology
to make, use, sell and otherwise commercialize ALI-ITE Paper for conversion into
Food Service Disposables (all capitalized terms used herein but not otherwise
defined shall have the meanings ascribed to such terms in the License
Agreement).
D. In order to manufacture, use, sell, sublicense and otherwise
commercialize Food Service Disposables that employ or utilize the Technology,
the Company may require services of certain technical and scientific personnel
employed or otherwise retained by EKI.
E. EKI and the Company have previously entered into a Management,
Administrative Services and Professional Services Agreement, dated September 1,
1993 (the "Management Agreement"), pursuant to which EKI provided to the Company
technical services and assistance, including consultation, design formulation,
laboratory research and product development, and certain other services.
Pursuant to the Management Agreement, EKI also subleased to the Company office
space and performed certain related office services.
F. The Management Agreement was terminated and superseded in its
entirety by a Technical Services and Sublease Agreement that was entered into
between EKI and the Company, effective July 1, 1994 (the "Prior Technical
Services Agreement").
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G. The Prior Technical Services Agreement was originally scheduled
to terminate on June 30, 1997, but was subsequently extended by the parties
through September 30,1997.
H. The Company intends to change its name to "EarthShell
Corporation."
I. EKI and the Company desire to amend and restate the Prior
Technical Services Agreement on the terms, conditions and covenants contained
herein.
AGREEMENT
NOW, THEREFORE, in consideration of the premises, the terms and
conditions contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
1. TECHNICAL SERVICES.
1.1 PROVISION OF TECHNICAL SERVICES.
(a) EKI agrees to provide to the Company during the term of this
Agreement such technical assistance relating to the Technology, and the
Company's and its sublicensees' use thereof, as the Company may request,
including consultation, design formulation, product development, and research
related to compositions capable of use in Food Service Disposables, methods of
using compositions as Food Service Disposables, and methods of manufacturing
Food Service Disposables (collectively, the "Technical Services"). The
Technical Services will be provided at such locations as the Company may from
time to time designate; provided, however, that EKI shall be entitled to travel,
meal and lodging expense reimbursement pursuant to Section 1.3 hereof with
respect to EKI technical and scientific personnel who are required to render
Technical Services at locations that require an overnight stay or that are
otherwise sufficiently distant from the personnel's home base to warrant expense
reimbursement under the Company's guidelines. The Technical Services shall be
provided by such EKI employees, advisors and consultants as the Company shall
request, provided that if the Company does not request the services of any
specific EKI employees, advisors or consultants, EKI shall use its good faith
judgment to efficiently assign its personnel to complete such Technical
Services.
(b) As long as this Agreement is in force, EKI shall provide the
Technical Services to the Company on a priority basis. EKI shall dedicate
its technical and scientific personnel as necessary to satisfy all requests
by the Company for Technical Services when and as reasonably requested, and
shall utilize such personnel for activities not related to Technical Services
requested by the Company only to the extent that it may do so without
compromising the timely delivery of all Technical Services reasonably
requested by the Company. Notwithstanding any provision of this agreement to
the contrary, if EKI's current number of technical and scientific personnel
(approximately 22 in number) are devoting substantially all of their regular
working hours to Company projects, EKI shall not be obligated to employ
additional technical and scientific personnel, nor shall it be required to
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have its personnel work overtime hours. EKI, however, shall use commercially
reasonable efforts to timely comply with all Company requests for the provision
of Technical Services through the deployment of its existing personnel or
through the retention of outside technical consultants.
(c) All requests for Technical Services shall be made in a request
form substantially in accordance with the form attached hereto as Exhibit A
(as such form may be modified from time to time), which form (the "Request
Form"), at a minimum, shall contain a brief description of the project and
its intended scope, a list of the deliverables required, the names of any
specific personnel requested to work on the project, and a proposed timeline
and budget estimating the fees and expenses to be incurred with respect to
the project. EKI shall indicate its acceptance of the project by
countersigning the Request Form (as the same may be modified by the Company
to take account of any changes requested by EKI and agreed to by the
Company). EKI will use commercially reasonable efforts to complete the
project within the estimated budget and shall notify the Company once it
reasonably appears that the budget will be exceeded by more than 10%. Upon
such notification, the Company may, at its option, redefine the scope of the
project (including the list of deliverables), terminate the project or adjust
the budget pursuant to a revised Request Form. All Request Forms (and any
modifications thereto) shall be approved by an officer of the Company who is
not affiliated with EKI. The Company shall not be obligated to pay for
Technical Services (or related expenses) that are not so approved by the
Company.
(d) Ownership of any intellectual or proprietary knowledge or
information developed in the course of furnishing the Technical Services
(including any Technical Services improperly classified as discussed in
Section 1.4 below) shall be determined pursuant to the terms of the License
Agreement and any applicable sublicense agreements thereunder.
1.2 SERVICES FEE.
(a) Following the close of each calendar month, EKI shall deliver to
the Company a written report (the "Technical Services Report") identifying the
EKI technical or scientific personnel who provided Technical Services requested
by the Company at any time during the preceding month, the number of hours spent
by each such person providing such services together with a brief description of
the services provided, the hourly billing rate of such personnel as set forth on
Exhibit B attached hereto (the "Billing Rate"), and the total amount due EKI
from the Company with respect to all Technical Services provided by EKI
personnel during such month. The Technical Services Report shall also contain,
or EKI shall otherwise timely provide to the Company, such additional
information as the Company may reasonably request to determine and evaluate the
Technical Services provided by EKI and the amount due EKI hereunder. As payment
for the Technical Services to be provided by EKI, within 30 days following the
date the Technical Services Report is delivered to the Company, the Company
shall pay to EKI a fee (the "Services Fee") computed by multiplying the
applicable Billing Rates set forth on Exhibit B hereto by the number of hours
spent by the EKI technical and scientific personnel providing Technical Services
requested by the Company during the preceding month. The hourly rates charged
by EKI to the Company and the job classifications of EKI's personnel shall be
reviewed by the parties on each anniversary of this
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Agreement and shall be equitably adjusted to take account of any increased
salaries and/or employee benefits paid by EKI to its technical personnel who
render Technical Services to the Company hereunder; provided, however, that no
increase in the hourly rates shall be permitted unless the proposed hourly rates
are in conformity with industry standards as conclusively determined by an
outside, independent technical consulting firm mutually selected by the parties.
(b) The Company shall not be obligated to make payment to EKI for
(i) hours of service provided by EKI personnel other than scientific or
technical personnel, (ii) services other than Technical Services requested or
approved by the Company, or (iii) any overhead or other expenses incurred by
EKI, except as provided in Section 1.3. To the extent EKI and the Company share
common officers and/or employees, all Technical Services provided by such
persons shall be performed in their capacity as officers or employees of the
Company and EKI shall not be entitled to any Services Fee with respect to such
services.
1.3 EXPENSE REIMBURSEMENT. In addition to the Services Fee to be paid by
the Company to EKI pursuant to Section 1.2, the Company, in accordance with the
guidelines set forth in Exhibit C hereto and the budget set forth in the
applicable Request Form, shall reimburse EKI for all direct, out-of-pocket
expenses incurred by EKI and paid to third parties specifically in connection
with the provision of Technical Services to the Company. Such out-of-pocket
expenses paid to third parties in connection with the provision of Technical
Services shall not include overhead expenses of EKI (such as general office
expenses of EKI), and any expenses not specifically allocable to a Company
project or any other similar expenses. EKI shall provide the Company with such
receipts, invoices, other evidence of out-of-pocket expenses incurred and
additional information as the Company may reasonably request in connection with
the expense reimbursement provided for hereunder. Upon the submission of such
documentation, the Company shall promptly reimburse EKI for the items to which
EKI is entitled to reimbursement hereunder; provided, however, that in no event
shall the Company be required to reimburse such expenses more frequently than
monthly.
1.4 THIRD-PARTY REVIEW. The Company, at its expense, shall have the
right, upon reasonable advance notice and during normal business hours, to
review and audit the records of EKI that pertain to the Technical Services
provided to the Company, and any fees or expenses related thereto that have been
invoiced to the Company. Such review or audit may be performed by Company
personnel or by outside professionals retained by the Company for such purposes
(provided such outside professionals are subject to appropriate confidentiality
obligations reasonably acceptable to EKI). In the event of any dispute between
the parties hereto regarding whether EKI is entitled to payment hereunder or the
amount thereof for any services rendered or expenses incurred, the Company shall
promptly remit to EKI the undisputed amount and the remaining disputed amount
shall be submitted for decision to a nationally recognized accounting firm
mutually agreeable to the parties (but which shall not then be engaged as the
independent auditors of either the Company or EKI), whose decision shall be
final and shall be binding upon the parties. In making such decision, the
accounting firm shall take into account any other information that it may deem
relevant or appropriate. In the event that such accounting firm is unable to
reach a decision with respect to any disputed matter within sixty days of the
date such matter is submitted, such matter shall be resolved by
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binding arbitration pursuant to Section 7.8. In the event that any
previously rendered services or previously incurred expenses are determined
to have been improperly classified (whether pursuant to this Agreement, the
Technical Services Agreement or the Management Agreement), EKI shall promptly
reimburse the Company for the costs of such services or expenses, with
interest computed at the prime rate, as published in the Wall Street Journal
(the "Prime Rate"), as adjusted at the end of each fiscal quarter, from the
date the improperly classified payment was made until the date of repayment.
Such reimbursement shall be the sole remedy for such improper classification.
If it is determined that the amount in dispute (or any portion thereof) was
properly charged by EKI to the Company, the Company shall promptly reimburse
EKI for the amount determined to have been properly charged, with interest
computed at the Prime Rate, as adjusted at the end of each fiscal quarter,
from the day the invoice in question was delivered. The fees and expenses of
any accounting firm resolving a dispute under this Section 1.4 shall be borne
equally by the parties.
1.5 LATE PAYMENTS. Any amount payable to EKI hereunder which is not
disputed in good faith pursuant to Section 1.4 and which is not paid within
30 days following the date the invoice is submitted shall bear interest at
the Prime Rate, adjusted at the end of each fiscal quarter, commencing on the
day the invoice is submitted. Under no circumstance shall EKI be obligated
to perform any service for the Company or to incur any cost on the Company's
behalf, if the Company is in material default with respect to the payment of
any undisputed amounts hereunder. The Company shall not be considered in
default under this Agreement if, pursuant to Section 1.4, it disputes an
amount charged to it by EKI.
2. EQUIPMENT.
2.1 PURCHASE OF EQUIPMENT. During the term of this Agreement, the Company
shall bear the cost of, or shall reimburse EKI for the cost of, the purchase or
lease of any machinery or equipment (and related components) that is necessary
for and will be used primarily in connection with Technical Services performed
with respect to Company projects; provided, however, that the purchase or lease
of any such machinery or equipment (and related components) must be approved by
the Company. Any machinery or equipment (and related components) the cost of
which is borne by the Company shall be the sole and exclusive property of the
Company. The cost of any equipment or machinery (and related components) used
by EKI primarily for its own general use, or which is purchased or leased
without the approval of the Company, shall not be paid for or reimbursed by the
Company. Unless approved by the Company, EKI may not utilize the Company's
equipment or machinery in any significant manner for projects unrelated to the
Company.
2.2 RIGHT OF FIRST OFFER. Prior to consummating the sale of machinery or
equipment owned by a party (the "Owner"), whether existing as of the date of
this Agreement or subsequently acquired, the Owner shall first offer the other
party hereto (the "Non-Owner") the opportunity to purchase such machinery or
equipment for a price equal to the greater of (a) the then current book value of
such machinery or equipment as shown in the financial records of the Owner
(determined in accordance with generally accepted accounting principles),
(b) the principal amount of all indebtedness to which such machinery and
equipment is then subject, or (c) the price offered by any third party for such
machinery and
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equipment to the extent such offer is bona fide (it being understood that the
Owner shall not be obligated to offer such machinery and equipment for sale to
third parties if the price likely to be obtained would not be materially higher
than the greater of the prices set forth in clauses (a) and (b)). The Owner's
offer shall be made in writing and shall be delivered in the manner provided in
Section 7.5. Upon receipt of such notice, the Non-Owner shall respond in
writing within five (5) business days thereafter if it desires to exercise such
right of first refusal. In the event that Non-Owner shall elect to purchase the
machinery or equipment, such purchase shall be completed within thirty (30) days
of Non-Owner's election to make such purchase. The consideration payable for
the machinery or equipment purchased by the Non-Owner hereunder shall be made in
cash or in such other form as the Owner shall in its sole discretion allow. The
Non-Owner shall pay any sales taxes or other transfer costs associated with such
purchase.
3. OFFICE SUBLEASE.
3.1 SUBLEASE OF OFFICE SPACE. EKI hereby subleases to the Company, and
the Company hereby subleases from EKI, the area the Company is presently
occupying at EKI's headquarters located at 800 Miramonte Drive, Santa Barbara,
California, comprising approximately 1,600 square feet (the "Subleased
Premises"). EKI shall also provide janitorial services with respect to the
Subleased Premises and shall provide the Company with reasonable use of EKI's
receptionist and EKI's conference rooms. EKI represents and warrants to the
Company that it has full right, authority and power to sublease the Subleased
Premises to the Company. The sublease created hereby shall not be a triple net
lease and EKI shall be responsible for the cost of all property taxes and
property and casualty insurance with respect to the Subleased Premises. The
Company shall be responsible for the maintenance of, and improvements to, the
Subleased Premises, provided any such maintenance or improvement projects are
approved in advance by the Company.
3.2 SUBLEASE PAYMENTS. As consideration for the sublease by EKI to the
Company of the Subleased Premises and the provision by EKI of the related
services described above, the Company shall pay to EKI, on a monthly basis, the
sum of $5,600 no later than the 10th day of each calendar month during the term
of the sublease.
3.3 TERM. The term of the sublease of the Subleased Premises expires on
March 31, 2001; PROVIDED, HOWEVER, that the Company may terminate such sublease
at any time by giving thirty days' prior written notice to EKI. In the event
that the Company remains in the Subleased Premises upon the expiration or
earlier termination of the term of the sublease and EKI thereafter accepts rent
from the Company, the Company's occupancy of the property shall be a
"month-to-month" tenancy on the terms and conditions set forth in Sections 3.1
and 3.2.
4. REGISTRATION RIGHTS. In connection with the execution of the Prior
Technical Services Agreement, EKI and the Company entered into that certain
Registration Rights Agreement granting certain registration rights to EKI with
respect to the shares of the Common Stock of the Company issued to EKI. Such
Registration Rights Agreement remains
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in full force and effect on the date hereof and shall not be modified in any
respect by this Agreement.
5. CONFIDENTIALITY. Each of the parties hereto shall, and shall use
commercially reasonable efforts to cause their respective employees and agents
to, keep confidential and not, without the prior written consent of the other
party hereto, disclose to any person (other than sublicensees of the
Technology), any of the confidential information or trade secrets communicated
in the course of the performance and receipt of the Technical Services, except
as may be required to be disclosed by applicable law. For purposes of this
Agreement, the term "confidential information or trade secrets" of a party
hereto shall include all information of a confidential or proprietary nature in
any form owned by such party during the term of this Agreement, including, but
not limited to, patents and patent applications; inventions and improvements,
whether patentable or not; development projects; designs, practices, processes,
methods, know-how and other facts relating to the business of such party; and
all other trade secrets and information of a confidential and proprietary
nature. "Confidential information" shall not include, however (i) any
information that is or shall become generally known in the trade through no
fault of the recipient party and (ii) any information acquired from a third
party who in turn lawfully acquired such information with the right to divulge
it.
6. TERM. This Agreement shall continue in effect until December 31, 2002 (the
"Termination Date"), except that (i) the sublease of the Subleased Premises may
terminate earlier in accordance with Section 3.3. and (ii) the obligations of
the parties set forth in Sections 4, 5 and 7 hereof shall survive the
termination of this Agreement.
7. MISCELLANEOUS PROVISIONS.
7.1 No Agency. This Agreement shall not be construed to constitute any
party as an agent or legal representative of any other party. The relationship
created hereunder shall be one of vendor and vendee and no party shall be
considered a partner or co-venturer of the other party solely by reason of their
relationship under this Agreement.
7.2 SEVERABILITY. If any provision of this Agreement is determined by a
competent authority to be illegal or invalid, the provision will be
automatically severed from this Agreement. Any such holding will not affect the
legality or validity of the remaining provisions of this Agreement.
7.3 WAIVER. If any party fails to give notice or enforce any right under
this Agreement, such failure shall not constitute a waiver of the same, unless
reduced to writing and signed by the waiving party. If a party waives its
rights in writing, such waiver shall not constitute a waiver of any other right
or of a subsequent violation of the same right the violation of which had been
previously waived.
7.4 ASSIGNMENT. The parties may not assign, pledge, or otherwise transfer
this Agreement or any right or obligation hereunder without the prior written
consent of the other party; PROVIDED, HOWEVER, that either party shall be
permitted to assign, without the consent of the other party, all, but not less
than all, of its rights, duties and obligations under this
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Agreement in connection with the sale of all or substantially all of its entire
business, whether by merger, consolidation, sale of stock, sale of all or
substantially all assets or otherwise. This Agreement shall bind the successors
and assigns of the parties.
7.5 NOTICES. All notices and other communications provided for or
permitted hereunder shall be given in writing and shall be made by hand
delivery, first-class mail (registered or certified, return receipt requested),
telecopier, or overnight courier guarantying next-day delivery, addressed as
follows:
E. Khashoggi Industries, LLC
800 Miramonte Drive
Santa Barbara, California 93109
Attn: Chief Financial Officer
Facsimile No.: (805) 897-2298
EarthShell Corporation
800 Miramonte Drive
Santa Barbara, California 93109
Attn: Chief Financial Officer
Facsimile No.: (805) 899-3517
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five (5)
business days after being deposited in the mail, postage prepaid, if mailed;
when receipt is acknowledged, if telecopied; and the next business day after
timely delivery to the courier, if sent by overnight courier guarantying next-
day delivery.
7.6 AMENDMENT. This Agreement may be amended only by the consent of each
of the parties expressed in writing, signed by their duly authorized
representatives. Any such amendment must be approved by the Conflicts Committee
of the Company's Board of Directors.
7.7 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties regarding the subject matter hereof, and supersedes all
prior discussions or agreements related to the same, including, without
limitation, the Prior Technical Services Agreement (except as provided in
Section 4 hereof).
7.8 Dispute Resolution Clause.
(a) Except as provided in Section 1.4, any controversy, claim or
dispute arising out of or relating to this Agreement or the breach, termination,
enforcement, interpretation or validity thereof, including the determination of
the scope or applicability of this agreement to arbitrate ("Dispute"), shall be
determined by arbitration in Santa Barbara, California, in accordance with the
laws of the State of California for agreements made in and to be performed in
California. The arbitration shall be administered by the American
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Arbitration Association ("AAA") pursuant to its Commercial Rules and
Supplementary Procedures for Large, Complex Disputes.
(b) Within fifteen days after the commencement of the arbitration, an
arbitrator shall be selected by the parties (or if they fail to agree, by the
AAA) from the AAA's Intellectual Property Panel of Arbitrators. The arbitrator
shall be neutral and independent and shall comply with the AAA Code of Ethics
for Arbitrators in Commercial Disputes (Canons I - VI).
(c) Judgment on the award made by the arbitrator may be entered in
any court having jurisdiction.
(d) Either party may, without inconsistency with this Agreement, seek
from a court any interim or provisional relief that is necessary to protect the
rights or property of that party, pending the appointment of the arbitrator.
The exclusive forum for such application shall be the Los Angeles Superior Court
or the United States District Court for the Central District of California.
(e) Upon the request of any party, a non-binding mediation shall be
conducted prior to the arbitration pursuant to the Mediation Rules of the AAA.
(f) The arbitrator shall have no authority to award punitive or other
damages not measured by the prevailing party's actual damages and may not, in
any event, make any ruling, finding, or award that does not conform to the terms
and conditions of this Agreement.
(g) The award of the arbitrator shall be in writing and shall specify
the factual and legal basis for the award. The arbitrator shall, in the award,
allocate all of the costs of the arbitration (and the mediation, if applicable),
including the fees of the arbitrator and the reasonable attorneys' fees of the
prevailing party, against the party who did not prevail (applying the principles
set forth in Section 1.4).
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IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by
their duly authorized representatives as of the date set forth herein.
E. KHASHOGGI INDUSTRIES, LLC
a Delaware limited liability company
By: /s/ John Daoud
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John Daoud,
Manager and Chief Financial Officer
EARTHSHELL CONTAINER CORPORATION
By: /s/ D. Scott Houston
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D. Scott Houston,
Chief Financial Officer
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